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This FTSE 100 company plans to reintroduce its dividend. I’d buy the stock now

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It’s fair to say 2020 has been a disaster for FTSE 100 dividend investors. This year, over 40 companies in the index have suspended or cancelled their payouts due to Covid-19.

The good news, however, is that some FTSE 100 companies are beginning to reintroduce their dividend payouts. Below, I’ll highlight one company that has recently announced plans to restart its dividend. I’ll also explain why I believe its shares are worth buying right now.

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FTSE 100 dividend stock

The FTSE 100 company that has just announced that it will be reintroducing its dividend is packaging specialist DS Smith (LSE: SMDS). In an AGM trading update yesterday, the company advised that it intends to declare an interim dividend for the half year to 31 October 2020.

I’ll point out that DS Smith didn’t give us any details about this dividend. So we can’t assume that it will be equal to or greater than the interim payout of 5.2p per share that was declared for H1 2019. However, the lack of details didn’t stop investors from buying SMDS shares yesterday. The FTSE 100 stock finished the day up 8% on the back of the dividend announcement.

A return to growth

Looking past the dividend news, yesterday’s update from DS Smith was, on the whole, very encouraging.

The company advised that business “progressed well” in the period and that its fast-moving consumer goods (FMCG) and e-commerce businesses had grown through the period, demonstrating a consistently strong performance with multinational customers. This performance more than offset challenging conditions in industrial categories. On top of this, DS Smith said that in August it saw a return to positive growth versus August 2019.

Our customer focus, strong cost control, cash generation, and liquidity profile, together with continued performance in line with our expectations, gives us confidence for the future,” commented CEO Miles Roberts.

I’d buy now

This trading update, and news about the dividend, reinforces my view that DS Smith is a great ‘value’ stock to buy right now.

This year, DS Smith shares have been hit hard. Year to date, the FTSE 100 stock is down nearly 25%. Yet demand for DS Smith’s sustainable packaging products appears to be relatively robust thanks to its exposure to e-commerce and FMCG. Meanwhile, the fact that it has stated that it plans to resume its dividend this year tells us that management is confident about the future. So I think the share price weakness here could be a great buying opportunity.

Turning to the valuation, the consensus earnings per share (EPS) forecast for the year ending 30 April 2022 (the next financial year) is 29.1p. That puts DS Smith on a forward-looking P/E ratio of just 10.1 at its current share price. I see that as an attractive valuation.

All things considered, I rate DS Smith as a ‘buy’ right now. With the FTSE 100 stock still well below its 2020 highs, I see plenty of value here.

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Edward Sheldon owns shares in 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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