Is British American Tobacco's 9.5% Dividend Yield Too Good to Be True?

There was a time when tobacco stocks were among the best investments you could own. For example, Altria (NYSE: MO), which for much of its history also owned what is now Philip Morris (NYSE: PM), was the best-performing stock on the market over a nearly 50-year period, according to Wharton professor Jeremy Siegel.

However, over the last decade, that's changed. Shares of tobacco companies like those two and British American Tobacco (NYSE: BTI) have succumbed to pressure from declining cigarette sales, an inability to find a breakthrough next-gen product, and slowing growth in revenue and profits. As you can see from the chart below, British American Tobacco stock is down sharply over the last decade, and Philip Morris and Altria have only posted modest gains. Even on a total return basis, all three have underperformed the S&P 500.