As of April 2026, the UK State Pension is getting a nice upgrade from £230.25 a week to £241.30, translating into an annual income stream of £12,547.60. That’s certainly a step in the right direction. But sadly, it’s still not enough to enjoy a comfortable retirement.
Luckily, there are lots of different ways to earn some extra passive income. And high-yield dividend stocks are among the best options, in my opinion. After all, by simply holding shares in a business, investors can earn regular and (hopefully) reliable profits. And right now, British American Tobacco (LSE:BATS) shares continue to offer a handsome 5.6% yield.
That’s one of the highest yields in the FTSE 100. So could an investor double the 2026 State Pension with this business? Yes. Here’s how.
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A dividend hero
Investing in a tobacco company may not sound all that sensible, on the surface. After all, regulation and taxation surrounding cigarettes aren’t exactly friendly. Consequently, the number of smokers across the globe has been steadily falling.
Yet, despite this massive headwind, British American continues to deliver stable revenues, solid profits, and chunky cash flows. How? The firm’s been offsetting lower volumes through price hikes. And subsequently, dividends have continued to flow to shareholders.
In fact, the company’s increased shareholder payouts for 29 years in a row, rising by a long-term average of 4.6% a year – ahead of inflation. And on a trailing 12-month basis, each share now pays out £2.4024 in dividends.
So all an investor has to do is buy around 5,223 shares to earn a passive income equal to the 2026 State Pension.
Admittedly, that’s going to cost around £223,700, which isn’t exactly pocket change. But by drip feeding a small amount each month and reinvesting dividends along the way, even a modest investor can eventually build this position over time. And if British American keeps hiking dividends, then investors might have to invest even less.
Can dividends continue to rise?
Pricing power has its limits, especially during a cost-of-living crisis. Financial pressure on households is likely accelerating the decline of cigarette consumption. But management isn’t blind to this shifting landscape.
The company aims to replace 50% of its revenue with smokeless products by 2035. The plan is to drastically expand its presence within the vaping, heated tobacco, and oral nicotine markets, as well as unlock new efficiencies to reduce operating costs.
Is it working? So far, it seems to be. The group now has just over 30.5m consumers of its smokeless brands, which now make up 18.2% of the revenue stream. At the same time, operating margins have increased to 42%, thanks in part to ongoing efficiency efforts.
It seems like British American Tobacco shares might be a no-brainer for income investors who aren’t fussed about investing in a tobacco business.
However, while the progress is encouraging, it’s important to recognise there’s still a long way to go. And with rivals executing similar strategies, the competition’s only going to get fiercer moving forward.
So investors need to carefully weigh these risks against the potential rewards before putting any money to work. But in my opinion, this dividend stock definitely deserves a closer look.
