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This FTSE 100 dividend stock is down 20% since January. Is it time to load up?

It can be stressful holding on to falling stocks. We all know that we should ignore the market’s short-term moods, but sometimes there’s a good reason why a company’s share price is falling.

In poker parlance, it’s not always easy to know when to hold and when to fold.

One FTSE 100 stock I would definitely hold on to is Asia-focused insurance firm Prudential (LSE: PRU). Although the shares are down by more than 20% from their January high of 1,992p, I see no reason to sell.

I’ll explain why I’m keen on Prudential in a moment, but first I want to consider a smaller financial stock where the picture seems less certain.

Regulators are tightening the leash

International Personal Finance (LSE: IPF) is a sub-prime lender operating in markets outside the UK, including Poland, Romania and Mexico. Historically, it’s been a profitable business paying generous dividends. But profits have slipped in recent years, and the dividend hasn’t risen since 2015.

In a trading update today, the company said that new lending rose by 6% during the third quarter, led by a 39% increase in online lending.

That sounds promising. But the firm also warned of regulatory changes that could put pressure on profits. In Romania — which accounts for about 12% of group profits — new rules limiting debt-to-income ratios are expected to reduce sales.

The firm’s management also admitted that a proposed interest rate cap at 18% APR would have “a material adverse effect on our Romanian business.”

Meanwhile, tax changes being proposed in Poland would affect cross-border transactions. The firm says this could increase the entire group’s tax rate from 34% to 42% in 2019. I estimate that would represent an 8% cut to earnings per share.

A 5.7% yield to buy?

IPF shares are down by 5% at the time of writing. The outlook does seem uncertain, but I suspect the business will adapt to these changes and continue to prosper. Indeed, with a forecast P/E of 7 and a prospective yield of 5.7%, this could prove a profitable time to buy.

However, with markets uncertain, I’m more interested in businesses with a consistent track record of growth.

A buy-and-forget stock

IPF isn’t a stock I’d be happy to buy and forget for 10 years. But that’s exactly the approach I’d take if I added Prudential to my portfolio, which I’m tempted to do.

This insurance group is benefiting from the growing wealth of Asia’s middle classes. Although its share price has fallen this year, its profits have been rising. Recent half-year results showed that the Pru’s operating profit rose by 9% to £2,405m during the first half of 2018.

This growth was led by its Asia unit. The value of new business generated by this division rose by 11% to £1,122m, while underlying surplus cash generation climbed 14% to £590m.

Too cheap to ignore?

Prudential generated a return on equity of 18% last year. This measure of profitability puts it ahead of most UK peers.

The group is also in the process of de-merging its slow-growing, UK-focused asset management business, M&G. My colleague Rupert Hargreaves recently explained why he believes this could lead to a bid for the firm’s Asian business.

With the shares now trading on a 2018 forecast price/earnings ratio of 10.3, and offering a 3.2% yield, I believe Prudential may now be too cheap to ignore.

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