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Two FTSE 100 dividend stocks I’d buy for my ISA in October

As we start October, there is plenty of value to be found within the FTSE 100 despite the fact that the index is trading at a relatively high level. With that in mind, here’s a look at two attractively-valued FTSE 100 dividend stocks I’d be happy to buy for my Stocks & Shares ISA today.

BAE Systems

One dividend-paying FTSE 100 company that I continue to rate as a ‘buy’ is BAE Systems (LSE: BA), a multinational defence and security business that helps to protect national security and keep critical information and infrastructure secure.

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Looking at recent news flow, BAE seems to have quite a bit of momentum at the moment. For example, in the last two weeks of September, the group won three major contracts, including:

  • A $2.7bn US defence contract with the Pentagon to produce laser-guided rockets

  • A $495m US defence contract for radar warning receiver systems that improve mission survivability for tactical, fighter, and transport aircraft 

  • A $318m contract with the US Army to upgrade its M88 armoured recovery vehicles

In addition, the group advised in July that it had an order backlog of £47bn. Yet despite this healthy momentum, BAE shares remain attractively priced. With analysts forecasting earnings per share of 45.4p for FY2019 (a rise of 6% on last year), the stock trades on a forward-looking P/E ratio of just 12.6, which is well below the median FTSE 100 forward P/E of 14.6. I see that as good value.

I also like the dividend prospects here. BAE has now notched up 15 consecutive dividend increases and analysts expect the group to pay out 23.1p per share for FY2019, which equates to a yield of a healthy 4% at the current share price. Dividend coverage is solid at around two times.

Overall, given the attractive valuation and healthy dividend yield, along with the robust demand for defence products, I think it’s a good time to be building a position in BAE.

DS Smith

I also continue to see investment appeal in FTSE 100 packaging firm DS Smith (LSE: SMDS) which specialises in manufacturing the cardboard boxes that online purchases come in. Its valuation remains stubbornly low due to concerns over global growth. However, given that people are increasingly shopping online, I believe that demand for packaging solutions should remain robust. As such, I think now is a good time to be buying the stock.

A trading update from it at the beginning of September showed that the business continues to progress well, despite ongoing macro-economic uncertainty. For example, the group advised that the integration of Europac – which it acquired last year for €1.7bn – is going to plan and that the underlying drivers of demand for sustainable corrugated packaging “remain strong.” It also said that it expects further progress this year.

DS Smith shares currently trade on a forward-looking P/E ratio of around 10.1 and support a prospective dividend yield of 4.7%. Dividend coverage is healthy at a ratio of approximately 2.1. At that valuation, with a near-5% yield on offer, I think the stock is a steal. 

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Edward Sheldon owns shares in BAE Systems and DS Smith. The Motley Fool UK has recommended DS Smith. 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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