The FTSE 100 is falling fast and is at its lowest level in over 15 months. However, share buybacks by top Footsie companies are at all-time highs. Several industries are seeing record profits and will come out of this slump in a better financial position.
I see this as the perfect opportunity to load up on some quality stock at great prices. And one firm looks like a good value pick to me.
DS Smith (LSE:SMDS) shares are currently trading at 267p. They have a price-to-earnings (P/E) ratio of 13.1 times and offer a dividend yield of 5.6%. This looks like a great bargain to me, and the company’s latest financial update has made investors very happy.
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DS Smith shares could take off
Dividends stocks are under the spotlight right now. Chancellor Kwasi Kwarteng’s latest plans will see the tax on dividends lowered by 1.25%. This comes after share buybacks by UK firms hit a record of £16.2bn in the second quarter (Q2) of 2022.
This shows that despite the turbulence in the market right now, investors who buy and hold quality shares will be rewarded. Returns from share price movements are low right now. But if I make smart decisions today and grow my passive income portfolio, I could benefit from higher payouts for decades.
This is where DS Smith shares look like a good option to me. The global packaging firm released a strong trading update this week. For the first half (H1) of 2022 (ended 31 October) operating profits are expected to be at least £400m, beating all previous estimates. To put this in perspective, total operating profits in FY2021 were £616m.
This is great news for DH Smith’s dividend moving forward. The already sizeable yield could grow in the coming months if H2 performance meets expectations. Current full-year earnings projections will put year-on-year earnings growth at 10.9%.
After the update was released, DS Smith shares jumped over 12% in a day. But it is still trading 42% below its post-pandemic highs of 461p set in September 2021.
Concerns and verdict
With the FTSE 100 struggling to find stability, it is hard to say if this update alone could trigger a share price rise. In fact, the company posted decent results in line with expectations last year. However, its share price continued to fall. DS Smith shares are down over 30% in the last 12 months and 32% in 2022.
Also, paper prices have remained high after the pandemic and are projected to rise over 2.5% annually for the next five years. DS Smith already has razor-thin margins. The e-commerce surge over the last 24 months has triggered a huge demand for packaging materials like cardboard. And rising paper pulp prices could put a strain on future revenue.
However, I am optimistic that DS Smith can hit its new targets this year, which would increase investor interest. Given its size and global presence, I think the firm is well-placed to navigate rising raw material costs. I think DS Smith could offer a good mix of value and growth for my portfolio, which is why I am willing to invest if signs of recovery grow stronger.
