Although dividends aren’t guaranteed and are not a substitute for cash savings, this company has paid a rising dividend for more than 20 years. I don’t see any reason why this pattern should change. Indeed, I’ve already invested a small part of my own portfolio in this business.

A defensive choice

The company in question is FTSE 100 tobacco giant British American Tobacco (LSE: BATS). Although this is undoubtedly a sin stock, tobacco is also generally seen as a very defensive business. Consumer purchasing habits remain fairly steady, even during a recession.

BATS’ brands include vaping brand Vuse (the US market leader), as well as well-known cigarette brands such as Dunhill and Lucky Strike. The BATS share price has climbed 30% over the last year as investors have looked for safe haven stocks providing a reliable income.

Despite this gain, BATS still has one of the highest dividend yields in the FTSE 100, with a 2022 forecast yield of 6.9%. Broker forecasts suggest this payout should rise next year, giving a prospective 2023 yield of 7.4%.

How I’d target £200 monthly income

BATS pays a quarterly dividend, dividing its annual payout into four equal amounts. To generate a monthly income, I’d hold my dividends in a savings account and withdraw them gradually each month.

My calculations tell me that I’d need 1,305 shares of BATS stock to achieve my target of a £200 monthly income. That’s based on a share price of 3,360p and would be equivalent to an investment of £34,800.

This is obviously a fairly hefty investment. My plan would be to build up this position gradually, investing cash when possible.

Fortunately, BATS’ high yield means that even a much smaller investment should still produce a useful income for me.

Is BATS’ yield really safe?

For the last 20 years, investors have been predicting that falling smoking rates would put the tobacco industry into decline.

So far, this doesn’t seem to have happened. But I think it’s fair to say that the risk remains in western markets. Ever-tighter regulation and rising pack prices may discourage younger generations from taking up smoking.

However, BATS is working hard to offset this risk by becoming a market leader in so-called reduced-risk products. The company’s Vuse vaping brand is the market leader in the US and is expanding fast in other western markets.

During the first half of 2022, Vuse and other non-combustible products generated around 10% of BAT’s sales. The company expects this division to make a meaningful contribution to the group’s profits by 2025.

Ethical concerns aside, I think British American Tobacco looks like a sensible buy for dividend income.

Unilever

The consumer goods company Unilever (LSE: ULVR) is the business behind such well-known names as Marmite and Dove. Its focus on products that are used regularly by billions of consumers means it benefits from resilient demand. Owning premium brands gives it pricing power, allowing the firm to make juicy profits.

That has come in handy lately, as soaring inflation has pushed up the cost of making and selling its products. Unilever’s pricing power means it has been able to pass higher costs onto consumers without losing lots of sales volume.

I see inflation as an ongoing risk to profitability, but I like the firm’s business model and its long-term prospects.

Direct Line

Whatever is happening to the economy, people will still need or want to insure their homes and vehicles. That means that demand for general insurance services should be robust.

I reckon one firm that can benefit from that is Direct Line (LSE: DLG). The company’s shares have fallen sharply, though. They now stand 30% below where they were a year ago.

Why is that? Partly I think it reflects investor concerns that rising vehicle costs could make claims settlement more expensive, hurting profits. The insurer’s first-half results also showed a decline of 9% in the number of policies in force compared to the same period last year. That business slump is obviously not what a lot of investors want to hear.

But I think the fall in the Direct Line share price offers a buying opportunity for my portfolio. Indeed I bought back into the insurer over the past couple of months. I see long-term demand in its market and reckon Direct Line’s strong brand can help it capitalise on that. With an 11.5% dividend yield, I am hopeful that Direct Line can provide me with some welcome passive income streams even during a recession.

British American Tobacco

The addictive nature of smoking means that many people keep doing it even when money gets tight. That makes tobacco a classic example of what is known as a defensive stock.

This might explain why investors have been buying into British American Tobacco (LSE: BATS). Over the past year, its performance has been the mirror image of Direct Line, with the share price increasing by 30%.

