While I love dividends from my stocks, I love high ‘total returns’ (dividends and capital gains) more. Over the long term, high total returns are far more powerful than dividends alone from a wealth creation perspective.
With that in mind, I’m going to highlight two FTSE 100 dividend stocks that have considerable share price upside, according to City analysts. I own both of these stocks, and I’d be happy to buy more shares at current prices.
City analysts expect this FTSE 100 dividend stock to fly
Let’s start with financial data company Experian (LSE: EXPN), which is currently trading for around 3,000p, with a yield of around 1.3%. Here, analysts at JP Morgan Cazenove have a 12-month price target of 4,000p. That’s roughly 33% higher than the current share price.
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While there’s no guarantee Experian will hit 4,000p any time soon (broker price targets should always be taken with a grain of salt), I can see why JP Morgan’s analysts see share price upside here.
For starters, demand for the company’s credit reports and scores is rising following the lifting of coronavirus restrictions. In January, the group reported a 14% increase in revenue for the final quarter of calendar 2021. It also said it’s expecting annual revenue to grow 16-17% this year.
Secondly, the stock is not that expensive, given the company’s market position, high level of profitability, and growth potential in today’s data-driven world. At present, the forward-looking price-to-earnings (P/E) ratio here is about 29, which seems very reasonable to me.
It’s worth pointing out that if sentiment towards technology stocks continues to deteriorate in 2022, this stock could underperform in the near term. Another risk to consider is disruption from new market participants.
I’m comfortable with these risks. I think this FTSE 100 stock has the potential to deliver attractive total returns in the year ahead.
A ‘reopening’ stock with huge upside
Another FTSE 100 dividend stock that has significant share price upside, according to the City, is joint replacement specialist Smith & Nephew (LSE: SN). It currently trades at around 1,220p with a prospective yield of about 2.3%. However, analysts at Berenberg have a price target of 1,840p. That implies upside of around 50%.
It’s pretty easy to see the bullish case here. Over the last few years, Smith & Nephew has experienced a lot of disruption from the coronavirus pandemic. Less elective medical procedures, along with supply chain disruptions, have hit revenues. As a result of these issues, its share price is way below what it was pre-pandemic.
Things are likely to get better here though. Supply chain disruptions won’t last forever. Meanwhile, there’s a huge backlog of joint replacement surgeries. As of mid-2021, there were over 160,000 Britons waiting for hip and knee replacements.
One risk to consider with SN is Covid-19 setbacks. If we see more variants emerge, the company’s recovery could be delayed.
I see the overall risk/reward proposition as attractive however. I think this FTSE 100 dividend stock is likely to do well in the years ahead as the world recovers from the pandemic.
