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British American Tobacco: big emerging markets presence, solid dividends (BTI, VICEX)

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The market is strong for "sin" stocks such as British American Tobacco ( BTI , quote ) as the financials and yield are very forgiving -- at least to those who can stomach profiting from the global cigarette industry.

Over the past 52 weeks, British American Tobacco (BTI) is up almost 30%. This rally has been supported by both the returns and the margins.

The profit margin is over 25%, which is high -- anything over 20% is considered good -- and the gross margin is nearly 80%.

BTI's returns on assets, equity and investment are all in double figures, and as the company grows its business around the world, the price-to-earnings ratio is expected to fall from a current level of 20 to under 14 over the next year.

Revenue is roughly split between four regions: the Americas, Europe, EMEA (Eastern Europe, the Middle East and Africa) and Asia. Each generated about $5.5 billion in revenue last year.

The dividend yield is also very high for British American Tobacco (BTI) at 4.19%. The average dividend for a stock on the Standard & Poor's 500 Index is under 2%.

While the payout ratio is high, BTI has the cash flow to support the dividend. The stability and predictability of this cash flow is what also appeals to investors.

Sin stocks such as BTI are very popular with investors now, according to an article by Matt Kranz for USA Today , "Sin stocks thrive on Wall Street."

In Kranz's USA Today piece, Jerry Sullivan,a mutual fund manager, stated, "Vice stocks are showing they are a necessary part of a diversified portfolio."

Sullivan manages the Vice Fund ( VICEX , quote ), which, according to Morningstar, has returned 10.3% this year. British American Tobacco (BTI) receives the highest mean rating of a "1" from the analyst community: an unalloyed "strong buy."

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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