Group 1: Market Overview - Consumer stocks are currently in a unique position, with many consumer discretionary stocks being oversold due to economic uncertainty, while consumer defensive stocks offer protection against market volatility [1] - A rigorous screening process was undertaken to identify three prudent consumer stocks, focusing on a mix of undervalued and low-beta assets [2] Group 2: Constellation Brands (STZ) - Constellation Brands is classified as a consumer staples stock, providing a defensive play in the market [4] - The company has a strong market position and an operating profit margin of 35.45%, indicating economies of scale and price flexibility [5] - STZ stock has a "buy" rating from Goldman Sachs, with expectations for the stock to reach $300 [6] - The stock has decreased by approximately 8% over the past year, with a forward price-to-earnings ratio of 18.15x and a forward dividend yield of 1.64% [7] Group 3: Ford Motor Company (F) - Ford's stock is considered to have deep value, having declined by about 20% year-over-year due to weaker sales and rising input costs [8] - Despite recent challenges, Ford remains a market leader, with a slight decrease in vehicle sales of 0.2% year-over-year [9] - Ford's Electric Vehicle (EV) sales increased by 31.2% year-over-year, indicating growth potential in this segment [10] - The stock has a price-to-earnings-growth (PEG) ratio of 0.56x and a price-to-sales ratio of 0.22x, suggesting it is undervalued [11] Group 4: British American Tobacco (BTI) - British American Tobacco offers a blend of defensive and value investment opportunities, with a focus on consumer staples [12] - The company is restructuring and has increased its stake in Canadian cannabis producer Organigram to 45%, indicating diversification [12] - BTI is targeting a net EBITDA ratio of 2x to 2.5x, which could enhance value for investors [13] - The stock has a forward price-to-earnings ratio of 8.06x and a forward dividend yield of 8.15%, appealing to income-seeking investors [14]

Core Viewpoint - British American Tobacco (BTI) has transitioned from a "Hold" rating to a "Buy" rating due to improved market sentiment, strong stock performance, and positive developments in its business transformation towards smokeless products [2][15]. Business Description - British American Tobacco is a major tobacco company shifting from traditional combustibles (cigarettes) to smoke-free products. The combustibles segment accounted for 80% of revenue in H1 2024, down from 83% in December 2023 [4][5]. Stock Performance and H1 Earnings - The stock has shown a significant increase of 19.5% since the last article, with a notable 15% rise in July alone. H1 2024 results indicated a 7.4% increase in revenue from new categories, while combustibles revenue declined by 2.6% [6][7]. Transformation to a Smoke-Free World - The company aims for half of its revenue to come from non-combustible products by 2035. Recent FDA approvals for e-cigarette products suggest a more favorable regulatory environment than previously anticipated [9][10]. Deteriorating Core Business - The legacy combustibles business continues to decline, with a 2.6% drop in sales in H1 2024. However, regulatory changes that were expected to accelerate this decline have been delayed, providing a more stable outlook for the combustibles segment [10][11]. Dividend Sustainability - BTI currently offers a 10% dividend yield, which is supported by the monetization of its ITC stake valued at $13.3 billion. This development has significantly reduced the risk associated with dividend sustainability [11][12]. Valuation and Market Sentiment - The stock appears undervalued based on DCF models, and recent positive developments have shifted market sentiment, leading to a surge in stock price. The current price-to-earnings multiple is at its lowest in a decade, indicating potential for further growth [12][13].

Federal Reserve Policy and Economic Outlook - Jerome Powell's comments suggest a potential rate cut in September if inflation trends down and the labor market remains stable, indicating a shift from restrictive to accommodative monetary policy [2][3] - The Federal Reserve has raised its policy interest rate by 5.25 percentage points since March 2022, with current inflation measures showing signs of easing [3][4] - The Fed's recent statement reflects a consensus that the inflation battle is nearing its end, downgrading inflation's description to "somewhat elevated" [4] Economic Indicators and Market Reactions - Following Powell's remarks, interest rate futures, stocks, and Treasury bonds rallied, with a notable increase in the probability of a significant rate cut in September [3] - The yield curve is reverting towards positive, which historically precedes recessions, but current economic indicators show a 2.8% real GDP growth for Q2 [5][6] - Employment metrics indicate a decline in full-time employment, which typically aligns with recession periods, yet the economy shows resilience [6] Investment Strategies in a Rate Cut Environment - In anticipation of rate cuts, investment strategies should focus on stocks that exhibit characteristics similar to long-term investment-grade bonds, particularly those with strong dividends [9][13] - Stocks like Broadcom (AVGO) have shown significant price increases due to their future cash flow potential, despite being dividend-paying [10] - Defensive sector stocks, such as Pfizer (PFE), British American Tobacco (BTI), and Verizon (VZ), are highlighted as attractive investments due to their stable dividends and cash flow [16][19][22] Specific Stock Recommendations - Pfizer (PFE) is recommended for its solid 5.5% yield and positive revenue growth outlook, despite high debt levels [16][18] - British American Tobacco (BTI) is noted for its strong cash flow generation and resilience in a competitive market, yielding 8.34% [19][20] - Verizon (VZ) is positioned as a bond proxy with a stable dividend and potential for price recovery as interest rates decline [22][26]

