A lot of investors have ethical reservations about investing in these companies. But how do things stack up from a returns perspective?

Fundamentals

There’s a lot to like about British American Tobacco (LSE:BATS) shares. At least, in terms of what income investors usually look for.

The stock currently comes with a 5.5% yield. And that dividend has grown at an average of over 4% a year in the last decade.

Source: Fiscal.ai

The dividend is also well-covered by the company’s free cash flow. So it’s not as though the business is taking on debt to finance this.

British American Tobacco’s profit margins are huge. And the stock trades at a very reasonable price-to-earnings (P/E) ratio of 12.55.

This, however, is why investors don’t just look at financial metrics to make decisions. Not every risk shows up in a firm’s financial statements.

Ethical investing

A lot of investors wonder whether they should stay away from tobacco stocks on moral grounds. And it’s a good question. 

Tobacco products are harmful. But – as Warren Buffett once pointed out – moral questions don’t just apply to the firms that make these products.

Retailers like Tesco sell them while knowing about the potential harms. So are they morally equivalent to British American Tobacco?

I rarely disagree with Buffett. But I think there is a relevant difference between letting people buy cigarettes and actively marketing them.

I’m a philosopher by training, but I see this as an area where investors need to decide for themselves. And there’s plenty more to think about.

Tobacco stocks

The big elephant in the room with tobacco stocks is the decline in the core product. The number of cigarette smokers is going down. 

So far, that hasn’t been a problem. British American Tobacco has been able to offset volume declines with price increases.

That, however, won’t go on indefinitely. It won’t get to the point where one remaining smoker replaces all of the current revenues.

The company is trying to replace the declining consumer base by launching new products. Whether it can do it fast enough remains to be seen.

British American Tobacco’s dividend growth over the last 10 years has been impressive. But the future could look very different to the past.

Is it worth the risk?

To earn £12,000 a year, investors need 4,898 British American Tobacco shares. And that number comes down as the dividend grows.

At today’s prices, that costs £218,259. That’s a lot – and it’s worth noting that the dividend yield is actually lower than it has been.

Source: Fiscal.ai

I think British American Tobacco’s core product sales will eventually fall off. And the day that happens is only getting closer.

Given this, buying the stock with an unusually low dividend yield seems risky to me. So I’m wary about the stock. 

The moral question is tricky. But whatever passive income investors conclude, I think they have good reason to look at other opportunities.

Should you invest £5,000 in British American Tobacco P.l.c. right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

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?

Stephen Wright does not own shares in any of the companies mentioned.

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The reason for this outsized gain? Some of it is thanks to the tobacco stock’s natural defensive qualities, with revenues further supported by robust pricing actions and sales of non-combustibles. A hefty share buyback programme (£1.1bn in 2025 and a planned £1.3bn for this year) also boosted investor interest, as did further meaty dividend hikes.

But I wasn’t tempted to snap up British American Tobacco shares, and I’m still not interested today. The reason? I buy stocks to hold for the long term, and the outlook here is hugely uncertain as the world becomes increasingly ‘smoke free’.

The threat was on full display in British American’s latest trading statement today (2 June). And it sent the Footsie firm’s share price scuttling lower.

What’s happened?

Cigarette sales are cooling globally as health concerns over smoking accelerate. The problem for tobacco companies is made all the worse by lawmakers clamping down on the sale, marketing and usage of combustibles.

Such restrictions were piloted in developed markets, and now they’re spreading rapidly in critical emerging regions such as Asia. The result? This is causing the industry to contract more sharply than had been feared, as today’s news shows.

The FTSE 100 company now expects sector-wide cigarette volumes to drop 2.5% in 2026. That’s worse than the 2% decline it had previously expected.

As a result, British American reckons its own full-year results will be “[at the] lower end of our medium-term guidance ranges” of:

• 3%-5% revenue growth.
• 4%-6% adjusted profit from operations growth.

