Two FTSE 100 dividend stocks I’d buy before 2019

Scene depicting the City of London
Scene depicting the City of London

Brexit fear and indecision has hammered UK shares over the past 12 months. I believe this selling has thrown up some tremendous bargains, companies that are relatively immune to Brexit but have been lumped in with the rest of the market.

Immune from Brexit?

Take insurance group Direct Line(LSE: DLG) for example. As one of the largest insurance companies in the UK, this business is unlikely to suffer significantly from a messy Brexit. Every car on the road in Britain is required to have insurance, and while customers might cut back on some non-essential insurance products, such as home and travel, overall the impact on the business should be limited.

However, over the past six months, shares in Direct Line have slumped 17%. After this decline, the stock is changing hands for just 10 times forward earnings and supports a prospective dividend yield of 9.2%. I think investors are worried about the company’s prospects as City analysts aren’t expecting much in the way of earnings growth over the next two years, although it appears the dividend yield is here to stay.

Time to buy?

Looking at these multiples, I think now could be the time to buy Direct Line before the market realises it has made a mistake. City analysts’ growth targets seem too conservative. They appear to suggest the worst case scenario for a company that has achieved earnings per share (EPS) growth of around 7.2% per annum over the past five years.

So, after considering the above, I think now could be the time to buy Direct Line before the market catches on to the value on offer here.

Timeless business

Another FTSE 100 dividend stock that I like the look of after recent declines is Schroders(LSE: SDR). This company will undoubtedly suffer some fallout from Brexit but, over the long term, I think the group will continue to grow. There will always be a need for wealth management services in the UK, and this demand should only improve over time as more people save and invest for the future.

As one of the largest and most respected wealth management businesses in the UK, Schroders should continue to attract investors’ money for many decades, and this should translate into continued returns for investors.

After recent declines, its shares support a dividend yield of 5% and change hands for just 10.3 times 2019 EPS. This is the lowest valuation placed on the shares in more than five years. Back in 2013, investors were willing to pay 26 times earnings for the stock.

Such a significant valuation discrepancy tells me that investors could be in line for substantial gains if, or when, the Brexit cloud of uncertainty is lifted. In the meantime, shareholders are set to receive a dividend yield of 5% — an attractive risk/reward ratio, in my opinion. My Foolish colleague G A Chester seems to agree as he recently highlighted Schroders as one of the companies that he believes could be a big winner for investors in 2019.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.