Core Viewpoint - The market is underestimating the upside potential of British American Tobacco (BTI), particularly regarding traditional cigarettes and the total shareholder yield, which includes dividends, share repurchases, and debt paydowns [2][6][14]. Financial Performance - BTI reported total revenue of £12.34 billion for Q2, with organic revenue stabilizing at a decline of 0.8% year-over-year. Diluted earnings per share were 200.30p, reflecting an annual growth rate of 13.8% [6]. - The company anticipates low-single-digit revenue growth overall and double-digit growth in new categories, indicating a positive outlook [6]. Market Reaction - Following the Q2 earnings report, BTI's stock experienced an 11.4% price rally, contrasting with a ~2% correction in the overall market, reinforcing its defensive stock appeal [6][4]. - The market's excitement over new category growth is acknowledged, but there is a belief that traditional cigarette potential is being overlooked [7]. Valuation Insights - BTI's stock valuation is significantly discounted compared to the Graham P/E ratio, suggesting a potential undervaluation [4]. - The Consumer Price Index for tobacco has risen from ~900 in 2014 to 1,541, indicating a 5.52% annual increase, which offsets the decline in cigarette volume [12]. Dividend and Total Shareholder Yield - BTI declared a quarterly dividend of 58.88p per share, leading to an annualized dividend yield of approximately 8.4% [13]. - The total shareholder yield (TSY), which includes dividends, share repurchases, and debt paydowns, is significantly higher than the dividend yield alone, indicating greater return potential [14][22]. Share Repurchase and Debt Reduction - BTI has aggressively repurchased shares since 2022, with a net common buyback yield peaking at around 3.4% in 2023 [15]. - The company's long-term debt has decreased from $56 billion in 2021 to $46 billion, a reduction of about $10 billion, enhancing its attractiveness to long-term investors [22].

Core Viewpoint - The article emphasizes the attractiveness of high-yield investments, particularly British American Tobacco (BTI) and MPLX LP, as viable options for income-focused investors amid changing interest rate dynamics [3][6]. British American Tobacco (BTI) - BTI has a market capitalization of approximately $77 billion and offers a dividend yield of around 8.5%, reflecting the inherent risks in the tobacco industry [4]. - Despite a 0.8% contraction in topline revenue, BTI's earnings per share (EPS) increased by 1.3% in H1 2024, aided by a lower share count and reduced financing costs [4]. - The company anticipates organic growth of 3% to 5% and mid-single-digit growth in adjusted profits from operations by 2026, with a net leverage goal of 2x to 2.5x by year-end [4]. MPLX LP - MPLX, with a market cap exceeding $40 billion, provides a distribution yield of approximately 7.9%, supported by stable revenue from logistics and storage businesses [5]. - The adjusted EBITDA growth has outpaced periodic escalators at around 6.4%, driven by organic growth and M&A investments [5]. - MPLX's distributable cash flows (DCF) have increased significantly, with an annualized Q1 2024 DCF of about $5.3 billion, allowing for surplus liquidity after covering dividends and necessary investments [5]. Market Dynamics - The article notes a potential normalization of interest rates, which could lead to increased asset prices and reduced attractiveness of current dividend yields [6][7]. - Recent data indicates the possibility of interest rate cuts, contributing to a favorable environment for income-generating assets like REITs and bonds [7].

