British American Tobacco (NYSE: BTI) is one of the largest tobacco companies in the world. It's a global business and owns brands like Camel, Newport, and Lucky Strike, as well as next-gen products like the Vuse e-cigarette brand and Velo nicotine pouches.

Like other tobacco stocks, British American Tobacco is also valued by investors because of its high dividend yield, which is currently at 8.2%. In fact, British American Tobacco stock has gained this year thanks to a solid first-half earnings report, and a broader rotation into high-yield tobacco stocks, including Altria and Philip Morris. This was possibly in anticipation of falling interest rates, which favor high-yield dividend stocks like those represented by the tobacco sector.

As we're now in the last quarter of 2024, investors are likely looking forward to 2025, and wondering if the stock can continue to climb. Keep reading to see whether British American Tobacco is a buy, sell, or hold going into 2025.

Buy British American Tobacco

The best reason to invest in BAT may be its attractive dividend yield of 8.2%.

Its dividend is well-funded, and the company took the unusual step of taking a $30 billion write-down on the value of American tobacco brands like Camel and Newport. The company did that in response to declining smoking rates in the U.S. and its desire to push toward a smoke-free future.

Additionally, British American Tobacco is cheap at a price-to-earnings ratio of just 8, and the company is highly profitable at an adjusted operating margin of 45.1% in the first half of the year.

While organic constant-currency revenue was down by 0.8% in the first half, its revenue from new categories continues to grow, up 7.4%.

Overall, British American Tobacco's business is stable. Its dividend is safe, and the stock looks like a good value.

Sell British American Tobacco

The biggest challenge for tobacco companies like British American Tobacco is successfully making the transition from cigarettes to next-gen products.

Organic cigarette volume fell by 6.8% to 250 billion in the first half of the year, and the company is struggling in its vapor and heated products business. Its Vuse e-cigarette product continues to lead the U.S., but organic volume fell 9% in the first half. Heated product sales were also down.

Sales of its Velo oral nicotine product have been surging, leading to overall growth in new categories, but its performance isn't as strong as it might seem. Additionally, those categories are competitive, and Philip Morris has emerged as the leader in those areas.

As British American Tobacco emphasizes its transition to a smokeless world, it may struggle to grow, and that's typically a recipe for a stagnant stock price.

Hold British American Tobacco

If you're an investor looking for a high dividend yield but have limited expectations for share price appreciation, holding British American Tobacco makes sense.

The tobacco stock looks like a stable dividend payer, even if it isn't likely to beat the stock market. In fact, BAT has a track record of underperforming the S&P 500, showing that investors should temper their expectations for future growth.

What's the right move?

British American Tobacco isn't the kind of stock that's full of surprises. It pays a strong dividend, sells a recession-proof product that's declining in much of the world, and is slowly transitioning to growth products like Velo.

In this kind of environment, holding BAT stock makes the most sense. The company will continue to be a promising dividend payer. However, it lacks the breakout potential of Philip Morris, which has had more success with its next-gen products and now derives about 40% of its revenue from them, compared to BAT at less than 15%.

Still, BAT's low valuation and high yield offer enough of an argument to hold the stock.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco P.l.c. and Philip Morris International and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.

Is British American Tobacco a Buy, Sell, or Hold in 2025? was originally published by The Motley Fool