One FTSE 100 stock I am looking to add to my holdings in April is DS Smith (LSE:SMDS). Here’s why.
Packaging giant
DS Smith is one of the world’s largest packaging, recycling, and promotional items providers. It supplies its services to businesses across a multitude of industries and can count fellow FTSE 100 incumbent Unilever and e-commerce giant Amazon among its customers. DS Smith has around 30,000 employees spread over 34 countries, making it a worldwide operation with a vast reach and profile.
In recent years, the demand for packaging and promotional items, especially from ethically sourced and recyclable materials, has risen. This demand has risen hand in hand with the e-commerce boom, with online shopping exploding, further exacerbated by the pandemic that saw many high street stores closed and therefore trading online only.
Many FTSE 100 stocks have come under pressure recently due to macroeconomic issues such as rising costs and inflation, as well as the tragic events unfolding in Ukraine. DS Smith has not been immune to this volatility. The shares are currently trading for 334p. At this time last year, the shares were trading for 407p, which is a 17% drop over a 12-month period.
Why I like DS Smith
I consider DS Smith to be an excellent growth option for my holdings. I particularly like how the business has grown in the past, as well as how it is positioning itself for future growth. For example, packaging and promotional item demand will only grow in the years ahead. From a sustainability point of view, DS uses a lot of its existing materials, recycling them for reuse.
I do understand past performance is not a guarantee of the future. I can see that DS Smith increased profit year on year for three years prior to the pandemic. The recent share price drop, coupled with a Q3 update released last month, have made me pay more attention to DS Smith. The update mentioned that despite macroeconomic and geopolitical pressures, trading is in line with expectations. A pre-close update is due near the end of April and I expect the results to be positive, boosting the shares upwards.
DS Smith is also a good dividend option for my holdings to help me make a passive income. At current levels, it sports a dividend yield of approximately 3.8%. Based on full-year forecasts, this could surpass the 4% mark. The FTSE 100 average dividend yield is between 3% and 4%.
A FTSE 100 stock I’d buy
DS Smith shares do have risks. Despite its recent statement regarding macro and geopolitical issues and how it’s managing them, I must consider these serious risks to progress and growth. The main issue I have is that of rising costs and inflationary pressures. This could lead to a rise in costs that might squeeze profit margins and any shareholder returns I hope to make. If DS Smith were to raise prices, it could lose out to competitors in the market too.
Overall I think DS Smith is an excellent business with a good track record and great growth prospects ahead. The fact it pays a consistent dividend is a bonus to help me make a passive income. I consider it a top FTSE 100 stock and I will be adding the shares to my holdings.