Core Viewpoint - BTI is seen as an undervalued company with strong financials and a significant opportunity for growth, particularly in the smokeless product segment, despite the ongoing stigma surrounding the tobacco industry [2][9][13]. Financial Performance - BTI's shares have increased by 16.81% since early April, outperforming the S&P 500, which rose by 4.10%. The total return, including dividends, is 19.62% [2]. - The company generated $15.99 billion in EBITDA over the trailing twelve months, resulting in a net debt to EBITDA ratio of 2.67x, indicating a strong financial position [6]. - In Q2, BTI reported $7.8 billion in revenue and a gross profit of $6.43 billion, achieving a gross profit margin of 82.46% and a profit margin of 36.4% [13]. Product Portfolio and Market Strategy - BTI has a diverse product portfolio, including traditional cigarettes and a growing range of smokeless products, with 17.9% of revenue now coming from smokeless products, up 1.4% since the end of 2023 [3]. - The company added 1.4 million consumers to its smokeless brands in Q2, bringing the total to 26.4 million [3]. - BTI has received authorization to market its Vuse Alto device in the U.S., which is expected to enhance its performance in the coming years [3]. Valuation and Growth Potential - BTI is trading at less than 8 times earnings, with expected earnings growth of 5.35% over the next two years, making it a compelling value opportunity compared to peers like Altria Group and Philip Morris [7]. - The company is projected to generate $10.8 billion in earnings from operations in the 2024 fiscal year, with a dividend payout of $2.97 per share, representing 61.11% of projected EPS [8]. Share Buyback and Retained Earnings - BTI repurchased 15.19 million shares in the first half of 2024 and plans to allocate GBP700 million ($901.04 million) for buybacks in 2024 and GBP900 million ($1.16 billion) in 2025, while retaining $3.3 billion in earnings for further investments [8]. - After paying dividends, BTI expects to retain $4.2 billion in profitability from 2024's earnings, allowing for continued deleveraging and investment in growth [8]. Market Outlook - The tobacco industry is perceived to be undervalued, and BTI's recent share price increase may signal the beginning of a sustainable rally, driven by strong profitability and a high dividend yield exceeding 8% [9][14]. - The market may start to favor value companies, positioning BTI favorably for future appreciation as it continues to deliver strong financial results [9][14].

Core Viewpoint - British American Tobacco (BTI) remains fundamentally sound despite recent challenges, with a strong dividend yield and potential for growth driven by improved macroeconomic conditions and successful business strategies [4][6][9]. Financial Performance - BTI's total revenue decreased by 0.8%, while adjusted profit from operations declined by approximately 5%. However, earnings per share (EPS) increased by 1.3% due to lower net financing costs and a reduced share count from share buybacks [11]. - The company managed to expand its margins by 100 basis points during H1, 2024, despite a declining top-line, aided by efficiency gains and strong contributions from new category segments [11]. Market Dynamics - The macroeconomic outlook is improving, with lower financing costs expected to enhance consumer demand for BTI's products. Recent data indicates a decrease in inflation and a potential Federal Reserve interest rate cut by the end of the year [6][7]. - BTI added 1.4 million smokeless consumers, contributing 18% to group revenue and generating an incremental GBP 165 million in cash flow. The contribution margin from new categories expanded by 10% [11]. Future Outlook - Management anticipates organic revenue growth of 3% to 5% and mid-single-digit adjusted profit from operations growth on an organic constant currency basis by 2026 [11]. - The company aims to achieve a leverage ratio of 2-2.5x adjusted net debt to adjusted EBITDA by the end of 2024, indicating a focus on optimizing the balance sheet and reducing financial risk [8][11].

