Dividends have lesser volatility as compared to earnings; therefore, long term investors with less risk appetite can opt these stocks for regular income or reinvest dividend for cumulative growth. Here are insights about two regular dividend-paying stocks to look for a longer time horizon.
Comparative chart of BATS and DGE reflecting the stock price level
British American Tobacco PLC
British American Tobacco PLC (BATS) is a London, United Kingdom-headquartered multinational tobacco and next-generation products company. The company is one of the world’s biggest consumer goods companies and merchandises its products in more than 200 countries worldwide, covering six continents, and is a market leader in more than 50 countries. The four geographical reportable segments for the company are United States, Europe and North Africa (ENA), Asia-Pacific and Middle East (APME) and the Americas and Sub-Saharan Africa (AMSSA).
On 11th December 2019, the company will announce the pre-closing trading update.
Financial Highlights for H1 FY19
The company’s revenue increased by 4.6 per cent in H1 FY19 to £12,170 million as compared to the corresponding period of the last year with revenue from the strategic portfolio moving up by 8.7 per cent, while adjusted revenue rose by 5.3 per cent to £12,139 million, while on constant rates, adjusted revenue increased by 4.1 per cent, due to price/mix and increase in new categories.
Profit from operations declined by 1.3 per cent in H1 FY19 to £4,380 million, and the operating margin declined over 210 bps, while the corresponding number on a representative basis increased by 8.1 per cent to £5,209 million (adjusted profit) and adjusted operating margins were higher by 110 bps. Adjusted diluted EPS rose by 8.8 per cent to 149.3 pence.
In 2019, adjusted net debt to EBITDA is projected to decline by around 0.4x from the same period in 2018. The next quarterly dividend per share of 50.75 pence will be paid on August 2019, as part of the earlier announced dividend per share of 203 pence, which is payable in four equal instalments.
The tobacco industry is progressively seeking to grow their share of the nascent e-cigarette market, which contains heat-not-burn and vaping products, to counter the drop-in cigarette consumption in the west. The group plans to accelerate the investment in its e-cigarette to catch up with the competitors and offset a decrease in sales at core brands such as Dunhill and Lucky Strike.
The company said it had significant additional investment planned for its new product portfolio and projected strong growth from its modern oral category, i.e. small pouches that allow nicotine to be taken through the gums.
The group continue to deliver on adjusted profit from operations and adjusted revenue as per the guidance, due to a continued robust financial performance in combustibles. The company said that it is expecting the growth rate for new products to accelerate over the next six months. The group is on track for its guidance range of 30 per cent to 50 per cent for annual revenue progress from new categories, on a constant currency basis.
BATS Share price performance
While writing (as on 20 August 2019, at 11:30 AM GMT), BATS shares were at GBX 3,049.5 per share; up by 0.42 per cent as compared to the previous closing price. The company’s market capitalisation stood at around £69.65 billion.
In the last 52 weeks, BATS shares have registered a high of GBX 4,240.00, as on 21 August 2018 and a low of GBX 2,249.00, as on 17 May 2019. At the current level of trade, its shares were trading 28.07 per cent lower than the 52-week high price level and 35.59 per cent higher than the 52-week low price level.
While writing, the stock’s total volume stood at 286,914. Stock’s average traded volume for 5 days was 2,398,267; 30 days- 2,776,946.37 and 90 days – 3,183,741.82. The company’s stock beta as on date was 1.31, which means it is more volatile as against the benchmark index.
In the past 1 year, BATS shares have given a negative return of 27.75 per cent, while on a YTD (Year-to-Date) basis, the stock surged by around 21.46 per cent and 2.67 per cent in the last three months.
The company has been consistent in paying dividends to investors. In the last seven years, the company’s highest dividend yield has been of 7.81 per cent (FY18), while its lowest has been of 1.99 per cent (FY17). The mean annual dividend yield was around 4.35 per cent in the past seven years.
