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

This FTSE 100 company suspended its dividend due to Covid-19. Now, it plans to bring it back. Edward Sheldon believes now is the time to buy.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

3 value shares for investors to consider buying in 2025

Some value shares blew the roof off during 2024, so here are three promising candidates for investors to consider next…

Read more »

Investing Articles

Can this takeover news give Aviva shares the boost we’ve been waiting for?

Aviva shares barely move as news of the agreed takeover of Direct Line emerges. Shareholders might not see it as…

Read more »

Investing Articles

2 cheap FTSE 250 growth shares to consider in 2025!

These FTSE 250 shares have excellent long-term investment potential, says Royston Wild. Here's why he thinks they might also be…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Has the 2024 Scottish Mortgage share price rise gone under the radar?

The Scottish Mortgage share price rise has meant a good year for the trust so far, but not as good…

Read more »

Investing Articles

Will the easyJet share price hit £10 in 2025?

easyJet has been trading well with rising earnings, which reflects in the elevated share price, but there may be more…

Read more »

Investing Articles

2 FTSE shares I won’t touch with a bargepole in 2025

The FTSE 100 and the FTSE 250 have some quality stocks. But there are others that Stephen Wright thinks he…

Read more »

Dividend Shares

How investing £15 a day could yield £3.4k in annual passive income

Jon Smith flags up how by accumulating regular modest amounts and investing in dividend shares, an investor can build passive…

Read more »

Investing Articles

Could this be the FTSE 100’s best bargain for 2025?

The FTSE 100 is full of cheap stocks but there’s one in particular that our writer believes has the potential…

Read more »