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2 FTSE 100 dividend bargains I’d still buy after they returned 15% in a year

Around this time last year, I picked out two FTSE 100 ‘dividend bargains’ that I thought were undervalued at the time and looked ‘too cheap to pass up’.

Nearly 12 months on and these stocks have gone on to smash the market. My first pick, DS Smith (LSE: SMDS) has produced a return of 15.2% over the past 12 months, outperforming the FTSE 100 by around 5.2%. 

Meanwhile, my second pick, Informa (LSE: INF), returned 13.4%, outperforming the market by 3.4% over the past 12 months. 

Even after these impressive performances, I think these stocks are still undervalued, and today I’m going to explain why I believe this to be the case. 

Booming earnings 

In 2018, DS Smith launched a £1bn rights issue to fund its biggest-ever acquisition. With more shares in issue, the company’s earnings per share fell by around 14% in fiscal 2019, even though net income rose. Costs associated with the acquisition also weighed on reported earnings.

However, the City is expecting the benefits of this acquisition to be fully reflected in the company’s earnings for its current financial year. Analysts believe DS will reveal a 25% increase in earnings per share for fiscal 2020, which puts the stock on a forward price-to-earnings ratio of 10.9. 

This time last year the stock was changing hands for around 9 times forward earnings, so it looks to me as if the market is not giving the company full credit for its progress over the past 12 months. 

On top of this, there’s also DS’s dividend yield. The stock currently yields 4.4%, and the payout is covered 2.1 times by earnings per share. With analysts expecting the yield to hit 4.7% next year, this income champion hasn’t lost any of its appeal over the past 12 months.

Standing still

Shares in business intelligence group Informa look just as attractive as they were this time last year. When I covered the stock at the beginning of December 2018, it was trading at a forward P/E of 15.3.

Today, the multiple is 15.7. Analysts are forecasting earnings growth of 38% for the year, thanks to the benefit of a significant acquisition on Informa’s bottom line.

The group acquired its smaller peer UBM last year, mostly in shares, which increased the share count but has produced synergies across the enlarged business, driving up profit margins. 

One of the things that really impressed me about the company last time I covered the stock was its dividend track record. Over the past two years, its dividend has grown at a compound annual rate of nearly 8%. Analysts are expecting this trend to continue, with dividend growth of 7.1% pencilled in for 2019 and 6% for 2020.

Based on these forecasts, the stock will yield around 3% next year. That’s not particularly exciting, but considering Informa’s track record of dividend growth, I think it’s worth trading off the low yield for the dividend’s long-term potential.

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Rupert Hargreaves owns no share mentioned. 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.