3 FTSE 100 dividend stocks I’d buy after this week’s slump

Roland Head looks at three potential bargains from the FTSE 100 (INDEXFTSE:UKX).

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You’ll already have seen the headlines about “market corrections”, “volatility“, and “turbulence”.

It’s certainly been an unsettling week, but it’s worth noting that so far the FTSE 100 has only fallen by about 6.5% in October. Not exactly a disaster.

What’s more interesting for stock pickers is that buying opportunities may be starting to open up in this uncertain market. Today, I want to take a look at three potential picks on my radar.

Stormy weather slows progress

Chief executive Stephen Hester has delivered a sure-footed turnaround of RSA Insurance Group (LSE: RSA) since taking charge in 2014. But this steady progress hit a roadblock in September when the FTSE 100 firm issued a profit warning.

Bad weather played a part, but it seems that improvements may also be needed in the group’s UK underwriting division. Hester says that “actions to improve in the UK are well underway.” I see no reason to doubt this, given his track record.

What interests me is that the shares are now down by nearly 20% from June’s 52-week high of 683p.

At 550p, RSA stock trades on just 12.7 times 2018 forecast earnings, with a 4.7% dividend yield. Analysts expect the group’s recovery to continue in 2019. For long-term investors, I think this could be a good time to buy.

Safer than houses?

I’m unsure about the outlook for the housing market at the moment. But one housing-related stock I would like to own is Rightmove (LSE: RMV).

Shares in this property website always look expensive, but today’s price of 430p show they’re down by 20% since peaking in June. At this level, I think this market-leading business could be worth considering.

Rightmove lists more properties and attracts more visitors than any other UK property site. It benefits from what’s known as a network effect — more visitors mean more properties are listed. And this attracts even more visitors.

The firm’s business is amazingly profitable. Last year, Rightmove generated a return on capital employed of over 1,000%. That means it generated £1,000 of profit for each £100 of capital tied up in the business.

A lot of the group’s surplus cash is used to buy back shares, which helps to ensure that earnings per share keep rising.

Shares in this property listing website now trade on 24 times 2018 forecast earnings. That looks reasonable to me for a long-term buy. Although the dividend yield is low, at 1.5%, it’s probably one of the safest payouts in the UK market. I believe the dividend should continue to rise.

Packaging could be a long-term winner

The share price of packaging group Smurfit Kappa Group (LSE: SKG) has fallen by nearly 25% from the summer’s 52-week high of 3,308p. At around 2,500p, I think the shares are starting to look good value.

The group has grown rapidly in recent years through a mix of organic growth and acquisitions. Net profit last year was €417m, up from just €188m in 2013.

This expansion isn’t completely without risk. Strong management is always required with acquisitions, and the group runs a fairly hefty debt balance to fund this progress. However, an 18% return on capital employed, and strong cash generation, suggest to me that the group’s strategy should be sustainable.

With the shares now trading on just 10.5 times forecast earnings, and offering a 3.3% yield, I think that now could be a good time for long-term investors to consider a buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Rightmove. 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.

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