Even after that increase, the dividend yield is a juicy 6.4%. The company is highly cash generative, which could be good for future dividends. That is why I hold these UK shares.

The long-term decline in the number of cigarette smokers threatens both revenues and profits. But the company’s pricing power can help mitigate that and it is also building a non-cigarette business at speed.

But which stocks do I think will thrive in a climate where prices are rising? Here are two I decided to add to my portfolio last week.

British American Tobacco

British American Tobacco (LSE:BATS) is up an impressive 19% year to date as I write.

Research shows that cigarettes are slightly ‘price inelastic’. This means that if the price of cigarettes increases, the following drop in demand will be less significant by comparison. But much of that lost demand will be likely to substitute cigarettes for oral and vapour-based nicotine products.

British American Tobacco has all these types of products in its portfolio. Raising its prices to protect its profit margins from inflation shouldn’t see demand drop too harshly. The tobacco giant also boasts a 6.5% dividend yield. Topping that yield up with share price growth may quickly find my investment keeping up with inflation.

However, British American Tobacco does have a high level of debt leaving it exposed to rising interest rates. Currently, the company is working on reducing its debt but whether that continues is not guaranteed.

Unite Group

When prices rise and consumers become strapped for cash, you can expect demand for cheap housing to rise. This is particularly the case for students seeking rented accommodation, largely supported by their limited student loans.

Unite Group (LSE:UTG) is the UK’s largest owner and developer of purpose-built student accommodation.

As I write, the group’s share price has been hit hard so far this year, down 25% year to date.

Last week, Unite Group had several positive announcements to make. The group has a large waiting list due to a shortage of accommodation built close to university campuses. The income from property that Unite Group does earn is expected to confidently climb by almost 5% as it looks to pass costs on to the consumer.

With a short supply of university accommodation, it seems safe to expect that students will absorb rent increases, which will be a positive for share price growth.

Unite Group currently has a respectable dividend yield of 3.2%.

However, its dividend track record is not a stable one and its share price growth in the long term is heavily reliant on the popularity of university education.

Conclusion

I think both stocks are well positioned to potentially outstrip inflation over the next few years. Both stocks have reliable income at present. The goods and services offered by both British American Tobacco and Unite Group are experiencing demand that will be difficult to shake off.

I recently added both of these stocks to my portfolio with a £1,000 position in each of them.

But not all shares have fallen. Both among risers and fallers, I see some attractive options for my portfolio right now. As a believer in long-term investing, here are three shares I have either bought or would consider buying right now if I had spare money to invest.

Unilever

The investment case for consumer goods giant Unilever (LSE: ULVR) is fairly simple in my view.

It operates in market segments that are likely to see resilient demand from billions of users, such as shampoo and laundry detergents. The company’s collection of well-known and distinctive brands such as Marmite helps keep customers loyal.

That gives the firm pricing power. It has used that to combat rampant inflation. In the first half, for example, although volumes fell 1.6% compared to the prior year period, the company saw underlying sales growth of 8.1% thanks to higher prices.

Inflation remains a risk to profit margins, which decreased in the first half. But I think in the long term demand should be resilient and Unilever’s pricing power should be good for profits.

British American Tobacco

I already own shares in British American Tobacco (LSE: BATS). The company behind products such as Lucky Strike and Vuse is a cash flow machine thanks to the high margins and resilient demand of the tobacco industry.

Over time that could change. Cigarette smoking is in long-term decline and the company has a large debt pile that could eat up free cash flow.

However, I think its experience in managing changing markets across the globe for many decades already could help the tobacco manufacturer face such challenges. It has been expanding its non-cigarette business rapidly. Its portfolio of premium brands gives it pricing power.

Despite rising 27% over the past year, British American Tobacco shares still offer a dividend yield of 6.6%. That is higher than many other FTSE 100 shares. I regard it as attractive.

