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Two bargain FTSE 100 dividend stocks I’d snap up for 2019

The final quarter of 2018 was particularly challenging for equity markets and many FTSE 100 stocks were sold off heavily. As a result, there’s now some fantastic yields on offer that weren’t available three months ago. Today, I’m looking at two FTSE 100 dividend stocks I believe are bargains as we begin 2019.

Prudential

Investors are concerned about slowing growth in China at the moment and, as a consequence, companies that have exposure to the country have been sold off. One such company is financial services group Prudential (LSE: PRU), which generates around 30% of its sales from Asia. Its share price has fallen from around 1,800p in late September to 1,373p today. However, I feel this share price weakness may have created an attractive entry point for long-term investors. The stock now trades on a forward P/E of 8.4 and offers a healthy dividend yield of 4%, compared to metrics of around 12 and 2.5% this time last year.

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While Chinese growth may ebb and flow in the short term (it’s still a high 6-6.5%), there’s no reason to believe that the long-term growth story associated with China isn’t intact. In the long run, wealth across Asia looks set to increase. This should boost demand for savings and insurance products, which will benefit Prudential as it has operated in Asia for 95 years and built a strong reputation. Just recently, CEO Mike Wells said: “The profitable growth prospects of our Asia businesses remain substantial, given the increasing protection and savings needs of our customers and the extent of the footprint we have established.”

Prudential has an excellent dividend growth track record and has notched up 13 consecutive dividend increases to date. It also has a very high level of dividend coverage, which suggests the dividend is sustainable. With the shares out of favour at present, I believe it’s a good time to be building a position in this high-quality company.

BAE Systems

Another stock that has seen its share price tumble recently is defence specialist BAE Systems (LSE: BA). At the beginning of October, the shares were changing hands for 620p. Today, they can be picked up for under 470p, and I believe that’s an opportunity for dividend investors, as the stock’s prospective yield has surged to 5%.

The main reason BAE shares have fallen recently is that the group has come under pressure for doing business with Saudi Arabia in the wake of the killing of journalist Jamal Khashoggi in October. However, I feel that a 25% share price fall is excessive. With political uncertainty remaining elevated across the world, defence spending from countries such as the US (a key customer for BAE) is likely to remain robust. In its recent half-year results, the company stated that with its larger order book, it had a “strong foundation to deliver growth and sustainable cash flow.”

BAE has also delivered 14 consecutive dividend increases now and the dividend growth looks set to continue in the near term. Dividend coverage is solid at around two times. With the stock trading on a P/E of around 10.1, I believe now’s a good time to buy.

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Edward Sheldon owns shares in Prudential and BAE Systems. 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.

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