British American Tobacco (LSE: BATS) shares are popular among UK income investors and it’s easy to see why. This is a well-established, defensive FTSE 100 company that has been paying out dividends for decades, and its yield is quite attractive.
Here, I’m going to look at the British American Tobacco dividend forecast for 2022 and 2023. I’ll also discuss whether I’d buy the stock for income today.
BATS dividend forecast for 2022 and 2023
Before I reveal the forecasts for this year and next, it’s worth looking at how much the company paid out in dividends in 2021. This will help put the forecasts in context.
Last year, the tobacco company paid out four quarterly dividends of 54.45p per share. So the total dividend paid was 217.8p per share. At the current share price, that equates to a yield of around 6.7%.
As for the forecasts going forward, analysts currently expect the group to pay out 232p per share for 2022 and 251p per share for 2023. So the payouts are expected to be higher than in 2021. At the current share price, these estimates equate to yields of around 7.2% and 7.7%.
These yields are certainly attractive. It’s often said that shares generally return 7-10% over the long run. However, in this case, BATS is potentially generating that kind of return for investors on dividends alone.
It’s worth noting that, as well as paying big dividends, British American Tobacco has also been buying back its own shares. Early this year, the board approved a £2bn share repurchase for 2022. Buybacks are essentially another form of returns for shareholders. Over time, they can increase earnings per share.
Would I buy the stock for income?
So would I buy British American Tobacco shares for income today? The answer to that is actually no. I can certainly see some appeal in the stock. Looking beyond the big dividends on offer, I like the company’s ‘defensive’ attributes. In economic downturns, smokers tend to keep smoking.
I also like the valuation here. Currently, BATS has a forward-looking price-to-earnings (P/E) ratio of just nine. That’s well below the average FTSE 100 P/E ratio.
However, as a long-term investor, I’m concerned about growth in the long run. All over the world, governments are making life difficult for tobacco companies by introducing new regulations designed to stop smoking, and I expect the situation to become more focused in the years ahead. This could put pressure on the company’s profits, dividends, and share price.
Another concern for me is the increasing focus on ESG (environment, social and governance) in the investment world. With so many institutional investors now focusing heavily on sustainability, I think tobacco stocks are going to struggle to gain a lot of interest going forward. As a result, share price gains from here could be muted.
Given these issues, I’m happy to pass on British American Tobacco shares and focus on other dividend stocks for income.