In better news…

Unsurprisingly, cigarette firms are turning towards non-combustibles to drive revenues And for British American Tobacco, it’s paying off — the firm is now a market leader with products such as its Vuse vapes and Velo gum.

The good news? Sales of these products actually exceeded expectations in H1. According to the company, “revenue growth is accelerating and we now expect to deliver mid-teens for 2026“. Low double-digit growth had previously been tipped.

But does this offset problems elsewhere in the business? The market reaction to today’s results suggests not, and I agree. New categories account for just 18% of group revenues. And British American’s plans to hike this to 50% may come to nothing as regulators increasingly clamp down on activities like vaping.

Concerns over the profitability aren’t going to go away any time soon either. Margins are far weaker than those of the firm’s traditional products, reflecting their higher R&D and marketing costs.

A FTSE 100 dip buy?

British American Tobacco’s share price may have dropped today but the tobacco titan’s still pretty expensive in my view, its price-to-earnings (P/E) ratio sitting at a FTSE 100-topping 13.6 times. I don’t think this can be justified given the enormous risks the company faces so don’t see it as one to consider.

Should you invest £5,000 in British American Tobacco P.l.c. right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

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?

Royston Wild does not hold any positions in the companies mentioned.

The post British American Tobacco’s share price slumps 4%! How’s that happened? appeared first on The Twelfth Magpie.

The standout is a hike in revenue outlook for the company’s smokeless products. Management says it now expects “mid-teens revenue growth for H1 and FY 2026.” That’s not a huge rise from previous guidance for low-double-digit growth, but it marks a definite uptick in the trend. So why did the shares fall?

Tobacco sales

The main problem I see is that global cigarette volumes are expected to decline around 2.5% for the full year. That’s worse than the 2% previously predicted. And it takes the shine off things a bit.

We are making good progress towards our year‑end target leverage range of 2.0-2.5x and remain committed to delivering sustainable shareholder value through robust cash returns.

— CEO Tadeu Marroco

The board still expects the year to bring a 5%–8% rise in adjusted earnings per share. And we could be seeing an operating cash flow conversion rate of more than 95%. The company says that should help in “maintaining a progressive dividend and sustainable share buybacks, with £1.3bn in 2026.“

Long-term dividends

British American Tobacco shares have had a strong five years, up 61%. It’s been a volatile few years, mind. But for me, there’s one key attraction — dividends.

We’re looking at a forecast 5.7% dividend yield for 2026. There are bigger FTSE 100 yields to aim for right now, for sure. But the company has raised its annual dividend for 30 consecutive years. And forecasts show it continuing for at least the next three.

Cover by earnings looks like running at around 1.3 times, and that might be a cause for concern. There seems to be plenty of cash flow at the moment. But if margins should be squeezed by falling cigarette sales and net debt should rise (it reached $30.4bn at 31 December 2025) might we see pressure on the dividend?

Crunch coming?

My main concern is over the pivot that British American is in the middle of. That’s away from all that increasingly unpopular smoke inhalation and towards ‘New Generation’ alternatives.

The shift does seem to be progressing nicely. And judging by this latest update, it might even be accelerating.

The trouble is, smokeless products still contributed only 18.2% of 2025 revenue. And the increase from 2024 — of 70 basis points — seems closer to the pace of a snail than a speedboat.

Also important, governments are increasingly trying to get people off vaping too and away from tobacco consumption altogether.

All about the dividend

I fear anything that prevents the dividend being lifted one year could result in a quick share price decline.

Saying that, I expect the board to maintain its focus on paying those dividends. And I think it should be able to keep them going for a good few years to come. This still has to be one for dividend investors to consider — but it’s mainly ethical considerations keeping me away.

Should you invest £5,000 in British American Tobacco P.l.c. right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

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?

Alan Oscroft does not hold any positions in the companies mentioned.

The post As British American Tobacco shares dip, is this a hot buying opportunity? appeared first on The Twelfth Magpie.

