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Why I’d buy this FTSE 100 dividend growth stock in this market weakness

As I’m writing, the FTSE 100 index is around 11% down from where it was at the beginning of August. Meanwhile, many individual stocks on the market have plunged by far more than that.

These are testing times for investors but when the market corrects like this, some of the best buying opportunities arise. So it’s important to hold your nerve, suppress the natural emotional reactions we all feel when we’re losing money, and scan the market for buying opportunities.

If you’re a buyer of shares now to hold for the long term, cheaper prices are a good thing, because you’ll get more for your money. And one interesting company is the FTSE 100’s Relx  (LSE: REL), the publisher and information provider with activities in the medical, legal and business sectors. 

A quality enterprise

I like Relx because its quality indicators are impressive. The return-on-capital figure runs close to 23%, and the operating margin is more than 26%. The company has a decent track record of growing its revenue, earnings, operating cash flow and the dividend. Meanwhile, the share price is down around 13% since the end of August but has shown resilience over the past two weeks, even to the point where it has drifted up while the FTSE 100 index has been falling.

The market capitalisation is near £30bn and the firm has grown by providing information and analytics for professional and business customers in more than 180 countries. It’s a big enterprise, and today’s nine-month trading update reveals some encouraging figures. Overall underlying revenue grew 4% in the period, with all of the firm’s divisions posting a positive single-digit contribution to the total.

During the period, the company acquired seven assets for a total price of £943m, and made four disposals, raising £28m. It also purchased £650m worth of its own shares and expects to spend another £50m before the end of the year to complete a previously announced £700m buyback programme.

Such initiatives will likely help support the share price if the market continues to be weak. As long as trading holds up, it would probably be a good time for the company to consider more buy-backs if the share price drops any further. The firm also completed its restructuring to become a single-listed company rather than the complicated Anglo/Dutch dual listing it had previously. I think the simplification of anything is almost always a good thing.

Positive outlook

Looking forward, the directors are confident the firm will achieve constant currency growth in underlying revenue, adjusted operating profit, and adjusted earnings per share for the whole year. So, despite the weakness in the stock market, it looks like business as usual at Relx.

Meanwhile, today’s share price — close to 1,526p — values the firm at just below 17 times forecast earnings for 2019, and the forward dividend yield sits at 2.9%. City analysts following the firm expect mid-single-digit percentage advances in earnings this year and next, which look set to cover the dividend payment more than twice. I think the shares of this quality enterprise look attractive right now.

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Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended RELX. 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.