Are you looking for a true “set it and forget it” type of dividend stock? They are there. Although not entirely common, there are names that 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 dividend yield stands at an impressive 8.8%. In fact, you’d be hard-pressed to find a better immediate ROI from a company of this caliber.

British American Tobacco in transition

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

While his portfolio is impressive, it would be naive to ignore the global movement to quit smoking, which is clearly gaining ground. While about a third of the world’s population regularly smoked cigarettes in 2000, the World Health Organization reports that this proportion has been reduced to only about a fifth of the world’s population today.

Sensing what the future holds, British American Tobacco itself anticipates a time when “cigarettes will have become a thing of the past”. Additionally, the company is “committed to delivering long-term, multi-stakeholder value and aims to become a majority smoke-free company by 2035.”

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

The fact is that such a perfectly successful transition may be less necessary than you think.

Resists headwind very well

Even if the global effort to reduce smoking is successful, it is not a hugely successful effort. The World Health Organization (WHO) estimates that there are still around 1.25 billion regular smokers, down slightly from the 2000 figure of 1.36 billion. Sheer population growth has offset most absolute net gains from smoking cessation efforts.

The movement also slows down. The WHO predicts that there will still be nearly 1.2 billion smokers in 2030.

And figures from British American Tobacco confirm this dynamic. Organic revenue during the first half of this year is essentially equal to last year’s total revenue at the same time, following last year’s slight increase in organic revenue. Most of this also came from the sale of regular cigarettes, while the remaining portion came from the sale of non-combustible alternatives.

To the extent they need it – which isn’t much – British American Tobacco’s vaping and smokeless products are proving a marketable alternative.

Most relevant to interested investors, this sustained demand translates into reliable revenues, which turn into profits, which ultimately turn into reliable dividends. With this in mind, not only has this tobacco giant been paying a quarterly dividend like clockwork for years, but it has also consistently high that too. In fact, persistent share buybacks support earnings per share growth that translates into larger payouts per share.

BTI dividend data by Y Charts

Given the probable longevity of the tobacco sector, this balance sheet is not really threatened.

Overestimated risk, underestimated reward

OK, it’s not guaranteed that British American Tobacco is a “forever” type company that never needs occasional registration. Just as cigarettes are already the subject of regulatory and social scrutiny, vaping and other non-combustible tobacco uses are now increasingly subject to cessation measures. This is a legitimate concern, although the threat is slowly evolving.

Also be aware that while British American Tobacco is a reliable dividend payer, its dividends are paid in British pounds. American investors holding the American Certificate of Deposit (ADR) of the London-listed stock, however, will see these dividends converted into US dollars at a constantly changing exchange rate. This can worsen any inconsistency in the amount 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 choice.

With a high yield of 8.8% based on a reliable dividend, the downsides aren’t enough to avoid owning this stock.

Bottom line? If you need solid, immediate income, this ticker’s halving from its 2017 high is a buying opportunity. Don’t overthink this prospect and end up deterring yourself from what could become a very successful trade in the long run.

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

Have you ever felt like you missed the boat by buying the best performing stocks? Then you will want to hear this.

On rare occasions, our team of expert analysts issues a “Doubled” actions recommendation for businesses that they believe are on the verge of collapse. If you’re worried that 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:

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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 October 28, 2024

James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco Plc 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.