Have £2k to spend? Another FTSE 100 dividend stock I’d buy before the market wises up

Now is a great time to buy into this fallen FTSE 100 (INDEXFTSE: UKX) dividend share, argues Royston Wild.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

In a recent article I ran the rule over Ferguson and explained why, despite the evaporation in investor interest of late, the FTSE 100 business remains in great shape to deliver stunning returns in the years ahead.

In fact, I argued that now it is a great contrarian buy given that heavy selling activity during late 2018 leaves it dealing on a scandalously low valuation.

Now fellow Footsie share DS Smith (LSE: SMDS) may have sold off for a different reason — in this case reflecting concerns over rising supply from Chinese containerboard producers — but I am confident that the boxmaker also has what it takes to generate brilliant profits growth in the years ahead, and this also makes it a brilliant cut-price stock to purchase.

The competition may have upped the ante, but DS Smith’s prospective P/E ratio of 8.6x suggests that the market is far too pessimistic about the situation.

As I’ve argued before, by rampantly expanding its presence in the emerging economies of central and Eastern Europe, and more recently entering the US marketplace through acquisition activity in 2017, it’s in increasingly great shape to ride the positive long-term retail trends in these markets.

Falsely spooked?

Besides, a recent report from Jefferies suggests that the brutal share price dives of DS Smith and its London-listed peers like Mondi of late may have been far too severe.

The financial services company said that anticipated falls in containerboard prices in response to those aforementioned capacity increases may not in reality turn out to be as shocking as the investment community is anticipating. A sharp re-rating of share prices across the sector could be just around the corner as signs are growing that this belief could be gathering steam. And particularly given the low, low earnings multiples of the likes of DS Smith.

In the meantime I’m expecting DS Smith to keep on peppering the market with positive trading updates. The FTSE 100 firm was at it again a month ago when it advised that revenues at constant currencies streamed 16% higher in the six months to October to £3.07bn, a result that pushed pre-tax profit 28% higher on a comparable basis to £162m.

Yields leap to 5.7%

City analysts believe that the packaging play has what it takes to keep delivering juicy profits improvements for the foreseeable future, and rises of 8% and 9% are currently forecast for the years to April 2019 and 2020 respectively.

And so the number crunchers are predicting that dividends will continue rising at a terrific rate too, their confidence no doubt boosted by DS Smith’s December decision to hike the interim payment 14% year-on-year to 5.2p per share.

Right now a total dividend of 16.1p per share is expected for this year, up from 14.7p last year and yielding a terrific 5.3%. And next year a 17.3p estimated dividend shoves the yield to an even better 5.7%.

I bought into DS Smith towards the back end of last year on the back of its bright growth and income potential, and although my timing could have in retrospect proven better, I’m still very happy to have the company sitting in my shares portfolio. In fact, at current prices, I’m tempted to nip in and grab some more.

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.

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.

More on Investing Articles

Investing Articles

The tax-free route to millionaire portfolios

• Although annual ISA subscriptions are capped, ISAs are an undoubtedly serious wealth-building tool: you can build serious wealth.

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Will FTSE 100 shares soar 35% after the general election?

Royston Wild explains why FTSE 100 shares might be about to soar, and discusses a top penny stock that could…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

After gaining 34% in a month, is the Nvidia share price now uninvestable?

Our author says the Nvidia share price is very high at the moment. He's cautious when considering investing in the…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

This under-the-radar FTSE 100 share has hiked dividends 13.7% a year for a decade. Time to buy?

Harvey Jones is kicking himself for missing out on this FTSE 100 share that's kept investors happy with long-term share…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

Labour winning the general election would be positive for UK stocks, says JP Morgan

One mega-bank thinks certain UK stocks could benefit following the 4 July election. This writer considers a FTSE share that…

Read more »

Older couple walking in park
Investing Articles

No savings at 40? Here’s how I’d aim to retire comfortably with FTSE 100 stocks

It's never too late to begin investing in FTSE 100 stocks for retirement. Royston Wild reveals three steps to help…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Down 17%, is National Grid’s share price a FTSE 100 bargain?

National Grid's share price has taken a battering following a multi-billion-pound rights issue and dividend rebasement. Is it now too…

Read more »

Environmental technology concept
Investing Articles

Up 150% this year! Can NVIDIA stock keep on soaring?

Christopher Ruane explains why NVIDIA stock has soared over 150% already this year, where it might be going -- and…

Read more »