Financial Performance - Net cash generated from operating activities declined by £210 million, impacted by a £267 million final payment related to settlement agreements[10] - The Group generated £4,122 million from operating activities in the six months ended 30 June 2024, a decrease of 8.9% compared to £4,522 million in 2023[14] - Net cash generated from operating activities was £3,165 million, down from £3,375 million, reflecting a decline of 6.2%[14] - The Group's total comprehensive income attributable to owners of the parent was £4,526 million, compared to a loss of £599 million in the same period last year[23] - The Group reported a profit for the period of £4,559 million for the six months ended 30 June 2024, compared to £4,035 million for the same period in 2023, representing an increase of 12.9%[34] - Total comprehensive income for the period was £4,590 million, which includes a profit of £4,492 million and other comprehensive income of £98 million[34] - The Group's total profit from operations was £4,258 million, down from £6,020 million in 2023, reflecting a decrease of 29.3%[158] - Profit from operations decreased by 28.3% to £4,258 million, with an operating margin of 34.5%, down 9.7 percentage points[58] - The profit for the period was £3,959 million, compared to £4,035 million in the previous period, reflecting a decrease of approximately 1.9%[45] - The Group's profit for the period for the six months ended June 30, 2024, was £275 million, a significant improvement from a loss of £277 million in the prior year[181] Revenue and Sales - Revenue for the six months ended 30 June 2024 was £12,340 million, down 8.2% from £13,441 million in 2023[53] - Reported revenue decreased by 8.2% to £12,340 million, primarily due to the sale of businesses in Russia and Belarus, lower organic Combustibles volume (down 6.9%), and a translational foreign exchange headwind of 4.5%[63] - Revenue from Combustibles fell by 10.1% to £9,856 million, with an organic revenue decline of 2.6% at constant exchange rates[97] - Revenue from New Categories was £1,651 million, down 0.4%, but up 7.4% on an organic constant rate basis[59] - Modern Oral revenue reported a growth of 41.9%, with volume growth of 50.0%, indicating strong market performance[74] - The Group's revenue from the AME region was £4,376 million, a decrease from £4,730 million in 2023, representing a decline of 7.5%[158] - The APMEA region reported revenue of £2,586 million, slightly up from £2,801 million in 2023, showing a modest increase of 10.4%[158] Cash Flow and Financing - Net cash from investing activities was £1,433 million, an improvement of £1,392 million from the previous year, primarily due to £1,577 million net proceeds from the partial monetisation of investment in ITC[10] - Net cash used in financing activities was an outflow of £3,358 million in 2024, compared to a £3,023 million outflow in the previous year[11] - The Group maintained investment-grade credit ratings from Moody's (Baa2), S&P (BBB+), and Fitch (BBB+), supporting its ability to access debt capital markets[9] - The Group had access to a £5.4 billion revolving credit facility, which was undrawn as of 30 June 2024[9] - The Group repurchased bonds prior to their maturity in a principal amount of £1.8 billion as part of a capped debt tender offer in May 2024[9] - The Group's liquidity remains strong, with an average debt maturity of 9.2 years and a fixed debt profile of 84%[69] - Closing net debt was £33,658 million, down from £38,345 million in June 2023, reflecting a significant reduction in financial liabilities[139] Impairments and Adjustments - The Group recognized an impairment of £472 million for Camel Snus due to a forecasted decline in cash flows, with a 5-year volume CAGR of -10.2%[16] - Amortization and impairment of trademarks and similar intangibles amounted to £1,295 million, significantly higher than £108 million in the same period last year[20] - Total adjusting items included in profit from operations reached £1,306 million, compared to £85 million in 2023, indicating a substantial increase[20] - The effect of impairment of intangibles and other assets was £373 million for the six months ended June 30, 2024, compared to £68 million in 2023, indicating increased impairment charges[171] Market and Consumer Trends - The number of consumers of smokeless products increased by 1.4 million to 26.4 million[58] - The company experienced robust combustibles pricing, with volume and value share gains in AME and APMEA, offset by declines in the U.S.[62] - Modern Oral revenue increased by 122%, driven by a 226% rise in volume following the refreshed Velo brand and the national roll-out of Grizzly Modern Oral[124] - The Group's share of post-tax results of associates and joint ventures showed a significant credit of £1,367 million in the first half of 2024, compared to a charge of £15 million in the same period of 2023[28] Tax and Legal Matters - The Group's tax rate was affected by adjusting items, with a total of £36 million in adjusting items included in taxation for the six months ended 30 June 2024[32] - The Group's exposure to tax obligations includes a provision for potential exposure to tax, interest, and penalties of BRL969 million (£138 million) for the 2020-2023 period due to ongoing tax audits[172] - The Group paid US$332 million (approximately £267 million) to the U.S. Department of Justice in June 2024 as a final settlement for a previously disclosed investigation[179] - As of June 30, 2024, the Group's subsidiaries faced 252 pending Engle progeny cases involving approximately 311 individual plaintiffs[182] Management and Governance - The company appointed Soraya Benchikh as Chief Financial Officer effective May 1, 2024, following changes in the Board[47] - The Group's management believes that value share is particularly useful for investors to understand the performance of BAT's brands relative to competitors in various categories and geographies[200]

