Page 39 - DIY Magazine March 2018

own technologies. Although vaping continues to grow it hasn’t proved to be the disruptive force that was initially predicted.
Unfortunately it couldn’t give the same nicotine hit as traditional cigarettes, the flavours weren’t the same and the handheld devices proved unsatisfactory for some to use.
This has led to the tobacco companies to continue to invest, recognising the need to find suitable alternatives to combustible cigarettes given their structural decline over health risks.
British American Tobacco is at the forefront of developing the next generation of reduced risk tobacco products called heat-not-burn (HNB).
The technology heats rather than burns tobacco
to release a vapour with a taste similar to that of a conventional cigarette with significantly less toxicants.
This gives the benefit over e-cigarettes of providing the same nicotine hit and flavour as a traditional cigarette.
It also means that the same barriers to entry of supply and distribution remain for the big tobacco companies. Soon the product will evolve with the technology used to heat the tobacco stored within
a filter, meaning the delivery mechanism will match the size and feel of a tradition cigarette. Despite this investment and growth potential, British American Tobacco’s shares have been lacklustre against a strong market in 2017.
The valuation is attractive, with the company trading at a significant discount to the consumer staples sector and also offering investors a 4% dividend yield which continues to grow.
As an income investor it’s hard to own the disrupter. Those companies typically are in a growth phase and reinvest in their business rather than paying
out dividends to shareholders. It’s important to remember, however, that management teams of the disrupted companies won’t necessarily stand still and the good ones will correctly balance investment to protect their businesses with dividends successfully.
QUESTIONING THE MANAGER: DAVID SMITH, JANUS HENDERSON HIGH INCOME TRUST
HENDERSON HIGH INCOME TRUST PLC
Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.
The information in this article does not qualify as an investment recommendation.
For promotional purposes.
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39 DIY Investor Magazine | Mar 2018