Why I think time is running out to buy these FTSE 100 dividend bargains

Various denominations of notes in a pile
Various denominations of notes in a pile

Over the past six months, the UK’s leading blue-chip index, the FTSE 100, has slumped by around 10%, excluding dividends. This sell-off has hit every corner of the market, leaving no stone unturned.

However, I believe in some cases, investors have overshot the mark, pushing shares in high-quality businesses down to underserved valuations. Today, I’m going to outline two such companies — income stocks with enviable track records that look too cheap to pass up after recent declines.

Beating the market

If you had invested £1 in packaging producer DS Smith(LSE: SMDS) 10 years ago, it would be worth £12.60 today. A similar investment in the UK All Share index would be worth just £2.60.

DS has gone from strength to strength over the past decade as the company has grown organically and through acquisitions. Net profit has risen 250% since 2013, and I expect this trend to continue as the firm builds on its position in the global packing industry.

The market, however, seems to think otherwise. Since the beginning of October, the stock has lost around 30% and it now changes hands for just under nine times forward earnings — its lowest valuation in five years.

Personally, I reckon that now could be the time to make the most of this rare opportunity and snap up shares in DS at a bargain price. Analysts are expecting earnings per share (EPS) to expand a total of 19% over the next two years, and this growth should help draw investors back to the stock, in my view.

While you wait for a recovery, shares in DS support a dividend yield of 4.6%, projected to rise to 4.9% next year. The distribution is covered 2.3 times by EPS, according to City numbers.

Hiding in plain sight

Another FTSE 100 dividend bargain that looks to me as if it’s been unfairly punished by the recent sell-off is Informa(LSE: INF).

The business intelligence and events business has seen the value of its shares fall by 17% since the end of July. After these declines, the stock is now trading at a forward P/E of 15.3, according to average analyst estimates. Granted, this is slightly above what I would consider to be an appropriate price for the stock. But considering the fact that shares in Informa have rarely changed hands for less than 20x forward earnings over the past five years, I think this is a bargain. On top of the attractive valuation, investors are also entitled to a 3% dividend yield, set to rise to 3.2% next year, according to City numbers.

Informa is what I would call a dividend dog. The company might not have the highest yield around, but it has a record of steadily increasing the distribution through all environments. Between 2008 and 2010 for example, when the rest of the world was trying to fight the worst financial crisis since the Great Depression, Informa increased its dividend to investors by 40%.

Over the past 10 years, the firm’s dividend has grown at an average annual rate of 7.7%. And it looks as if this growth can continue for the foreseeable future, as the payout is covered 2.2 times by EPS at the time of writing.

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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.