Two FTSE 100 dividend stocks I’d buy while they’re cheap

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The last six months have been challenging for the FTSE 100. Due to the toxic combination of Brexit uncertainty, trade war uncertainty, and rising interest rates, investor sentiment towards stocks has deteriorated. 

However, for those willing to look beyond the short-term uncertainty, I believe there are plenty of attractive opportunities in the FTSE 100 right now, particularly from a dividend-investing perspective. Here’s a look at two cheap dividend stocks that I believe offer strong value right now.

ITV

ITV shares have performed poorly over the last six months, falling from around 175p, to 136p today. Investors have dumped the stock on concerns that advertising revenues could decline if UK economic conditions deteriorate after Brexit, as ad spending is generally linked to economic growth. Yet I see the recent share price fall excessive, as the shares now trade on a P/E ratio of just 8.8 (using consensus FY2018 earnings) and the yield on offer is nearly 6%. I believe the stock offers turnaround potential at current levels.

One thing to understand about ITV is that the company is no longer totally reliant on advertising spending for revenue. In recent years, the group’s content division, ITV Studios, has made a meaningful contribution to the company’s top line. Looking ahead, I believe this division should be able to provide a buffer if advertising revenues do decline due to Brexit. Just recently, ITV announced that Studios revenue had grown 10% for the first nine months of the year, including organic revenue growth of 7%, which is a healthy level of growth.

Even if growth is lacklustre in the short term, the company’s high dividend yield means investors will be paid to wait things out. In July, it advised that investors can expect a payout of at least 8p for FY2018, which translates to a yield of 5.9%. Given that generous yield, I think ITV shares are certainly worth considering right now.

Imperial Brands

Another FTSE 100 stock I believe offers fantastic value at the moment is tobacco manufacturer Imperial Brands(LSE: IMB). The entire tobacco sector has been out of favour with investors for around 18 months now and, as a result, Imperial’s share price has fallen from 3,500p to 2,400p. Yet, at the current share price, Imperial trades on a forward P/E of just 8.7 and offers a prospective dividend yield of a colossal 8.5% – metrics which are hard to ignore, in my view.

One reason why tobacco stocks have fallen is that investors are concerned about declining smoking rates. I understand the concern here. However, I also think the fears are overblown. For starters, the pace of decline is slowing, according to the World Health Organisation (WHO). And with Asia and Africa experiencing rapid population growth, the number of smokers in these countries is forecast to offset declining smoking rates across developed countries.

Secondly, at some stage in the future, I think cannabis could provide an alternative growth angle for tobacco companies. This is a huge growth market, and it’s worth noting that last year, Imperial took a small stake in UK biotech company Oxford Cannabinoid Technologies. Moreover in September, Imperial CEO Alison Cooper told Bloomberg that cannabis is “an interesting space to explore.”

So, I wouldn’t write off Imperial Brands just yet. With the shares trading so cheaply right now, I think they’re worth a closer look.

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Edward Sheldon owns shares in ITV and Imperial Brands. The Motley Fool UK has recommended Imperial Brands and ITV. 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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