Legal & General

While those two consumer goods firms have seen their share prices increase in the past year, it is a different story at financial services powerhouse Legal & General (LSE: LGEN). The Legal & General share price has declined 16% over the past year.

But as a long-term investor, I feel upbeat about the outlook for the firm. I expect demand for financial services to remain strong. The company has a long-established brand that can help it win new clients and retain existing ones, without having to spend very heavily on marketing.

Weakening investor confidence could lead to some customers withdrawing money from investment products, hurting profits. But I see Legal & General as a well-run company that I expect to benefit from strong customer demand over the course of the coming years.

These FTSE 100 shares yield 8% and I recently bought them for my portfolio.

One share I already own is a good example of many of the characteristics I look for when buying FTSE 100 shares for my portfolio. But does that make it the perfect share?

Proven blue-chip

That company is British American Tobacco (LSE: BATS). As its name suggests, the multinational is a tobacco manufacturer. It sells cigarettes and other tobacco products under brands such as Lucky Strike. Throughout its history it has been involved in all manner of industries, but these days its main focus is tobacco.

The company has a long history. Past performance is not a guarantee of what happens in future, but I do still pay attention to it when considering an investment. A large FTSE 100 company with a long history and proven business model like BAT has already seen a lot of water pass under many bridges.

Globally, it has operated through wars, recessions, depressions, hyperinflation and economic collapse in some markets. That sort of institutional experience is attractive to me as I think it can help a firm continue to function during uncertain times.

Strong demand and pricing power

Smoking is addictive. That means demand for tobacco products is largely unaffected by short-term economic problems. It also gives a company like BAT pricing power, meaning it can try to compensate for lower sales volumes with higher selling prices.

But while short-term economic headwinds do not damage the investment case for BAT, in my view, one risk I see is a structural long-term decline in cigarette use across most of the company’s markets. So far, it has managed to keep growing for decades despite that, through a combination of acquisitions and new product lines.

BAT has long been doing well against a backdrop of declining smoking rates. But it remains a key risk for the firm’s revenues and profits.

Growth and income prospects

A lot of FTSE 100 shares are in mature industries, so I see them more as income picks than growth choices for my portfolio. On the income front, BAT does not disappoint. Its dividend yield is over 6%. The firm has raised its dividend annually for over two decades.

But I also think it has decent growth prospects. Revenues last year actually dipped slightly. That partly reflects the currency exposure that comes with being a multinational business. But I think strong growth in non-cigarette sales as well as the potential for further acquisitions could help BAT grow in coming years.

With a price-to-earnings ratio beneath 10, I find the business attractive as well as its valuation.

Is this the perfect FTSE 100 share?

British American Tobacco is one of my biggest holdings. So is it the perfect FTSE 100 share? I do not think so. I do not think there is ever a perfect share. All shares carry risks, as shown by BAT’s heavy reliance on a product with declining demand. That is why I always diversify my portfolio across a range of companies.

However, BAT has a lot going for it, in my opinion. So I plan to hold the FTSE 100 tobacco giant in my portfolio for the foreseeable future.

Picks and shovels

National Grid (LSE: NG) seems like the ultimate ‘picks and shovels’ investment to me. In a gold rush, not everyone finds gold. But those who supply the goods and services that the prospectors need should make their money.

I see the same in the energy delivery business. However our energy is generated, and by whom, it has to flow through the National Grid networks.

National Grid shares climbed early in 2022, presumably seen as a defensive investment. But the latest energy crisis has sent them down again, back to ‘valuation-as-usual’.

The biggest long-term risk I see is the decline of fossil fuel usage. That could eventually lead to the gas network becoming obsolete. But I reckon whatever doesn’t flow that way must surely flow via electricity instead.

The share price fall puts National Grid shares on a forecast price-to-earnings (P/E) ratio of nine. And there’s a predicted 2023 dividend yield of 6%.

Reliable dividends

Few companies have been paying dividends as reliably as British American Tobacco (LSE: BATS). Well, except maybe its peer Imperial Brands. The British American share price has been in a decline over the past five years.