The cash generation behind that yield remains formidable, and the shares still look meaningfully undervalued relative to those fundamentals.

Together, this creates a rare mix of high income today and potential price gains tomorrow. So what sort of returns are we looking at?

How much dividend income?

Analysts forecast British American Tobacco’s dividend yield will increase to 5.5% this year, 5.6% next year, and 5.9% in 2028. By contrast, the current FTSE 100 average dividend yield is just 3.1%. That said, dividend yields can go down as well as up over time.

Using the forecast 5.9% as an average, another £20,000 investment in the shares by me would make £16,028 in dividends after 10 years.

The figure also assumes that the dividends are reinvested back into the stock to harness the full power of dividend compounding.

After 30 years on the same basis, the total dividends would rise to £96,909. Including the £20,000 original investment, the holding would be worth £116,909 by then.

And that would pay me a yearly income of £6,898!

What’s powering these rises?

Underpinning sustained gains in any firm’s dividends (and share price) is solid profit growth over time.

A risk to British American Tobacco is that tighter regulation in major markets could restrict pricing power and slow profit growth. Another is that rising sales of its newer nicotine products fail to offset the long‑term decline in traditional cigarette volumes.

Nevertheless, analysts forecast that its profits will rise by an average of 4.3% a year over the medium term at minimum.

This looks perfectly reasonable to me, as management forecast 4%-6% adjusted operating profit growth and 5%-8% adjusted diluted earnings per share growth for 2026 in its 2025 annual results.

Share price gains too?

Given this, there is the possibility of significant share price gains too, in my view. Profit growth is the engine that causes a company’s share price to close the gap to its ‘fair value’. This makes it crucial for maximising the profits of long-term investors.

To estimate a stock’s fair value, discounted cash flow (DCF) analysis projects future cash flows and discounts them back to today. The less certain those earnings forecasts are, the higher the return investors demand, which increases the discount rate.

Depending on their assumptions, analysts’ discounted cash flow (DCF) models can vary — some more optimistic, others more conservative. Based on my own inputs, including an 8.8% discount rate, British American Tobacco appears 27% undervalued at £45.88.

That places fair value at roughly £62.85 — significantly higher than the current level. So if prices continue to migrate toward fair value over time, this could be a compelling buying opportunity if those DCF assumptions prove accurate.

My investment view

British American Tobacco’s well‑supported yield and steady profit growth give it strong appeal as an income play and potential source of substantial share‑price gains.

Its cash generation, valuation gap, and long record of rising dividends make it a stock that deserves serious investor consideration, in my view.

I will certainly be buying more of the stock very soon. And I also have my eye on other high-yielding undervalued shares in other sectors too.

Should you invest £5,000 in British American Tobacco P.l.c. right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

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?

Simon Watkins owns shares in British American Tobacco.

The post I’m targeting a yearly income of £6,898 from £20,000 in this FTSE heavyweight! appeared first on The Twelfth Magpie.

Except they are not! It is possible to start taking money out of a SIPP as early as 55 (rising to 57 a couple of years from now). Not only that, but a pension has two key phases – putting money in and taking money out.

While taking money out may be something done in later life, putting money in need not wait. Indeed, the earlier the start, the more time there is to try and build a sizeable pension pot for when the time comes to start taking money out.

The right time is now!

So when ought someone start to think seriously about a SIPP? My answer would be: right now!

If they have not already done so, an adult starting a SIPP sooner rather than later can bring substantial benefits for their efforts to build long-term value in their SIPP.

To illustrate this, I will show the projected value at age 65 of a SIPP that someone has put £500 a month into, starting at a given age. In my example I presume a compound annual growth rate of 5%.

Remember, because of the tax relief offered by a SIPP, even though the person contributes £500 a month, that will actually mean £625 hits their SIPP.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Compounding works best over the long term

I find all of those numbers interesting. Even at 55 — an age when some people start to draw down their SIPP — someone could start investing £500 a month and build close to a six-figure SIPP in a decade.

