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2 unloved FTSE 100 dividend stocks I rate as great value right now

Shares in 3i Group (LSE: III) have had a tough time since summer 2017, as the private equity investor has a couple of years of falling earnings in its forecasts.

At the same time, the firm’s progressive dividend policy looks to be holding up well. There’s a forecast yield of 3.9% marked in for this year, rising to 4.2% by 2021, and is more than 3.5 times covered by earnings predictions.

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P/E ratios were low even before the recent share price weakness, and we’re now looking at forecast multiples of under seven — less than half the FTSE 100‘s long-term average.

Asset value

Saying that, for an investment manager it often doesn’t make that much sense going on earnings-based valuations, and a look a net asset values (NAV) can be more valuable. In its Q3 update, the firm reported a NAV per share of 802p (up from 776p at 30 September). At 846p, the shares are trading at a premium of 5.5%, which perhaps doesn’t make them look cheap.

But if the company can keep its assets growing ahead of the general market, that premium might well be worth paying to invest in otherwise inaccessible private investments, especially if the dividend income stream keeps growing.

Chief executive Simon Borrows described it as “another good quarter for 3i, during a period of significant market volatility,” and went on to say that “our diversified portfolio is well positioned to deliver further good growth and withstand market turbulence.”

I’m seeing a well (and conservatively) managed investment vehicle here, and I can see 3i continuing to grow its income stream in years to come.

Dull is great

My colleague Roland Head has named Mondi (LSE: MNDI) as a top stock for 2019, and I can see why.

While the banking sector and housing market are in the news, this distinctly unglamorous paper and packaging business looks like it might have passed under the radar.

What we’re looking at here is a company with a track record of earnings rises, with more set to come. Analysts are expecting a 22% jump in EPS for the year just ended in December, with more modest single-digit rises forecast for 2019 and 2020.

And while the FTSE 100 is full of headline-grabbing dividends, like the 10% predicted for Taylor Wimpey and the 6% and more from Lloyds Banking Group, Mondi’s modest predicted yields of 3.5% to 3.9% look relatively unexciting.

But if that’s how you feel, then I think you’re missing a couple of key attractions.

Reliability is key

Mondi’s dividends are rising ahead of inflation and, for me, that can be far more valuable than a big current yield, as a steadily progressive one can perform much better over the long run. If you’d bought Mondi shares in 2014, for example, you could be looking at an effective yield on your purchase price of around 6.5% for 2018.

Secondly, cover by earnings is strong. The expected 2018 dividend would be covered approximately 2.5 times by earnings, and cover continues at a similar level for the next two years of forecasts.

The Mondi share price has almost doubled over the past five years. But the past two have been less kind and I think that’s presented a renewed buying opportunity, especially as the price is now around 17% lower than its August 2018 levels.

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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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.