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I’m tipping this battered FTSE 100 dividend stock to rebound in 2019

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As both a shareholder and a long-time champion of DS Smith (LSE: SMDS) I’m disappointed to see its share price continue to slide as we enter the dying embers of 2018.

Recently closing out around 330p per share, the FTSE 100 packaging play plunged to levels not seen for almost four years. DS Smith’s fallen off a cliff since the end of spring and, since hitting record tops in June its share value has shrunk by a staggering 42% due to growing concerns of oversupply in its major markets.

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I would argue, though, that the scale of the boxmaker’s descent is far too severe. Sure, the prospect of higher-than-expected containerboard supply has put long-term earnings forecasts at DS Smith under pressure. But that’s not to say that the business won’t have the capacity to still generate exceptional earnings growth, and frankly its forward P/E ratio of 9.2 times fails to reflect this possiblity.

Indeed, I feel this low base could provide the fuel for the firm to undergo a positive re-rating in 2019.

Stunning sales opps

If it can continue to put out releases of the calibre of the one from earlier this month, then a share price comeback is an inevitability, I believe. In recent sessions DS Smith has advised that adjusted operating profit in the six months to October would be “materially ahead” of the corresponding 2017 period, the business putting the jump down to “[the] recovery of increased input costs earlier in the year and good volume growth from our highly resilient FMCG focused business.”

City analysts certainly expect DS Smith to keep producing the goods, and they are forecasting that the predicted 12% earnings rise for the year to April 2019 will be followed with a 10% advance in the following period.

And why wouldn’t they be bullish? Intensifying competition for both retailers and FMCG producers is leading to massive changes in the way that they do business and try to court consumers, leading to a galaxy of opportunities for packaging manufacturers like DS Smith. And through its aggressive approach to M&A that is expanding its product base and its geographic footprint,  I am confident that the Footsie firm can gain an edge in the market and keep printing exceptional earnings expansion well into the next decade.

Inflation-beating yields

But DS Smith isn’t only a great share for growth investors to tap into. Allied to those bright profits forecasts, the company’s exceptional cash generation means that it is in great shape to continue to turbocharge dividends.

In November’s update, operating cash flow in the first half was described as being “significantly ahead” of the same period last year, and this means that brokers are predicting that dividends should keep swelling at an impressive rate. Fiscal 2018’s 14.7p per share reward is anticipated to chug to 16.2p in the current period, and again to 17.4p next year. Such figures result in chubby yields of 4.8% and 5.1% respectively.

If you’re seeking undervalued blue-chip shares to buy for the New Year, then DS Smith is one of the best, in my opinion. I remain confident that it can provide staggering shareholder returns not only now but for many years ahead. 

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Royston Wild owns shares of DS Smith. The Motley Fool UK has recommended DS Smith. 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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