But the most interesting number for me is one that does not appear directly in the chart: £439k. That is the extra amount someone would build in their SIPP by starting at age 18 and not waiting just seven years until they are 25.

Remember – the monthly contribution used is still the same: £500. That amount a month for seven years adds up to £42k. Even allowing for the SIPP tax relief, how does £42k become £429k, a sum over 10 times as great?

The answer: compounding. Starting younger gives money more time to compound. As shown here, the results can be incredible!

One high-yield share to consider

For its income compounding potential, one share I think investors should consider is British American Tobacco (LSE: BATS). It has grown its dividend annually for decades and now yields 5.2% — well above the FTSE 100 average of 3%.

A key question is: can this last? Cigarette sales are declining and revenues have fallen at the company for several years in a row. That is a risk, while some investors may shun the share for ethical reasons.

But British American has been battling weakening demand in some markets and tighter regulatory controls for decades already – yet it keeps pumping out huge free cash flows year after year.

Its portfolio of well-known brands like Rothmans gives it pricing power. I think that could last a long time yet.

Should you invest £5,000 in British American Tobacco P.l.c. right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

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?

Christopher Ruane has no position in any of the companies mentioned.

The post What’s the right age to think seriously about a SIPP? appeared first on The Twelfth Magpie.

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.

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?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

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.

The post Give up smoking and build an ISA worth £1,719,823?! appeared first on The Twelfth Magpie.

The yield – 5.3% — is well above the 3% average offered by the FTSE 100 overall.

That is not the only attraction, though. British American Tobacco has increased its dividend annually for decades.

Now, that is not a guarantee of what might happen in future – though the firm does aim to maintain its approach of annual dividend growth.

But it is indicative of just how cash generative the tobacco industry can be, thanks to an addictive product, low production costs, and potentially high selling costs.

In British American’s case, that is bolstered further by the appeal to smokers of its premium brand portfolio.

Things will likely get progressively harder

However, there are reasons that people might not want to invest in British American.

One is ethical: some people shun shares in tobacco firms.

Even for those who are willing to invest in the sector, another potential reason not to buy into British American is the long-term trajectory of the cigarette market.

Cigarette usage is declining year after year in many major markets. It looks set to keep declining for the foreseeable future.

Because cigarette prices can be increased without turning off many customers, makers can seek to offset declining demand by raising prices.

But even this approach has its limits. British American has seen revenues fall for the past two years in succession, on the back of steep cigarette volume declines. I see both of those trends as likely to continue.

Moving beyond cigarettes

Another strategic approach to try and reduce the impact of declining cigarette demand is to branch into non-cigarette products.

The company has spent a lot of time and money in recent years growing its non-cigarette product range, for example with vapes.

I think that approach could well have some long-term success. But the economics of cigarettes are hard to replicate and it remains to be seen whether vapes, which are more expensive to produce, will ever be anything like as profitable as fags.

I’m upbeat about the dividend prospects

British American has other risks for investors too.

Those strong cash flows I mentioned mean that it has been able to borrow large amounts. It has a sizeable net debt.

While I expect ongoing cash flows to allow the company to service that debt without problems, the associated substantial interest costs nonetheless eat into profitability.

However, the reality is that cigarette use has already been declining for a long time. British American has proven resilient and adaptable thus far. I expect that to remain the case.

Even though cigarette use is in sharp decline, it remains substantial. Indeed, the company sells billions of cigarettes per week. I see the British American investment case as relying on the income potential, so the board is highly motivated to keep growing the payout.

At some point it may become unsustainable. For now, though, the company can afford it — and personally I expect it to last. I see this as a dividend share for investors to consider.

Should you invest £5,000 in British American Tobacco P.l.c. right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

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?

Christopher Ruane does not hold any position in the companies mentioned.

