1 Magnificent S&P 500 Dividend Stock Down 53% to Buy and Hold Forever

Are you looking for a true "set it and forget it" kind of dividend stock? They're out there. Although not exactly common, there are names you can buy and hold forever without the need for constant monitoring.

One of the best bets among these names right now is British American Tobacco (NYSE: BTI), while its forward-looking dividend yield stands at an impressive 8.8%. In fact, you'd be hard-pressed to find a better immediate return on your investment from a company of this caliber.

British American Tobacco in transition

You likely know the outfit. Just as the name suggests, British American Tobacco is the London-based owner of several cigarette brands including Kent, Lucky Strike, and Pall Mall. Although the bulk of its business is done outside of the United States, its 2017 acquisition of Reynolds added a handful of popular U.S. brands like Newport and Camel to its lineup. The company also manages a range of non-combustible tobacco products including a heated tobacco option, along with vaping platform Vuse (which is also available in the United States).

While its portfolio is impressive, it would be naïve to ignore the global smoking-cessation movement that's clearly getting some traction. Whereas roughly one-third of the world regularly smoked cigarettes in 2000, the World Health Organization reports that proportion's been pared down to only around one-fifth of the planet's people now.

Sensing what the future may hold, British American Tobacco itself anticipates a time when "cigarettes have become a thing of the past." Moreover, the company is "committed to delivering long-term multi-stakeholder value and aim to become a predominantly smokeless business by 2035."

Its vaping, heated tobacco, and non-combustible tobacco products are of course intended to offset any continued contraction of British American Tobacco's cigarette business. Investors, however, are of course concerned such a transition may be easier said than done.

The thing is, such a perfectly successful transition may be less necessary than you think.

Holding up to the headwind just fine

While the worldwide effort to reduce cigarette smoking is working, it's not an overwhelmingly successful effort. The World Health Organization (WHO) estimates there are still on the order of 1.25 billion regular smokers, down only slightly from 2000's tally of 1.36 billion. Simple population growth has offset most of the smoking-cessation's effort's absolute net gains.

The movement is also slowing down. The WHO predicts there will still be nearly 1.2 billion tobacco users in 2030.

And British American Tobacco's numbers bear this dynamic out. Organic revenue through the first half of this year is essentially even with last year's total top line at the same point in time, following last year's slight increase in organic revenue. Most of that still came from ordinary cigarette sales, too, while the portion that didn't stemmed from sales of non-combustible alternatives.

To the extent they need to -- which isn't much -- British American Tobacco's vaping and smokeless products are proving a marketable alternative.

More pertinent to interested investors, this sustained demand translates into reliable revenue, which becomes profits, which is ultimately turned into reliable dividends. In this vein, not only has this tobacco giant paid a quarterly dividend like clockwork for years now, but it has regularly raised it as well. Persistent stock buybacks, in fact, are bolstering growing per-share profits that turn into bigger per-share payouts.

BTI Dividend data by YCharts

Given the likely longevity of the tobacco business, this track record isn't in any real jeopardy.

Overstated risk, underappreciated reward

OK, British American Tobacco isn't guaranteed to be a "forever" kind of holding that never needs the occasional check-in. Just as cigarettes are already receiving plenty of regulatory and social scrutiny, vaping and other non-combustible tobacco usage are now drawing an increasing degree of cessation fire. This is a legitimate concern, even if the threat is slow-moving.

Also know that while British American Tobacco is a reliable dividend payer, its dividends are paid in British pounds. U.S. investors holding the American depository receipt (ADR) version of the London-listed stock, however, will see these dividends converted to U.S. dollars at an ever-changing exchange rate. This can add to any inconsistency in the size of its quarterly payments. If you need a specific minimum amount of monthly dividend income, British American Tobacco stock may not be your best first -- or only -- dividend pick.

With a beefy yield of 8.8% that based on a reliable dividend though, the drawbacks aren't enough to avoid owning this stock.

Bottom line? If strong, immediate income is what you need, this ticker's halving since its 2017 peak is a buying opportunity. Don't overthink this prospect only to end up talking yourself out of what could become a very fruitful long-term trade.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $22,292!*
• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $42,169!*
• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $407,758!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 28, 2024

James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco P.l.c. and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.