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Forget the cash ISA! I’d buy this FTSE 100 dividend bargain today

Reckitt Benckiser (LSE: RB) used to be one of the FTSE 100’s most sought after companies, but that began to change in 2017.

Soon after shares in the consumer goods giant hit their all-time high of 8,100p in June 2017, cracks started to appear in Reckitt’s business model as its $17bn deal to buy Mead Johnson, the US-based infant formula business, went sour.

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Growth ground to a halt and the company suffered a series of operational disappointments, which shook investor confidence. These problems have claimed the head of former CEO Rakesh Kapoor, who is stepping down. He will be replaced by Laxman Narasimhan, who is set to take over in September. 

Narasimhan will have his work cut out to restore investor confidence. After earnings growth of just 2.3% in 2018, City analysts are forecasting almost no growth in 2019. Although there’s an earnings uptick of 5.4% pencilled in for 2020, that’s a substantial reduction on the earnings growth rates of 13% to 18% reported between 2015 and 2017. 

Moving on

Even though growth has slowed, Reckitt is working hard to move on from its issues. The central pillar of the firm’s turnaround is the separation of Reckitt’s two primary businesses, health, and hygiene and household products. This separation will, management believes, help refine the business’s focus and ultimately drive growth. 

Also Reckitt announced today it has agreed a $1.4bn settlement with the US Department of Justice and the Federal Trade Commission regarding an investigation into how its former subsidiary, Indivior (LSE: INDV), marketed Suboxone, its flagship opioid addiction treatment drug. 

Limiting liabilities

Reckitt had set aside $400m to cover any liabilities stemming from its association with Indivior, and while the company itself hasn’t been charged, there’s been a looming threat that the group could be dragged into Indivior’s legal woes at a later date. Indivior is facing at least $3bn in fines over allegations it committed fraud from 2006 to 2015 by making unfounded claims about the potential of Suboxone to drive up sales. 

Indivior is still facing these legal claims, and it could be some time before any settlement is announced. With a market-cap of just £323m, or around $400m at present, there’s a very real chance these claims could bankrupt the company, so I’d stay away from this firm for the time being.

That said, the fact Reckitt has been able to agree a settlement is a positive development for the firm. This has increased the odds that Indivior will be able to do the same, although I wouldn’t bet on it at this stage. 

Time to buy

Meanwhile, now the consumer goods giant has put this issue behind it, I think Reckitt’s fortunes are improving. As a result, now could be the time to snap up shares in this business at a bargain price.

At the time of writing, the stock is trading at a forward P/E of just 18, below its five-year average of 22. On top of that, the stock supports a dividend yield of 2.7%, the payout is covered twice by earnings per share and has grown at a compound annual rate of 5% for the past six years

So, overall, if you’re looking to add a defensive income stock to your portfolio at an attractive price, I highly recommend taking a closer look at Reckitt. 

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Rupert Hargreaves owns no share 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.