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Like many traders, I respect a very good blue-chip revenue share tucked away in my portfolio, quietly producing passive revenue streams 12 months after 12 months. One FTSE 100 share I personal has a stellar observe file in the case of dividends.
May or not it’s the very best FTSE 100 share for an revenue investor to contemplate?
Excessive yield however a blended share value observe file
The share in query is British American Tobacco (LSE: BATS). Its dividend yield stands at 7.5%.
That is a long way from being the best yield within the FTSE 100 index. Phoenix Group (LSE: PHNX) yields 9.2% and this week introduced one other enhance in its annual dividend per share.
Nonetheless, British American’s yield places it among the many higher-yielding shares within the index even when it isn’t prime of the board. At a 7.5% yield, £20k invested at present would hopefully earn an investor £1,500 in passive revenue yearly.
Excellent observe file of dividend progress
In actuality, the passive revenue could possibly be even increased than £1,500 every year.
British American has grown its dividend per share yearly for many years. It has dedicated to maintain doing so. As dividends are key to the funding case, I believe the board sees this progressive dividend coverage as being of major significance.
Just a few different FTSE 100 members, resembling Diageo and Spirax, have longer streaks of annual dividend progress. However, once more, British American is among the many index’s best-performing shares on this metric. Phoenix, by the way, has grown its dividend over every of the previous couple of years, however reduce it lower than a decade in the past.
Combined long-term revenue outlook
No dividend is ever assured to final.
Whereas British American’s observe file of standard annual raises is spectacular, it isn’t essentially indicative of what to anticipate in future.
The enterprise is extremely money generative. British American owns premium manufacturers like Fortunate Strike that give it pricing energy. The addictive nature of nicotine additionally signifies that British American has pricing energy. It has different strengths too, together with a worldwide distribution community.
However there’s a huge caveat right here – cigarette demand is declining in lots of markets. Whereas non-cigarette merchandise like vapes might assist British American offset that to some extent, the long-term quantity outlook stays unclear – as does the query of whether or not revenue margins can come something near, not to mention match, these of cigarettes.
An revenue share to contemplate, with dangers
That issues as a result of it might affect money flows on the FTSE 100 agency.
If that occurs, it might imply the dividend comes beneath overview. Rival Imperial Manufacturers slashed its payout per share in 2020. British American might but be compelled to do the identical in some unspecified time in the future in future.
So, whereas its yield and file of dividend progress put it within the prime tier of FTSE 100 dividend shares so far as I’m involved, there are vital dangers right here.
Based mostly on that, I don’t suppose that British American is unquestionably the greatest dividend share within the FTSE 100.
Top-of-the-line? Perhaps.
I do see vital sights. I proceed to see this as a share income-focussed traders ought to take into account.
