6.9% dividend yield! I’d buy this FTSE 100 stock for passive income in 2023

I’m always on the lookout for something new FTSE 100 stocks to add to your passive income portfolio. However, I often find that it can be beneficial to expand my position in some of my existing stock market holdings.

For example, one dividend aristocrat I own has seen its share price drop 10% over the past six months. I think this could be a good opportunity for me to scoop up cheap shares in one of my favorite very cash-generative businesses.

The savings I’m talking about are British American Tobacco (LSE: BATS).

A heavy passive income

British American Tobacco shares are one of the highest yielding investments in the FTSE 100 index. Currently, the stock is rewarding shareholders with a return of over 6.9%.

Cigarette manufacturers have a history of 120 years. They have brands such as camel, Lucky Strike, and Dunhill in some products. Importantly, these businesses have significant pricing power when inflation is high.

Because many taxes are imposed on tobacco by many governments around the world, cigarette prices are less sensitive to increases in input costs than other manufactured goods. I believe these stocks are a useful inflation hedge in my portfolio, as well as a useful passive income generator.

British American Tobacco expects operating cash conversion to be ahead of its 90% target for FY22. This bodes well for dividends, in my opinion.

What’s more, the dividend coverage of 1.78 looks solid to me. Businesses also face pressure from competition to maintain good dividend records. Love feet Imperial brand yields almost the same 6.85%.

Although the tobacco industry has been predicted for a long time, the company continues to defy even more gloomy forecasts. By expanding their non-flammable product offering, they are making an effort to face the potential threat to their business model from government intervention.

Non-combustible products now account for 15% of the company’s revenue after rapid compound annual growth in recent years. The increase in demand for the company’s vapor, heating tobacco and oral nicotine products has contributed significantly to the group’s expectations that revenues will increase between 2% and 4% in 2022.

Risk

As I said, in my view, the biggest threat to British American Tobacco’s business is the prospect of strict government regulation. After all, reducing smoking is a public health goal for many countries.

For example, New Zealand recently passed a law that ensures that anyone born after 2008 will not be able to buy cigarettes or tobacco products.

Closer to home, Shadow Health Secretary Wes Streeting confirmed the Labor Party would consider similar measures if they win the next election. Can sales of non-combustible products sufficiently replace traditional cigarette sales in such a scenario?

Should I buy more shares?

Tobacco companies are not for everyone. Many investors will have moral concerns about investing in these industries.

But in the context of tight regulation, I like to invest in British American Tobacco. The company has served me well as a reliable dividend stock.

I will buy more shares in the FTSE 100 tobacco giant to increase my passive income in 2023.