Is British American Tobacco a buy, sell or hold in 2025?

British American Tobacco (BTI 0.51%) is one of the largest tobacco companies in the world. It is a global business and owns brands such as Camel, Newport and Lucky Strike, as well as high-end products such as the Vuse e-cigarette brand and Velo nicotine pouches.

Like other tobacco stocks, British American Tobacco is also valued by investors because of its high dividend yield, which is currently at 8.2%. In fact, British American Tobacco stock has gained this year thanks to a solid first-half earnings report and a broader rotation into high-yielding tobacco stocks, including Altria and Philip Morris. This was possible in anticipation of falling interest rates, which favor high-yielding dividend stocks such as those represented by the tobacco sector.

As we now enter the final quarter of 2024, investors are likely looking ahead to 2025 and wondering if stocks can continue to rise. Read on to see if British American Tobacco is a buy, sell or hold through 2025.

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Buy British American Tobacco

The best reason to invest in BAT may be its attractive dividend yield of 8.2%.

Its dividend is well-funded, and the company has taken the unusual step of shedding $30 billion worth of US tobacco brands such as Camel and Newport. The company did this in response to declining smoking rates in the US and its desire to push towards a smoke-free future.

Additionally, British American Tobacco is cheap at a price-to-earnings ratio of just 8, and the company is very profitable at an adjusted operating margin of 45.1% in the first half of the year.

While organic revenue in constant currency fell 0.8% in the first half of the year, its revenue from new categories continues to grow, up 7.4%.

Overall, British American Tobacco’s business is stable. Its dividends are safe and the stock looks like good value.

Sell ​​British American Tobacco

The biggest challenge for tobacco companies like British American Tobacco is to successfully transition from cigarettes to next-generation products.

Organic cigarette volume fell 6.8% to 250 billion in the first half of the year, and the company is struggling in the vapor and heated products businesses. Its Vuse e-cigarette product continues to lead in the US, but organic volume fell 9% in the first half of the year. Sales of heated products also fell.

Sales of its oral nicotine product Velo have increased, leading to overall growth in new categories, but its performance is not as strong as it might seem. In addition, those categories are competitive, and Philip Morris has become a leader in those areas.

As British American Tobacco emphasizes its transition to a smoke-free world, it may struggle to grow, and that’s usually a recipe for a stagnant share price.

Hold British American Tobacco

If you’re an investor who wants a high dividend yield but has limited expectations for share price appreciation, owning British American Tobacco makes sense.

The tobacco stock looks like a steady dividend payer, even if it’s not likely to beat the stock market. In fact, BAT has a history of poor performance S&P 500which shows that investors should temper their expectations for future growth.

What is the correct move?

British American Tobacco is not the kind of stock that is full of surprises. It pays a strong dividend, sells a recession-proof product that is declining in much of the world, and is slowly transitioning to growth products like Velo.

In this type of environment, holding BAT stock makes the most sense. The company will continue to be a promising dividend payer. However, it lacks the breakout potential of Philip Morris, which has had more success with its high-end products and now makes around 40% of its revenue, compared to BAT at less than 15%.

Still, BAT’s low valuation and high yield provide enough of an argument to hold onto the stock.