The post With a 5.3% yield and decades of annual growth, can the British American Tobacco dividend last? appeared first on The Twelfth Magpie.

In reality, nobody can ever time a stock market crash with certainty. Just because the market looks like it should (or should not) crash does not mean it will.

Instead, the question I want to look at here is what a crash (whenever it might come) might mean for a Stocks and Shares ISA.

In this example, I imagine one currently valued at £20k. In practice, most of the same considerations would apply for a bigger or smaller ISA than that too.

A painful paper loss

A stock market crash is commonly defined as a fall of 20% or more in a short period of time. Reducing £20k by 20% would mean it becomes £16k.

However, that does not necessarily mean that someone with a £20k ISA would see its value fall to £16k during a crash.

That 20% figure is for the whole market. So, if the ISA is invested just in FTSE 100 trackers, it may fall by roughly that amount.

But for an ISA (like mine) that is spread across a wider range of shares, the percentage loss may be greater or smaller. Even in a stock market crash, some shares can do well thanks to their defensive qualities or outstanding business performance.

Others, meanwhile, can be hit harder than the wider market. Banks during the financial crisis were one of many examples over history.

That helps explain why it is always important to keep an ISA diversified.

What exactly is this loss in value, though? It is what is known as a paper loss. It only becomes an actual loss if the investor sells the shares.

Over time, a share may recover its paper loss – and perhaps ultimately move higher.

That is not guaranteed to happen. But in a crash, if I continue to believe in the investment case for a share I own, I typically just hang onto it in the hope of price recovery, even if it shows a paper loss.

Don’t forget about dividends!

Still, a paper loss can be painful for an investor when they see it.

What about dividends? They are never guaranteed – and a crash often sees some companies cutting or cancelling theirs altogether.

But some companies keep on paying out. Plus, lower share prices during a stock market crash can actually mean a buyer earns a higher yield than they would have months before.

One share that maintained its dividend during recent crashes is British American Tobacco (LSE: BATS). In fact, the Pall Mall manufacturer has grown its dividend per share annually for decades.

Smoking’s addictiveness gives tobacco shares some defensive qualities, as customers tend to keep buying even when the economy struggles.

Set against that, though, is the long-term decline in cigarette use. That has been eating into British American’s revenues and I see a risk they will keep falling. Some investors may also shun the tobacco share on ethical grounds.

I do see this as a share to consider. It has strong brands and has proven highly cash generative. The dividend yield is 5%.

Should you invest £5,000 in British American Tobacco P.l.c. right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

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?

Christopher Ruane has no position in any of the shares mentioned.

The post What might a stock market crash mean for a £20k ISA? appeared first on The Twelfth Magpie.

As an idea, that sounds simple enough. But translating ideas into practice is not always easy.

So, what about this one?

Big companies earn money – and it’s up for grabs

To start with, it may be helpful to explain why I (like millions of other investors) see dividend shares as an attractive option when it comes to passive income.

The London stock market contains hundreds of companies with proven business models that generate spare cash and distribute at least some of it to shareholders in the form of dividends. Those shareholders do not have to do anything for that money beyond owning the share in question.

Some of those companies are tiddlers, but many are giants of British business, such as Shell, Tesco, and Unilever.

Some people rack their brain trying to come up with novel ways to earn a second income. But this way is already there, hiding in plain sight.

Setting an expectation

How lucrative can it be?

That depends on how much somebody invests and at what average dividend yield.

Yield is basically the amount of dividends someone expects to earn in a year, expressed as a percentage of the cost of the shares. So the current FTSE 100 yield of 3% means that someone spending £100 on FTSE 100 shares today would hopefully earn £3 a year of second income from them.

Put another way, someone spending £100,000 would hopefully earn a £3,000 second income annually.

I say “hopefully” because dividends are never guaranteed. That is one reason a savvy investor diversifies their portfolio and pays close attention when choosing shares to buy.

Though 3% is the FTSE 100 average, in today’s market I think an investor could realistically target a 6% yield while sticking to proven blue-chip firms.

