Best Stock to Buy Right Now: Realty Income vs. British American Tobacco

Company Overview - British American Tobacco (BAT) derives approximately 80% of its revenue from its combustibles division, with cigarettes constituting about 98% of the volume in that division, confirming its identity as a cigarette company [1] - The company's cigarette volume has been on a declining trend, with a reported decline of 6.8% in the first half of 2024, following declines of 5.3% in 2023, 5.1% in 2022, 0.1% in 2021, 4.6% in 2020, and 4.7% in 2019 [11] Dividend Analysis - The high dividend yield of British American Tobacco, currently at 8.1%, is primarily a reflection of its struggling business, as the best year for volume in the past five years saw only a 0.1% decline [3][7] - Despite the high yield, there are concerns that rising prices to offset volume declines may eventually lead to an unsustainable dividend [8] - There is no immediate risk of a dividend cut, but the long-term sustainability of the dividend is threatened by the ongoing decline in tobacco operations [15] Comparison with Realty Income - Realty Income, a net lease REIT, offers a lower yield of 6% but has a strong track record of increasing dividends annually for three decades, indicating a more stable business model [5][12] - Realty Income's business model is designed to pass income to investors, and it has a robust occupancy rate, even during economic downturns, with a reported occupancy rate of 96% during the Great Recession [10] - The addressable market for Realty Income is estimated to be over $12 trillion, suggesting significant growth potential despite its large market cap of $46 billion [13] Risk Assessment - Investing in British American Tobacco is characterized as a high-risk bet due to the long-term decline of its core business, while investing in Realty Income is viewed as a more reliable option for dividend investors [12][14] - The S&P 500 index currently yields around 1.2%, making both British American Tobacco and Realty Income high-yield stocks, but they represent vastly different levels of risk based on their underlying business models [20]