The FTSE 100 has recovered strongly from its stock market crash at the beginning of the year. However, despite this performance, some of the index’s constituents continue to offer value.
There’s one company, in particular, with a dividend yield of more than 7% that may be worth buying for your portfolio today.
FTSE 100 dividends on offer
British American Tobacco (LSE: BATS) is a leading FTSE 100 income stock. It’s also one of the few blue-chip companies that has stood by its dividend in the coronavirus crisis.
Its latest trading update shows that, despite the global pandemic, sales have held firm. Nonetheless, management also warned the near-term outlook for the business is highly uncertain. Indeed, the company has already had to revise growth guidance lower once already this year. It’s now expecting full-year revenue growth of 1-3% and profit growth in the mid-single-digit range.
That’s disappointing, but it’s significantly better than most of the FTSE 100 firm’s blue-chip peers, which are forecasting a sales decline. Moreover, the group has a strong balance sheet and an established position in the global tobacco market. That suggests it could be in an excellent place to recover when growth returns to the worldwide economy. The FTSE 100 dividend champion may also be able to take market share from weaker competitors who haven’t been so lucky.
British American has a history of doing just that. Over the past six years, it has reported earnings growth of around 9% per annum. Organic expansion, market share growth, and acquisitions have all contributed to this performance.
As the company’s bottom line has expanded, it’s also been able to grow its dividend payout. The per-share dividend has more than doubled over the past decade to just over 200p today. Only a handful of other FTSE 100 businesses have produced the same rate of dividend growth over the same time frame.
So, while British American may face more uncertainty in the near term, over the long run, the company should prosper. That suggests now might be a good time to snap up the shares while they trade at a bargain valuation.
Despite the coronavirus crisis, and the impact it’ll have on the FTSE 100’s company’s growth this year, British American is still planning to pay a dividend. After recent declines, the stock supports a dividend yield of around 7.4%. That’s nearly double the FTSE 100 average.
On top of this market-beating dividend yield, the shares look cheap. On average, City analysts believe the stock is worth 3,800p. That’s a potential increase of 30% from current levels. The most optimistic forecasts suggest the stock could be worth as much as 4,800p, a rise of 64% from current levels.
As such, it appears as if British American has the potential to produce high total returns for investors in the coming years. It offers a combination of income and capital growth few other FTSE 100 companies may be able to provide in the current economic environment.
The post A 7%-yielding FTSE 100 dividend stock I’m convinced will help me retire in luxury appeared first on The Motley Fool UK.
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Rupert Hargreaves owns shares in British American Tobacco. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020