Shares in tobacco group British American Tobacco (LSE: BATS) have fallen to a price of £30 for the reason that firm’s 2024 outcomes have been printed on 13 February. That’s a drop of simply over 10%.

This FTSE 100 inventory has now given up many of the positive aspects made since 1 January, however the yr continues to be younger. British American shares are nonetheless up by 25% over 12 months.

I reckon it’s value contemplating whether or not this dip may present a shopping for alternative to lock in an 8% dividend yield.

Why the dip?

Let’s begin with a take a look at some potential causes for BAT’s current share price hunch.

One issue often is the information that the corporate has put aside £6.2bn regarding a category motion lawsuit in Canada. This has been rumbling on for years however now appears to be nearing a settlement.

Elsewhere, modifications to rules in Australia and tax insurance policies in Bangladesh are anticipated to contribute to a 2% fall in business cigarette volumes in 2025. That is anticipated to have an effect on British American too.

The large image hasn’t modified

The truth is that rules, excise duties, and lawsuits will all the time be a danger to the tobacco business.

Declining gross sales of conventional cigarettes are additionally prone to proceed. But it surely’s value remembering this can be a very giant and worthwhile enterprise.

British American bought 505bn cigarettes final yr, because of the attraction of main manufacturers corresponding to Dunhill, Fortunate Strike, Rothmans, and Camel.

The corporate can be one of many largest gamers in different types of nicotine supply. These embrace vapes, oral and heated tobacco.

The one drawback right here is that British American’s vaping volumes additionally fell final yr, dropping 5.9%.

Administration say its vaping merchandise have a 40% share of the world’s high vapour markets. Nevertheless, they are saying it’s struggling vital misplaced gross sales as a result of “continued lack of enforcement of illegal flavoured and single-use products” within the US.

These “illicit” vapes are mentioned to account for nearly 70% of all US vaping gross sales.

The excellent news for British American is that enforcement appears to be tightening up. If extra unlawful vapes may be faraway from the market, I feel it’s honest to count on that BAT’s Vuse model would improve its market share within the US.

BAT: a inventory to purchase?

This can be a enterprise the place it’s straightforward to recommend issues that would go unsuitable. However these dangers aren’t secret. I feel they’re most likely mirrored within the share price.

Within the meantime, it’s value remembering that British American Tobacco continues to be an enormous and extremely worthwhile enterprise.

The corporate generated £7.9bn of surplus money final yr. That’s equal to 12% of the present £67bn market cap. I might usually see this pretty much as good worth.

This determine (generally known as the free money movement yield) additionally tells me that BAT’s money era comfortably covers its 8% dividend yield. This reduces the danger of a reduce to the payout.

These shares received’t be appropriate for all traders. However I feel British American Tobacco is value contemplating as an affordable, high-yield share.