Hundreds of pounds of weekly income

At that level, what would it take to earn a £300 second income on average per week?

That is £15,600 per year. So, at a 6% yield, it would require £260,000.

The good news is that for someone who does not have that (or even a single penny) invested today, it is possible to build up to it.

That could see the second income grow along the way towards the target. Or the investor could reinvest dividends initially, seeking to get to the target portfolio size as fast as possible.

Doing that with £1,000 each month, a portfolio compounding at 6% annually ought to hit £260,000 in under 15 years.

An income share to consider

One dividend share I think merits investors’ consideration is British American Tobacco (LSE: BATS).

A lot of people do not like cigarettes. That explains why some investors shun the FTSE 100 share on ethical grounds.

It also points to a key risk from a business perspective: declining cigarette sales. British American’s revenues have fallen for several years in a row.

Pricing power thanks to a premium brand portfolio could help mitigate that risk. But it is a risk that ultimately may threaten the company’s decades-long track record of annual dividend per share growth.

But while cigarette sales are falling, they remain substantial – and highly profitable. British American Tobacco offers a dividend yield of 4.9%.

Should you invest £5,000 in British American Tobacco P.l.c. right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

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?

Christopher Ruane has no position in any of the shares mentioned.

The post How big an ISA could generate a £300 weekly second income? appeared first on The Twelfth Magpie.

This can help you manage your overall tax bills in retirement. For example, if you’re in danger of being pushed into a higher tax bracket one year, you could prioritise ISA withdrawals to avoid spilling over.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Building sufficient wealth to generate a sizeable passive income in retirement takes time. What if somebody has 20 years at their disposal, and wants to drawing income from their Stocks and Shares ISA in 2046?

How much do I need in my pot?

Let’s set them a target income of £20,460 a year, which works out as £1,705 a month. How big an ISA they need depends on the yield their shares generate:

• 4% – £511,500
• 5% – £409,200
• 6% – £341,000

Let’s take the middle figure of £409,200 as a target. We’ll assume the portfolio grows at 9.5% a year, which is the average return from a Stocks and Shares ISA over the last decade, according to Investing Insiders.

If they tucked away £600 a month, they’d end up with £426,700. Now £600 a month is a tall order for most of us. If our investor was 30 years from retirement, it’s a lot easier. Investing £225 a month would give them £442,550, assuming the same 9.5% annual return. The sooner you get started, the better.

Today, many build wealth by investing in a spread of FTSE 100 shares, which offer both dividend income and share price growth.

Is this a FTSE 100 stock I should buy?

British American Tobacco‘s (LSE: BATS) been a brilliant source of both. Although smoking’s in decline, it still sold more than 465bn cigarettes sticks worldwide in 2025. That was a decline of 8%, but sales of other tobacco products, such as e-cigarettes, are rising.

Full-year revenues have been flat but still impressive:

• 2025 – £25.61bn
• 2024 – £25.87bn
• 2023 – £27.28bn
• 2022 – £27.66bn
• 2021 – £25.68bn

The group generates heaps of cash, which funds generous dividends. In 2025, free cash flow totalled £5.6bn. The actual figure was £7.9bn, but it was affected by a £2.6bn healthcare settlement payment in Canada. Today, the trailing yield is a juicy 5.7%.

As with any stock, there are risks. That Canadian settlement highlights one. We may also see tougher regulatory action on vapes, as health risks become clear. Plenty of people won’t want to invest in Big Tobacco at all. I’m one of them, but there are lots of other brilliant FTSE 100 dividend growth stocks to consider instead.

Ideally, investors should aim for a portfolio of at least a dozen to spread the risks and maximise the potential rewards. Stocks and Shares ISA benefits are massive, and they compound steadily over time.

Should you invest £5,000 in British American Tobacco P.l.c. right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

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?

Harvey Jones does not hold any positions in the companies mentioned.

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