British American Tobacco (BAT) has been a top FTSE 100 long-term performer. The company has delivered shareholders an annualised return of 21% over the last 10 years compared with 9% for the market as a whole. The five-year figures are 17% and 6%, respectively.
The company, which counts Dunhill, Kent, Lucky Strike and Pall Mall among its top-selling brands, has continued to thrive through litigation and regulation scares, rewarding shareholders year after year.
The manner in which BAT has rewarded shareholders is as impressive as the magnitude of the returns.
Companies in so-called 'defensive' sectors generally cope better than companies in 'cyclical' sectors in a recessionary environment because they supply things people can't do without. Tobacco is a defensive par excellence.
Between October 2007 and March 2009 -- less than 18 months -- the FTSE 100 dived a whopping 48%. Over the same period BAT's shares fell just 4%, giving shareholders no cause to lose any sleep.
BAT is the most international tobacco company in the world. As the table below shows, revenues are divided pretty equally across four regions that cover the entire globe.
|Region||Revenue (£bn)||Proportion of total revenue (%)|
|Eastern Europe, Middle East, and Africa||4.1||27|
|Total (NYSE: TOT - news)||15.2||100|
BAT's global reach means it has substantial exposure to fast-growing developing markets. These give the company a powerful engine to drive future shareholder returns.
A good investment?
BAT has been a huge success for long-term investors. Perhaps tobacco will one day be legislated out of existence, but I find it hard to see that happening for many decades, if at all.
The shares are currently changing hands for around 3,700p, which represents a bit over 16 times forecast earnings for 2013. The prospective dividend yield is 4%. Despite the share price being at an all-time high, the earnings multiple is in line with the market average and the yield is superior.
BAT's long-term record of delivering for shareholders, and analyst forecasts of continuing double-digit earnings growth, suggest that while the shares aren't in the bargain basement, they're not altogether unreasonably priced.
One savvy investor who has ridden the BAT success steed -- and is still aboard -- is City legend Neil Woodford, whose funds have outperformed the market for almost a quarter of a century. You may be interested to read about eight of the investing wizard's favourite blue chips in this free and exclusive Motley Fool report.
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> G A Chester does not own any shares mentioned in this article.