That’s left the stock on a forecast P/E of only 10. And we have a predicted dividend yield for the current year exceeding 7%. By 2023, analysts reckon the company will be handing over 8%.

The main risk seems obvious. Humans might, eventually, manage to give up on tobacco and consign its producers to history. But tobacco consumption remains stubbornly strong, especially across the developing world. And I suspect its decline will take a very long time.

Meanwhile, British American should have plenty of time to keep developing new tobacco products that don’t involve filling lungs with smoke.

Long-term sentiment

My third pick is not on a low P/E valuation like the first two. It’s Unilever (LSE: ULVR), with a 2023 forecast P/E of around 18.5. That’s higher than the FTSE 100’s long-term average, but relatively low by Unilever’s standards. We’ve traditionally seen a premium valuation because investors like the company’s defensive characteristics.

The Unilever share price is quite a bit below its pre-pandemic peak now.

One danger is that rising inflation and interest rates will lead to people spending less and buying fewer Unilever products. Investors might also see the share valuation as still being a bit rich, and more in line with previous better times.

But I think Unilever’s wide range of essential products makes it one of the most defensive producers of all retail brands.

Portfolio

Starting a FTSE 100 portfolio today, I’d also be attracted to what I see as depressed recovery candidates. In particular, I’m thinking of banks and housebuilders.

But these three would almost certainly be in there, as the three I rate among the strongest defensive buys for 2023.

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.

Global industry giant

The UK stock in question is British American Tobacco (LSE: BATS). As the name suggests, this company makes and sells cigarettes and other tobacco products. Although it is headquartered in London, it is a truly multinational firm, with operations spanning the globe.

It has a sizeable operation in the US, where five years ago it took full control of tobacco rival Reynolds. That meant BAT gained control of strong brands in the US, such as Camel. Last year, US sales of £11.7bn represented 46% of all revenues at BAT.

The US also contributed 54% of the company’s profit from operations. In other words, not only did the US market lead BAT’s sales globally, it also contributed an outsized share of profits.

A weakening pound

What does that mean for the company in the context of a weakening pound? I think it is good news.

Imagine that US sales are roughly flat this year. That would mean over the course of 2022, the US division puts the same amount of dollars into the company’s coffers as it did last year. But as BAT reports in pounds, those dollars will be converted into pounds for reporting purposes. The pound has tumbled by 22% against the dollar over the past year. But looked at from the other side of the pond, that means the dollar has strengthened by an equivalent amount.

Meanwhile, as a lot of the US division’s costs are incurred in US dollars, they should not increase in pound terms as much as revenue does.

So I see a weakening pound as positive for BAT. It should boost the contribution to the company’s finances made by its mammoth US business.

A UK stock I bought to hold

Would that make me buy BAT for my portfolio on its own? It would not. Exchange rates are outside the company’s control. While the pound has weakened considerably, that does not necessarily mean things will continue that way.

However, I was already happy to own BAT shares in my portfolio and hold them for the long term. The company has a strong position in a highly profitable industry. Its brand portfolio gives it pricing power.

A risk I see owning any tobacco stock is the long-term decline in smoking cigarettes. But BAT actually grew its revenues last year, thanks in part to that pricing power. It has also been growing its non-cigarette business.

With its 6.4% dividend yield, I am happy to own this UK stock in my portfolio and would consider buying more of its shares. A weakening pound only adds to its appeal for me as an investor.

A long-standing dividend share

The first stock I’m referring to is British American Tobacco (LSE:BATS). The business currently offers a dividend yield of 6.27%, above the FTSE 100 average of 3.89%. Over the past year, the share price has risen by 27%, an impressive gain.

It has enjoyed 22 years of consecutive dividend growth, which is one of the hallmarks I look for when trying to find a good dividend share. In large part, the dividend payments over time are a reflection of the core profitability of the business.

