Is British American Tobacco a Buy, Sell or Hold in 2025?

British American Tobacco (NYSE:BTI) is one of the largest tobacco companies in the world. It is a global company that owns brands like Camel, Newport and Lucky Strike, as well as next-generation products like the Vuse e-cigarette brand and Velo nicotine pouches.

Like other stocks in the tobacco sector, British American Tobacco is also popular among investors due to its high dividend yield, which currently stands at 8.2%. In fact, British American Tobacco’s stock has risen this year thanks to a strong first-half earnings report and a broader rotation into high-yielding tobacco stocks, including Altria And Philip Morris. This was perhaps due to the anticipation of falling interest rates, which favor high-dividend stocks like those represented by the tobacco sector.

As we are now in the last quarter of 2024, investors are likely looking forward to 2025 and wondering if the stock can continue to rise. Keep reading to see if British American Tobacco is a Buy, Sell, or Hold until 2025.

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Buy British American Tobacco

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

Its dividend is well-funded, and the company took the unusual step of writing down the value of U.S. tobacco brands like Camel and Newport by $30 billion. The company did this in response to declining smoking rates in the United States and its desire to move toward a smoke-free future.

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

While organic revenue at constant exchange rates was down 0.8% in the first half, revenue from new categories continued to grow, up 7.4%.

Overall, British American Tobacco’s business is stable. Its dividend is safe and the stock appears to have good value.

Selling tobacco British American Tobacco

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

Organic cigarette volume fell 6.8% to 250 billion in the first half, and the company is struggling in its vapor and heated products business. Its Vuse e-cigarette product continues to dominate the U.S., but its organic volume fell 9% in the first half. Sales of heating products have also declined.

Sales of its Velo oral nicotine product have increased, leading to overall growth in new categories, but its performance is not as strong as it seems. Additionally, these categories are competitive and Philip Morris has become the leader in these areas.

As British American Tobacco emphasizes its transition to a smoke-free world, it could struggle to grow, which is usually a recipe for a stagnant share price.

Hold British American Tobacco

If you are an investor looking for a high dividend yield but have limited expectations for stock price appreciation, owning British American Tobacco makes sense.

The tobacco stock appears to be a stable dividend payer, although it is unlikely to beat the stock market. In fact, BAT has a history of underperforming S&P500which shows that investors should moderate their expectations for future growth.

What is the right decision?

British American Tobacco is not the kind of title full of surprises. It pays a large dividend, sells a recession-proof product that is in decline in much of the world, and is slowly moving into 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 breakthrough potential of Philip Morris, which has had more success with its next-generation products and now derives about 40% of its revenue from them, compared to less than 15% for BAT.

Nonetheless, BAT’s low valuation and high yield are enough of an argument to hold the stock.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco Plc and Philip Morris International and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 calls on British American Tobacco. The Motley Fool has a disclosure policy.