Group 1: Dividend Stocks Overview - Seven outstanding dividend stocks are highlighted for their attractive yields and solid fundamentals, making them ideal for long-term investment strategies [1] - These companies exhibit solid dividend yields, strategic growth initiatives, and diversified portfolios, which are essential for long-term dividend stocks [2] Group 2: Pfizer (PFE) - Pfizer returned $2.4 billion to shareholders via dividends and invested $2.5 billion in internal research in Q1 2024 [3] - The company paid down approximately $1.25 billion in maturing debt and reduced its equity position in Haleon from 32% to 23% [3] - Pfizer's stock has a forward dividend yield of 5.7%, with a goal of achieving at least $4 billion in net cost savings by the end of 2024 [7] Group 3: Oaktree Specialty Lending (OCSL) - Oaktree Specialty Lending focuses on first-lien loans, enhancing portfolio security and stability, with a forward dividend yield of 12.3% [4] - The company's first-lien investments increased from 71% of the portfolio in September 2022 to 81% currently [4] - In Q1 2024, Oaktree Specialty made $396 million in new commitments, with a weighted average yield on new debt investments at 11.1% [10] Group 4: Realty Income (O) - Realty Income is a monthly dividend company with a forward dividend yield of 5.5%, investing $598 million across various regions in Q1 2024 [13] - Over half of the investments, approximately $323 million, were directed towards Europe and the U.K., achieving an initial weighted average cash yield of 8.2% [13] - The company diversifies its investments across retail, industrial, and data centers, leading to risk spread and demand capture [14] Group 5: Verizon (VZ) - Verizon's stock has a forward dividend yield of 6.8%, with significant growth in its broadband business, adding 391,000 broadband users in Q2 2024 [17] - The company now has over 11.5 million broadband customers, reflecting a 17.2% yearly increase, with fixed wireless subscribers growing by approximately 69% [18] - Verizon's focus on broadband expansion and customer retention strategies supports its long-term dividend stock status [19] Group 6: AT&T (T) - AT&T's stock has a forward dividend yield of 6%, with 252,000 new AT&T Fiber subscribers added in Q1 2024 [21] - The total number of fiber locations reached 27.1 million, with nearly 8.6 million fiber subscribers, and consumer broadband revenues increased by 7.7% [21] - The integration of 5G and fiber services enhances customer retention and profitability, solidifying AT&T's position among long-term dividend stocks [22] Group 7: British American Tobacco (BTI) - British American Tobacco has a forward dividend yield of 8.9%, with consumer numbers reaching 23.9 million, excluding 1.5 million in Russia [25] - The company achieved profitability in new categories two years ahead of schedule, with a £400 million improvement from last year [26] - The contribution margin in top new category markets exceeded 20%, indicating strong market demand and strategic execution [26] Group 8: Altria (MO) - Altria's stock has a forward dividend yield of 7.9%, with its e-vapor division (NJOY) expanding to over 80,000 locations [28] - NJOY's retail share in the U.S. multi-outlet and convenience channel grew to 4.3%, indicating strong consumer acceptance [29] - Altria's increasing market share and strong retail presence position it among the top long-term dividend stocks [29]

Financial Performance & Guidance - The company's H1 performance was in line with expectations, and it is confident in H2 acceleration to deliver FY24 guidance of low-single digit revenue and APFO growth[9, 114] - Group revenue decreased by 0.8% organically to £12.944 billion in HY24[45, 60] - Adjusted organic diluted EPS increased by 1.3%[60, 156] - The company is targeting 3-5% organic revenue growth and mid-single figure organic adjusted profit from operations growth in the mid-term[162] New Categories - Smokeless product consumers increased by 1.4 million to 26.4 million[7] - Smokeless products represent 17.9% of Group revenue, up 1.4 percentage points[7] - New Category revenue increased by 7.4% to £1.709 billion[60, 94] - New Category contribution increased by £165 million, with contribution margin up by 10 percentage points vs HY23[14, 56] Regional Performance - In the U.S., organic revenue decreased by 6.7%, and APFO decreased by 5.1%[92] - Combustibles revenue in the U.S decreased by 8.5% adjusted for inventory movements[130] - Revenue in AME (Africa and Middle East) increased by 5.4%, and APFO increased by 5.3%[140] - Revenue in APMEA (Asia Pacific, Middle East, and Africa) increased by 1.8%, and APFO increased by 3.8%[149] Shareholder Returns - The company initiated a sustainable share buy-back program: £700 million in 2024 and £900 million in 2025[7]