Why I’d ignore the Santander share price and buy this FTSE 100 dividend stock instead

Investors have rapidly moved away from Santander(LSE: BNC) over the past 12 months. Since mid-September 2017, the stock has slumped by around 24% excluding dividends.

As Santander is a big dividend payer (the shares currently yield a market-beating 5.5%), I think it is only fair to judge the company’s performance on its total return, which includes dividends paid. On this basis, the stock is down 18% over the past 12 months.

Slowing growth

It’s quite clear why investors have turned their back on the company. At the beginning of 2018, analysts were expecting a near 10% increase in earnings per share (EPS) for 2018. However, as the year has progressed, growth estimates have been revised steadily lower. Now, the City is forecasting growth of just 2.9%.

As my Foolish colleague, Roland Head noted last week, one explanation as to why analysts have soured on the business over the past 12 months is higher US interest rates. I believe the group’s struggling UK business is another contributing factor. According to the company, earnings at its UK arm fell by 16% in the first half of 2018 as costs rose and revenues declined.

Still, I’m generally bullish on Santander’s prospects because of its international diversification. Just under half of the group’s profits come from South America, with the rest coming from the UK, US and Europe. Even though earnings may be volatile in the short term, over the long term, I believe this should help Santander continue to stand out from UK-focused peers.

Today, you can buy shares in the international banking giant for just 8.2 times forward earnings, which looks cheap to me, even though analysts are not projecting much in the way of growth for 2018.

Having said all of the above, however, I’m not buying Santander today because I believe FTSE 100 dividend champion Sage(LSE: SGE) might offer more value.

The accounting software provider’s reputation has been left in tatters after two profit warnings this year and the sacking of its CEO. These issues have taken their toll on the company’s share price. After jumping to a high of 821p — a level not seen since the dotcom bubble — shares in Sage have since cratered to 582p, a decline of 29%.

Sticky income

Shares in Sage look interesting to me, not because they are particularly cheap, but because of the sticky nature of the company’s business model.

Having used several different versions of accounting software, I know how difficult it can be to switch providers. Users generally avoid changing because of the work involved. This is Sage’s most attractive quality as an investment. Revenues from its cloud accounting software give it a steady, regular, predictable cash flow

With this stream of income, it’s no surprise the company has earned itself a reputation as one of the FTSE 100’s most reliable income stocks. Over the past six years, the payout has risen approximately 60%, and analysts are expecting growth to average 7% per annum for the next two years.

The payout is covered twice by EPS, so there’s plenty of headroom for dividend growth despite the firm’s profit problems. Granted, the stock isn’t cheap, changing hands at 16.3 times forward earnings, but this is below the IT sector average of 20.2 and is, in my opinion, a suitable price worth paying to get your hands on Sage’s sticky income stream.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Sage Group. 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.