Core Viewpoint - British American Tobacco (BAT) is emerging from a challenging decade and is positioned to potentially outperform the market moving forward, despite the inherent risks associated with tobacco investments [1][2][3]. Company Performance - BAT has faced significant challenges over the past decade, including a tumultuous market environment and the consequences of a costly merger with Reynolds American, which resulted in a $31.5 billion non-cash write-down on its U.S. cigarette brands in late 2023 [3][10]. - The stock has shown a 43% increase over the past year, although it remains down 25% from a decade ago, indicating a potential shift in market sentiment towards a more favorable outlook for the company [11]. Revenue and Growth - BAT's new category products, including electronic cigarettes and heated tobacco, have seen organic, currency-neutral sales growth of 8.9% in 2024, contributing to 17.5% of total revenue [4]. - Management anticipates annualized currency-neutral revenue growth of 3% to 5% starting in 2026, which, while modest, represents a recovery path from previous declines [5]. Dividend and Cash Flow - The company offers a nearly 7% dividend yield, providing attractive short-term returns, especially during periods of market volatility [2][6]. - In 2024, BAT generated £7.9 billion in free cash flow and paid out £5.2 billion in dividends, resulting in a payout ratio of 66%, indicating a healthy cash flow position [8]. Valuation and Market Position - BAT's stock valuation has improved, currently trading at under 10 times 2025 earnings estimates, which is a significant recovery from a low of under 8 times earnings early last year [12]. - The company’s strategic focus on transitioning to smoke-free products positions it favorably against competitors, although it still trails Philip Morris International in this area [4][10].