Is It Too Late to Buy British American Tobacco Stock?

Shares of British American Tobacco (NYSE: BTI) , or BAT for short, rose after the tobacco company reported its first-half results, as its buyback program helped overshadow a decline in revenue. The stock has now rallied over 18% so far this year.

Income-oriented investors are the ones that are generally drawn to the stock, and even after the stock's strong year-to-date performance, it still carries an over 8.5% forward dividend yield .

Let's take a closer at BAT's most recent earnings results, its buyback program, and the safety of its dividend.

Declining sales

While U.S. companies report their results quarterly, Britain's BAT reports its results on a semi-annual basis. For the first half of the year, revenue declined 8.2% to 12.3 billion pounds ($15.9 billion). On an organic basis, which excludes the sale of its Russian and Belarusian business last September, sales fell 0.8%.

Revenue from new smokeless categories fell 0.4% to 1.65 billion pounds ($2.1 billion), although they were up 7.4% organically. Nicotine pouches led the way higher, with organic volumes soaring 52.4%. However, volumes for other new categories, such vapor and heated (or non-burning tobacco) products, all fell.

On the positive side, it said it gained 1.4 million new smokeless consumers over the past year. Overall smokeless organic revenue rose 5.4% to 2.2 billon pounds ($2.8 billion).

Combustible volumes, meanwhile, fell 6.9%, to 256 million units. Organic combustible revenue, meanwhile, fell 2.6% to 9.9 billion pounds ($12.7 billion).

BAT forecast full-year revenue and adjusted earnings per share to both grow by low single digits.

Image source: Getty Images.

Dividend safety and share buybacks

When looking at the safety of a company's dividend, the best places to look are its cash flow and balance sheet.

On that front, BAT generated first-half operating cash flow of 3.2 billion pounds ($4.1 billion), while free cash flow was 2.1 billion pounds ($2.7 billion). However, the company paid out 2.6 billion pounds ($3.4 billion) in dividends.

When dividend payments outstrip free cash flow, it can be a warning sign that the current dividend is not safe. However, the company is projecting to produce 40 billion pounds ($51.4 billion) in free cash flow over the next five years, which should more than cover the approximately 5.2 billion pounds ($6.7 billion) a year it is paying in dividends.

The company ended the first half with net debt of 33.6 billion pounds ($43.3 billion) on its balance sheet. It said it is making good progress with its deleveraging efforts and expects it to reach its target of 2 to 2.5 times adjusted net debt to adjusted earnings before interest, taxes, depreciation, and amortization ( EBITDA ) by year-end.

While I would continue to monitor the situation, the dividend looks safe based on its current projections.

Meanwhile, the company is in the midst of a buyback program. It plans to repurchase 700 million pounds ($899.7 million) worth of shares this year and 900 million pounds ($1.2 billion) next year. The company is using proceeds from a partial sale it made in Indian tobacco company, ITC, to fund the repurchase plan. The company sold its stake in March, but it still owns over 25% of ITC. Its remaining ITC stake is also another asset to consider when looking at the stock.

Is it too late to buy BAT?

BAT's core cigarette business is in decline, while its newer products are not large enough to help overcome the deterioration it is seeing in its combustible business. The only success the company saw in the first half of the year was from its nicotine pouch business, which represents under 3% of its total revenue.

The buyback is nice, but free cash flow not covering its dividend in the first half is a bit of a disappointment. The company is more positive about the future, but it still needs to deliver.

Trading at a forward price-to-earnings (P/E) ratio of around 7 times 2025 analyst estimates, the stock is not overly expensive, and it currently has a yield of about 8.7% based on current exchange rates.

BTI PE Ratio (Forward 1y) data by YCharts .

That said, I feel the stock's upside from current levels seems limited following the nice rally it has had this year. The dividend and buyback are positives, but it could be tough for investors to get excited given the decline in its core business and lack of momentum outside of nicotine pouches.

Geoffrey Seiler 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 .