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Have £3,000 to invest? Here are 2 FTSE 100 dividend stocks I consider bargains after recent heavy selling

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Smurfit Kappa (LSE: SKG) and BAE Systems (LSE: BA) are two dividend shares that took a pasting in October, their share prices ducking 16% and 17% respectively over the course of the month.

Smurfit Kappa was not only bashed up by the waves of risk-aversion battering the globe’s shares markets last week. The company plummeted last month amid fears that a raft of extra capacity is about to enter the market, casting some doubt over the firms’ capacity to keep hiking product prices in the years ahead.

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Still, at its current share price, Smurfit Kappa for one changes hands on a forward P/E ratio of 10.7 times.  This more than factors in the more problematic supply outlook than we faced a few months ago, and is particularly low given the excellent trading details released last month.

The business declared that underlying revenues had jumped an impressive 7% during the first nine months of 2018, thanks to continued demand growth across most of its markets as well as improving cost recovery. And as a result it said that it expects a “full-year outcome materially better than 2017.”

This more or less matches what City analysts are forecasting, what with an earnings rise of 66% currently being suggested by consensus. Consequently the number crunchers are predicting further dividend growth as well, last year’s reward of 87.6 euro cents per share anticipated to move to 94 cents in the current period and resulting in an inflation-bashing 3.2%. And if realised this would mark the seventh consecutive year of meaty payout increases.

While there may be more material moving into the market than previously expected, the rate at which demand is growing for Smurfit Kappa’s product, allied with the impact of its fizzy acquisition drive — it spent €133m to acquire Serbia’s major packaging players FHB and Avala Ada last month — makes me confident that it can continue delivering strong and sustained profits and dividend growth.

An even bigger dividend yield

Diving market confidence was not the only problem that the BAE Systems (LSE: BA) share price faced last month, the fallout of the suspected murder of journalist Jamal Khashoggi by Saudi Arabian agents also causing some significant investor tension.

While all the facts surrounding the case are to be ascertained, the global condemnation of Riyadh has been loud and has caused some to fear that BAE Systems’ sales to the Saudi kingdom could be pulled by the British government. The sale of Typhoon planes is obviously a huge money spinner for the business, after all, and defence-related spending is only likely to escalate in the years ahead.

I believe there’s little reason to expect arms exports to Saudi Arabia to stop. UK politicians would be fearful of losing not only billions of pounds of lost revenues but also co-operation with a key ally in matters of intelligence. Indeed, the government’s reluctance to pull the plug on weapons sales even in spite of Saudi military action in Yemen underlines how unlikely it is that this latest chapter will halt BAE Systems’ shipments to the Middle East.

Right now the defence giant carries a forward P/E ratio of 12.8 times as well as an inflation-beating 4.2% yield. I expect its share price, like that of Smurfit Kappa, to recover significantly over time, and reckon that both could be considered decent dip buys as of today.

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Royston Wild has no position in any of the shares mentioned. 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.

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