Finding some spare cash to put into a Stocks and Shares ISA isn’t always easy. But by stopping smoking and using the money saved to invest in the stock market, I reckon it’s possible to build significant wealth.
Want to find out more? If so, light up your final cigarette and take a closer look at these amazing numbers.
Back-of-a-fag-packet calculations
Smoking 20 a day is going to cost somewhere in the region of £17. But it’s not practical to invest such a small amount in the stock market daily. However, put £515 a month into an ISA and I reckon it’s possible to build a very impressive portfolio.
Of course, the exact amount depends on the level of return achieved and for how long. But as the table below shows, with an investment timeframe of 35 years, it’s possible to get to £1m under certain assumptions.
| Annual return (%) | ISA value (£) |
|---|---|
| 5.0 | 585,088 |
| 5.5 | 654,526 |
| 6.0 | 733,726 |
| 6.5 | 824,163 |
| 7.0 | 927,543 |
| 7.5 | 1,045,842 |
| 8.0 | 1,181,349 |
| 8.5 | 1,336,717 |
| 9.0 | 1,515,019 |
| 9.5 | 1,719,823 |
Are returns like these realistic? Well, the 2016-2025 annual average of the FTSE 100 was 9.5%.
Smoking is like paying someone to kill you. They’re rich; you’re dead.
Anonymous
A healthy return?
Ironically, one stock that’s delivered significant shareholder wealth over the past few decades has been British American Tobacco (LSE:BATS).
With its impressive margin, strong cash flows, and limited capital expenditure requirements, the group’s been able to grow both its earnings and its dividend.
To illustrate how shareholders have benefitted from the group’s growth, there’s a handy calculator on its website.
For example, a £10,000 investment made on 1 January 2000 would now be worth £17,062. That’s a return of 71%, equivalent to 3.8% a year.
However, this is only half the story. Over this period, the group’s paid some impressive dividends. Had these been used to buy more shares, the initial £10,000 would have grown to £39,838. This is a total return of 299%, or 10% a year.
Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.
Falsely attributed to Albert Einstein
Personally, I think it’s unlikely that shareholders will enjoy such impressive gains over the next 25 years or so.
Traditional cigarettes are falling out of fashion and health concerns have been raised about the next generation of replacements. And I don’t think the alternatives are going to be as profitable. Smokeless products now account for 18.2% of British American Tobacco’s revenue but contribute only 3.2% to earnings.
Compared to traditional cigarettes, I reckon more cash is going to be needed to promote, manufacture, innovate, and develop these new categories of products. This could put pressure on the group’s dividend.
Not yet…
However, I acknowledge that the transition is going to be a slow one. Year-on-year revenue and earnings increased again in 2025. And analysts are expecting the group’s turnover, adjusted earnings per share, and operating margin to further improve in 2026 and 2027.
But I prefer to take a long-term view with my investments, which is why I think there are better opportunities to consider elsewhere.
However, this does illustrate the power of compounding and how high-yielding shares can beat the performance of other stocks that pay lower (or no) dividends, ones that are typically viewed as being better for capital growth.
Fortunately, there are loads of UK shares paying generous dividends to choose from.
Should you invest £5,000 in British American Tobacco P.l.c. right now?
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And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if British American Tobacco P.l.c. made the list?
James Beard does not hold any positions in the companies mentioned.
