There are all types of investments on the stock market, including tobacco companies. You can take advantage of the opportunity regardless of whether you smoke or not. If you smoke, I will show you how to make these companies pay for your fix. If you don’t smoke, don’t worry, I will show you just the same. The difference is that you will use the money for anything else you want and not for a pack of cigarettes or chewing tobacco.
The leading players are (MO) Altria Group Inc, (PM) Phillip Morris International Inc, and (BTI) British American Tobacco. We will cover (MO) and (PM) in another article; and will concentrate on (BTI) British American Tobacco.
(BTI) British American Tobacco’s business has remained stable throughout 2020 and 2021. Currently, (as of Dec 14, 2021) trades for $36 and has a high dividend of 8.2%.
Looking under the hood, we see BTI has over 55,300 employees, making it a large and stable company. Their revenue growth is around 5%. The current (P/E) price to earnings is 10.27, making it a desirable investment and, to some extent, undervalued.
They have debt but nothing out of standard operating procedures. Enough cash to cover expenses, although I would much rather like to see a higher Quick Ratio (0.40) and Current Ratio (0.80). They do have excellent use of (P/FCF) Price to Free Cash Flow at 19.62. Trust me. I have seen much worse.
The margins are solid! Gross margin 83.40%, Operating Margin 38.10%, and Profit Margin 24.10%. And the Payout Ratio is a rounded 59%. Meaning they can keep on growing the dividend. Slowly but surely.
I expect the Net Debt / EBITDA ratio to return to its target range, leading to more capital returns in 2022. This includes share buybacks, and management is in support of this view.
Now, how do we get paid?
Before we begin, answer this question: Have you been smoking or chewing two packs a week for 12 years or more?
If you have, then know that you have given these companies the amount you needed for this investment to work, and you have nothing to show for, except for a set of dying lungs or gums. No judgment; you do what you want with your body. I used to chew tobacco, and my grandma still smokes. Do I wish she didn’t? And keep her on earth for a little longer, possibly? Yes, I do. However, she is an adult, and I respect her choices.
Note 1: If you smoke more than 2 packs a week, you reached this number in less than 12 years.
Note 2: Although I’m emphasizing smoking, you can run the numbers if you chew tobacco as well.
I will give you the formula to figure out the same thing with all your expenses.
Here we go!
Using Texas numbers, a pack of cigarettes goes for $6.69 and adds taxes, and you pay $8.10. So, smoking 2 packs per week, you are spending around $16.20 p/week. Let’s round that to a month, and we get $64.80. That is how much you spend monthly in Texas when you smoke 2 packs per week.
BTI pays a Quarterly Dividend, so we will multiply $64.80 * 3 and come to figure out that you are spending $194.40 in tobacco products every three months.
At the current $36 price and a dividend payout of $0.745, you will need 261 shares; or an investment of $9,396.
Remember! You have probably already given this much money to tobacco companies and didn’t even realize it. However, we will do one better. We will begin investing in these companies and begin to collect dividends.
NO! You don’t need this amount to begin. There are plenty of ways you can go about this.
Let’s cover a few ideas:
1. Every time you buy a pack, you need to deposit the exact amount you spent on your investment account. If you don’t have enough money to do both, you shouldn’t spend your money on something that won’t benefit you or your health.
2. Set automatic deposits, either weekly, bi-weekly, or monthly, equal to or greater than the amount you spend on this product.
3. Pay as a lump sum. I know it’s less likely that you will have this amount of money laying around doing nothing, but you never know.
Don’t waste time receiving the dividend in cash and buying shares manually. Instead, verify how to set up a (DRIP) Dividend Reinvestment Plan with your broker. The system will automatically invest your dividend on your dividend-paying stock, and you don’t have to move a finger.
Once you reach 100 shares on the same stock, learn how to sell cover calls. It is a great income strategy and will help you reach your goals quicker.
We will begin two YouTube channels in 2022. An English as well as a Spanish channel. We will go over all these strategies, and you can learn and implement them for yourself. Stay tuned!
You can research a dividend-paying stock of your liking and follow the steps above. Then, when you reach your goal, turn off the DRIP and begin collecting the dividends in cash to do whatever you want to do with your money. For example, you can have the company pay for your tobacco expenses or non-smokers; you can use this money to do as you please.
Now, begin your Road to Wealth!
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