Diageo PLC (DGE) is a London-based global alcoholic beverage company that offers a broad assortment of over 200 brands across spirits and beer in more than 180 countries across the world. The group’s operations are differentiated in geographical segments: Latin America and the Caribbean, Africa, Europe and Turkey, North America, Asia Pacific and ISC. These brands include Captain Morgan, Johnnie Walker, Baileys, Don Julio, Cîroc and Ketel One Vodkas, J&B, Smirnoff, Crown Royal, Buchanan’s and Windsor whiskies, Tanqueray and Guinness amongst others.
Financial Highlights for Financial Year 2019
The company reported a growth of 6 per cent in net sales to £12.9 billion, supported by positive organic net sales growth across all regions. Driven by organic operating profit (before exceptional) growth of 9 per cent, reported operating profit (before exceptional items) rose by 8 per cent to £4,116 million in FY2019 versus £3,819 million in FY2018. The company’s operating profit increased by 10 per cent from £3,691 million in FY2018 to £4,042 million in FY2019. The company’s profit attributable to the parent company’s shareholders was up by 5 per cent to £3,160 million in FY2019 from £3,022 million in FY2018. While the basic earnings per share increased by 7 per cent to 130.7 pence, pre-exceptional EPS rose by 10 per cent to 130.8 pence, reflecting lower finance charges and higher operating profit. The company recommended a full-year dividend of 68.6 pence per share in FY2019, reflecting an increase of 5 per cent from the previous year. The cash flows continued to be strong, with free cash flow increasing by £85 million to £2.6 billion, and net cash from operating activities rose by £164 million to £3.2 billion.
Over the past couple of years, the company has delivered strong performance, with consistent top-line growth and strong cash flows. For the financial year 2019, the company had shown decent growth both on organic and reported basis.
The company operates in an attractive industry supported by strong consumer fundamentals, helping the group in expanding its organic operating margins while increasing investment in its brands. The company’s board approved a plan for the additional return of capital to shareholders up to £4.5 billion between FY2020 – 2022.
However, as the company is highly diversified, it must comply with different regulations across countries. Economic, political, or social uncertainty can contribute to a reduction in demand for the company’s products. Brexit can adversely impact economic conditions, which might affect Diageo’s business operations and financial performance. Increase in the cost of commodities or rise in wages due to a shortage of labour will result in inflation, which has the potential to change the cost of production for the company.
DGE Share price performance
At the time of writing (as on 20 August 2019, at 11:33 PM GMT), DGE shares were trading at GBX 3,501.5 per share; up by 1.61 per cent as against the previous day closing price. The company’s market capitalisation was around £81.61 billion.
In the last 52 weeks, DGE shares have registered a high of GBX 3,538.00, as on 02 August 2019 and a low of GBX 2,513.00, as on 15 October 2018. At the current level, its shares were trading 1.03 per cent below than the 52-week high price level and 39.33 per cent above the 52-week low price level.
The stock’s volume at the time of writing, before the market close, stood at 669,688. Stock’s average traded volume for 5 days was 3,164,960.20; 30 days- 3,376,503.60 and 90 days – 3,477,929.70. The company’s stock beta as on date was 0.75, which means it is less volatile as against the benchmark index.
In the past 1 year, DGE shares have delivered a positive return of 23.36 per cent. Also, on a YTD (Year-to-Date) time interval, the stock surged by approximately 23.29 per cent and was up by 2.93 per cent in the last three months.
Share’s Relative Strength Index for the 30, 14 and 9-days were recorded at 54.10, 54.84 and 57.34 respectively, while the stock’s 3-days RSI was recorded at 72.81.
The company has been consistent in paying dividends to investors. In the last seven years, the company’s highest dividend yield has been of 3.06 per cent (FY15), while its lowest has been of 2.03 per cent (FY19). The mean annual dividend yield was around 2.62 per cent in the past seven years.