The tobacco industry might not be to everyone’s liking, and some might not want to invest in this area. But fundamentally, it’s been a source of high profits for decades now. The high level of repeat custom from people, along with the oligopoly like market structure has allowed the firm to outperform.

Of course, the shift towards vaping and nicotine alternatives means that there’s a risk that British American Tobacco becomes a dinosaur that can’t adapt. However, I haven’t seen any material worrying signs that the business isn’t planning for the future of the industry.

A household favourite

The second stock I’m thinking about buying is Unilever (LSE:ULVR). The share price hasn’t moved massively in the past year, down a modest 3%. In terms of the dividend yield, it’s at 3.8%.

I get that people will say the yield is actually slightly below the index average. This is true, but if I look at the Unilever yield over the past couple of decades, it has been in a tight range between 2.5%-4%. It’ll never set my world on fire, but at the same time I’m pretty confident that for the next decade I could pick up dividends of this size as well. That counts for something.

The reason why it has been such a consistent dividend payer relates to its sector. It owns a range of household brands in all sorts of areas. This ranges from Ben & Jerry’s ice cream to Hellmann’s mayonnaise. The goods have a proven track record of being popular with consumers, generating strong revenue in the past. I don’t see this changing any time soon, which should allow strong profits to be generated on an ongoing basis. From this, dividends should continue to be paid out.

I do need to keep an eye out for the actions of Nelson Peltz, the famous activist investor who buys a stake in a company with the aim of enacting change. Following his large purchase of Unilever stock recently, I’m sure his aims are for the best. But it can cause unnecessary disruption for the business.

I want to add both stocks to my portfolio imminently with free cash.

Take FTSE 100 member Antofagasta as an example. Falling copper prices are a threat to revenues and profits, something a recession might make worse. But the miner was founded in 1888. That means it has now experienced recessions in three different centuries. So while a slowdown threatens a company like Antofagasta, I think it is battle hardened.

Maybe that helps explain the difference in performance of some key FTSE indices over the past year, as economic storm clouds have gathered. While the FTSE 250 has fallen 20%, the index of 100 leading shares is actually up by 4%.

If I had a spare £1,500 to invest right now, I would split it evenly across a trio of FTSE 100 shares.

JD Sports

I own shares in retailer JD Sports (LSE: JD) but have been thinking of taking advantage of current weakness in the share price. It has fallen 44% over the past year.

Investors are nervous that new management may be unable to lead the business as well as its old leader could at a time when shoppers might spend less on shoes and clothes. But I think JD’s growth story remains strong. Its international footprint is large. That could help provide opportunities for future growth.

The valuation simply looks too cheap to me for a business of this quality. Currently, JD’s market capitalisation is under £6bn. But it made £655m in pre-tax profits last year. That makes it seem undervalued to me when considering the price-to-earnings (P/E) ratio.

British American Tobacco

One defensive sector that can do well even when the economy stutters is tobacco. Smoking is addictive.

That is why I would buy British American Tobacco (LSE: BATS) against the backdrop of weakening consumer spending power in some areas of the economy. The share price has put on over a quarter in the past year, so it is not the bargain today I think it was a year ago.

Despite that, I still think it is attractively priced. This quality company has some real strengths. Global reach, iconic brands and big distribution networks should all help it maintain strong revenues in coming years. One threat I see is a decline in cigarette smokers hurting sales. But I will hopefully be well-rewarded for owning British American Tobacco shares, with the dividend yield currently standing at 6%.

Legal & General

I would also add Legal & General to my portfolio.

The yield of this FTSE 100 share is even higher than British American Tobacco, at over 7%. It also trades on an attractive P/E ratio, in the single digits. With a strong brand and large installed customer base, I think Legal & General benefits from a simple but defensive business model. That could help it make profits in coming years and hopefully maintain its generous dividend.

A tightening economy could make some customers shop around, which is a risk to profit margins. But Legal & General is even older than Antofagasta. It has survived many recessions before and has experience of making money in difficult times.