I’d buy this FTSE 100 dividend stock before the market comes to its senses!

Royston Wild discusses a FTSE 100 (INDEXFTSE: UKX) income share that is in great shape to bounce back.

| 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.

Ferguson (LSE: FERG) may have taken a pummelling in the final quarter of 2018, but I believe that this makes it one of the finest bargains on the FTSE 100 right now. And particularly so for dividend chasers.

Things had been going swimmingly for the plumbing and heating products supplier up until the start Q4, but its share price collapsed from the record highs punched at the end of September and it continues to struggle for momentum, down almost 25% from those aforementioned peaks.

It’s not a mystery as to why Ferguson has felt the heat from scared investors. Some 80% of the group’s sales are generated in the US, and the market is fretting over what impact a combination of rising Federal Reserve benchmark rates and the tough trade negotiations between Washington and Beijing’s lawmakers will have on the country’s economy.

I would argue, though, that Ferguson’s low forward P/E multiple of 12.3 times — comfortably inside the widely-regarded value territory of 15 times or below — factors in these problems.

Indeed, with Fed chair Jerome Powell’s tone around future rate rises becoming less hawkish in recent weeks, and patchy data from both the US and China stressing the urgent need for a breakthrough with trade talks, this low level could provide the base for a stock price recovery as 2019 progresses.

Terrific trading

Trade at Ferguson has remained extremely strong despite those less reassuring datasets from North America in recent months.

Just last month the plumbing powerhouse released yet another excellent market update, advising that group revenues rose 9% in the three months to October, to £5.55bn (also representing a 7% rise on an organic basis). This result drove pre-tax profit 10% higher year-on-year to £432m too.

Chief executive John Martin commented that “growth in the US was widespread across all geographic regions and major business units,” with US organic sales growth in the period sprinting almost 10% higher on an annualised basis.And he suggested that Ferguson could continue to make heady progress in the weeks and months ahead, noting that “since the end of the quarter, the US has continued to grow well and the current indications are that growth will continue in the months ahead.”

Great dividend growth

You might not know it from looking at the share price, but City brokers upgraded their earnings forecasts for Ferguson in the wake of December’s perky release. They now predict a 17% rise in the 12 months to July 2019, a result that would continue the company’s recent run of annual double-digit percentage rises.

And this leads to predictions of further meaty dividend growth as well. Ferguson turbocharged the full-year payout by around a fifth in fiscal 2018, to 189.3 US cents per share, and it’s predicted to extend it to 206 cents in the current period. This means an inflation-smashing 3.2% yield.

With organic sales booming, margins still growing, and its appetite for profits-boosting M&A showing no signs of abating, Ferguson has a hell of a lot going for it. I’m convinced it can bounce back from that recent share price weakness I mentioned above, and that it will continue to dole out exceptional earnings and dividend growth for many years to come.

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 has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

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

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »