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3 days until ISA deadline. 2 FTSE 100 dividend stocks I’d buy today

With the ISA deadline just three days away, I’d like to highlight two FTSE 100 dividend stocks I’d be happy to buy for my ISA right now. Both have excellent long-term dividend track records and look set to keep rewarding shareholders with regular dividends going forward.

Imperial Brands

Let’s start with tobacco manufacturer Imperial Brands (LSE: IMB). It’s perhaps not a stock for everyone given its ‘sin stock’ attributes, yet in the current low-interest-rate environment, I think IMB is hard to ignore given its dividend yield of 7.8%.

I last covered IMB in mid-January when its share price was 2,400p. At the time, I said I’d buy the stock while it was cheap. Since then, the shares have climbed 9.4%, which is a good return in two-and-a-half months. Yet at the current share price, I continue to see a lot of value on the table as the stock’s forward P/E is still under 10.

The thing about stocks is that they can trend way too far in both directions. Often, a stock, sector, or index will climb far too high as investors get overly excited about its future prospects, before crashing far too low as investors panic. And I think that’s what we’ve seen with the tobacco sector in recent years. Go back to mid-2016 and tobacco stocks were sporting P/E ratios in the low-to-mid 20s. That was too high in hindsight. Yet now, IMB and BATS both trade on P/Es under 10. I see that as too cheap and personally think that a P/E of 12 to 16 is fair for these kinds of dividend-paying stocks.

Interestingly, Citigroup just upgraded UK tobacco stocks to ‘buy’, stating: “The shares could still rise a long way because we think the environment will continue to look less threatening.” The broker also upgraded its price target for IMB from 2,700p to 3,000, implying 14% upside.

Yes, there are risks to investing in the tobacco sector. Smoking rates are declining and increasing regulation adds uncertainty. Yet ultimately, I think that IMB has been beaten down too far and that at current levels, the stock offers the potential for capital gains as well as big dividends.

Smurfit Kappa

Another sector that has been beaten down too far in my view is packaging. Concerned about the possibility of a global recession, investors have dumped high-quality packaging stocks in recent months and I think this has created compelling investment opportunities.

One FTSE 100 packaging stock that I like right now is Smurfit Kappa (LSE: SKG) – a leading provider of corrugated packaging with a focus on sustainable products. In my view, the shares look very cheap at present.

This year, analysts expect SKG to generate earnings of €2.97 per share, which at the current price, puts the stock on a forward P/E of just 8.75. That kind of valuation provides a nice margin of safety for investors in my opinion. A prospective dividend yield of 3.8% looks attractive too, and it’s worth noting that the dividend payout is expected to be covered by earnings nearly three times.

SKG released full-year results in mid-February and the numbers looked decent. Revenue increased 4%, pre-exceptional earnings per share surged 58%, and free cash flow increased 61%. Moreover, management hiked the dividend by 12%.

Overall, I see a lot of value here and think that Smurfit Kappa could reward investors with capital gains and solid dividends going forward.

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Edward Sheldon owns shares in Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.