10-03-2021, 12:46 AM
(10-02-2021, 07:32 PM)Kerim Wrote:(10-02-2021, 05:18 PM)fenders53 Wrote: It is old and persistent news that has cut BTI share price in half during about the best five year run in our investing lifetime. What I think you need to convince yourself of is what changes the trend. Total annual return with dividends since JAN 2017 is -3.27%
Totally good and fair point, but entry price is everything, right? Are they about to cut the dividend with a payout ratio in the 60s? Is the price just going to continue to decline to zero in the next five years despite billions in revenue? It is totally fair to ask what my buy thesis is -- and I guess that I'm betting that the price will stay flat to rise from here over the next 5 to 10 years, while I collect a monster dividend. I understand the ills of the tobacco sector, but what is the down side thesis? That for all of the reasons you both have enumerated the share price is just going to drift down forever from here, even though the company is enormously profitable and showering cash on shareholders? Yeah, there is risk, but it seems pretty contained to me, and well compensated by the divvy.
I know I sound like a PSA for confirmation bias here, but...
The downside thesis is what we have seen playing for the past years already. The share price will decline because the future outlook of the company is getting weaker all the time. And at some point, whether it's next year, in 5 years or in 15 years, that weakening outlook will start to hit earnings in a serious way. I agree that this won't happen anytime soon, but I do think it will happen.
The next phrase is not about tobacco, it's about investing in general: I just don't see the point in investing in a dying business model.
This is not to say that BTI won't be a profitable investment. If they can keep the dividend at current levels for the next decade then you will have almost gotten everything back in dividends... so even if the share price will be cut by 50% then you'll still be in the green. I just think there are tons of companies that are safer and will very likely provide better overall returns during the next decade or so, while still paying a decent (~3%-ish) dividend in the process. Not to mention the fact that these other companies might be good for a lifetime hold.