Have £3k to spend? I’d buy this FTSE 100 dividend growth stock before the market comes to its senses

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2018 proved a lot more successful for Smith & Nephew (LSE: SN) than for much of the rest of the FTSE 100, the firm finishing the year with a flourish as signs of a reinvigorated sales performance between July and September helped it to recover from the stock market washout of the prior month and punch a 14% share price gain for the year as a whole.

Its share price has retreated from the record peaks above £15 struck in the run-up to Christmas but I’m tipping it to pound to fresh peaks sooner rather than later, possibly as soon as when full-year results come out on February 7. Now is a great time to plough into the medical implants manufacturer, in my opinion.

M&A rolls on and on

With global healthcare investment rising Smith & Nephew, with its robust position in the US and rising might in emerging markets, is in great shape to produce strong and sustained profits in the years ahead. It offers a broad range of market-leading technologies across fields like advanced wound care, joint reconstruction and sports medicine, and fresh M&A action in December boosted its suite of cutting-edge technologies still further.

The procurement of California-based Ceterix Orthopaedics, for a fee that could eventually rise to $105m, gives the firm’s sports medicine operations access to the lauded NovoStitch Pro product which enhances its existing position in the field of meniscal surgery. The Footsie firm estimates that 15% to 20% of these knee-related operations are solved via repair rather than removal, but it believes that this number can be doubled in the medium term with help of its newly-acquired technologies.

This is a particularly shrewd move. The company estimates that in the US alone, the number of so-called orthopaedic reconstructive procedures carried out in ambulatory surgery centres (ASCs) between 2017 and 2022 are set to grow at a compound annual growth rate of 24%. Incidentally, Smith & Nephew also expects ASC procedure volumes involving its sports medicine, ear nose and throat, and trauma and extremities products will rise at a growth rate of 5% to 7% over the same period.

Up, up and away!

City analysts believe that the only way is up from here, and expect the London company to recover from the mixed trading performances and restructuring-related profits hits of earlier in 2018. Smith & Nephew is predicted to rebound from the 1% earnings dip forecast for last year and record a 6% profits rise in 2019 and a 7% on-the-year improvement in 2020.

As a consequence, the medical mammoth is predicted to keep its long-running progressive dividend policy ticking along too. An anticipated payout of 36 US cents per share for 2018 is predicted to rise to 37 cents this year and again to 41 cents next year, forward figures that yield a handy-if-unspectacular 2% and 2.2% respectively.

The forward P/E ratio of 18.3 times doesn’t make it cheap, but it’s great value in my opinion considering the company’s exceptional long-term profits outlook. I reckon investors should consider snapping it up today before the rest of the market wises up.

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Royston Wild has no position in any of the shares 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.

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