This FTSE 100 dividend giant bought back 126,498 of its own shares. But can it save the falling share price?

British American Tobacco’s (LSE: BATS) long been a FTSE 100 favourite among income investors.

This week, the popular dividend powerhouse repurchased a further 126,498 ordinary shares for cancellation. It’s part of a hefty £1.1bn buyback programme aimed at supporting capital efficiency and boosting shareholder value.

Following these cancellations, the company still holds more than 132.9m ordinary shares in treasury.

The timing may be convenient. After almost two years of solid gains, the share price has stumbled over the past couple of months, falling around 12% from the five-year high it touched in late August.

The ongoing buybacks should offer some stability, but the question remains whether they’re enough to turn the tide on a faltering share price.

Strong dividends… but strained financials

From a valuation perspective, British American is still a heavyweight. With a market capitalisation of roughly £85.6bn and a price-to-earnings (P/E) ratio of 27.9, it doesn’t come across as cheap. Encouragingly, the price-to-book (P/B) ratio of 1.71 sits in the middle ground for a consumer goods company of its size.

But where the stock continues to shine is the dividend yield, which stands around 6.2%. The group hasn’t only paid dividends consistently but also increased them every year for over two decades, making it one of the most dependable income providers in the FTSE 100.

The financial picture however, isn’t without cracks. Operating income has declined in recent years, slipping from more than £10bn in 2020 to under £5bn in 2024, while revenue’s barely shifted in the same period. Operating cash flow has held up well, moving slightly higher, which shows that the core business still generates a strong stream of cash.

The balance sheet looks stable on the surface, with debt covered by equity, though liquidity remains a weak spot. A quick ratio of 0.55 suggests the group doesn’t have a huge buffer for meeting near-term obligations if cash flows were to stumble.

Margins are thinner than investors might expect for such a dominant player. The return on equity (ROE) is around 6%, which isn’t bad for a mature business, but hardly inspiring for those seeking growth.

Long-term sustainability?

The buybacks will certainly improve earnings per share (EPS) if profitability holds steady, but the bigger challenge is whether British American can make its next-generation products profitable before regulatory changes erode the tobacco market further.

And that’s where the real risk lies. Stricter smoking regulations, higher taxation and changing consumer behaviour all cast long shadows. The company has invested heavily in smokeless and vaping products, but the race is on to make these ventures sustainably profitable before traditional tobacco revenues shrink further.

In my view, British American still looks like a stock for investors to consider if income reliability is the main goal. A 6% yield, backed by decades of consistency, is hard to ignore. Yet it’s equally important to weigh up the risks around regulation and profitability.

The next five years could prove decisive. If cost efficiency doesn’t improve and next-gen products fail to deliver, investor confidence may keep slipping. For now, I’m cautiously hopeful, but I think this is one dividend giant that requires close monitoring.