Sunday, 9 June 2024

Want $1,000 in Dividend Income? Here’s How Much You’d Have to Invest in British American Tobacco Stock

by BD Banks

Looking for dividend income? Check out British American Tobacco (NYSE: BTI). At its current price and payout, the stock’s dividend yields an impressive 9.5%. How much would you need to invest to produce a passive income stream of $1,000 a year?

Get $1,000 in passive income

By revenue, British American Tobacco is one of the largest cigarette companies in the world. Around half of its sales are from the United States, with the rest split between Europe, Asia, South America, the Middle East, and Africa.

While the use of combustible tobacco is on the decline in several mature markets, including the United States, total tobacco use is still on the rise globally. That’s especially true when you factor in smokeless products such as vapes and nicotine pouches — which the company also sells. Over the next four years, tobacco use is expected to grow by around 2.5% annually, according to a report by Statista.

This steady and growing demand has produced reliable cash flows for British American Tobacco. In 2018, it generated $8.3 billion in free cash flow. That figure has increased every year since, reaching $10.7 billion in 2023. This free cash flow supports its large dividend. Importantly, the dividend is covered by just 60% of the company’s free cash flow, so it has plenty of excess cash to buy back stock, pay down debt, and launch new products in new regions.

Right now, to generate about $1,000 in annual income from British American Tobacco stock, you’d need to invest roughly $10,500. To produce about $1,000 in monthly income, you’d need to invest around $126,000. When it comes to generating large and reliable dividends, few stocks are as attractive as British American Tobacco.

Should you invest $1,000 in British American Tobacco right now?

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco P.l.c. and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.