Smoking is becoming increasingly unacceptable in the Western world, and that might well be behind the recent share price fall for British American Tobacco(LSE: BATS). At 4,837p, the price is down 14% since June's peak, and it's been even lower at 4,552p in late September.
But that looks seriously out of line with the company's recent performance, which has seen earnings per share and dividends soaring.
If current City forecasts prove correct, we'll have seen a rise in earnings per share (EPS) between 2012 and 2018, from 103p to 311p -- that's more than trebld in six years. And the dividend will have done almost as well, growing from 67.5p to around 200p.
Good time to buy?
To put that into perspective, we're looking at a forward P/E ratio of 17 this year, dropping to 15 next, which I don't think is stretching, and dividends should yield 3.8% and 4.2% for the two years.
The acquisition of Reynolds, which completed in July when British American took control of the 57.8% it did not already own, should enhance the future bottom line -- and cost savings should boost margins.
Looking forward, actual tobacco volumes are very likely to continue on their downward trend of recent years -- at the halfway stage this year, volumes were down 5.6% (though the previous year had been strong).
But much of the market still consists of lower-margin cheap brands which are sold in their billions in the developing world, and I can see the shift to more upmarket 'Global Drive Brands' bringing growth in earnings and dividends for many more years yet.
Putting ethical issues aside, purely on financials I'd rate British American Tobacco a buy.
Top FTSE 100 dividend
It might just be me, but I see a company that provides life insurance as quite a nice complement to British American Tobacco -- and my favourite is still Aviva(LSE: AV), which is the only insurance company whose shares I own.
In fact, Aviva is probably my favourite FTSE 100 income share right now, after its annual dividend has grown sharply since the days the company was forced to cut it as a result of the financial crisis. Last year's yield came in at 4.8%, and there's a hike to 5.2% forecast for the current year and then on up to 5.6% for 2018.
And I see little risk in those payments, as they'd be covered around two times by predicted earnings.
So why has the share price fallen 7% from 540p in late July to 500p now? I honestly don't know, but I do know that the slip has lowered Aviva's forward P/E multiple to only 9.6, and that it would drop further to just nine if 2018 forecasts come off.
If we look at the company's close competitors, Legal & General is on a P/E of nearer 11, with Prudential on 13.
At the halfway stage, chief executive Mark Wilson reckoned that "Aviva is getting leaner and stronger and we are confident in our ability to sustain growth in the coming years," as the company targets a sustainable dividend payout ratio of 50%.
Perhaps Brexit uncertainty is taking its toll on sentiment towards Aviva, and it certainly seems to be putting a drag on the financial sector as a whole.
But I really don't see Aviva as being at any great risk, and I'm far more likely to buy more than to sell.
Alan Oscroft owns shares of Aviva. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.