The annual ISA deadline is looming fast and now looks like a good time to buy FTSE 100 dividend stocks.
The banking crisis dented wider confidence and now some of my favourite stocks are even cheaper, with shares in sales and marketing firm DCC (LSE: DCC) falling 7.33% in a week.
Stocks are down, yields are up
DCC’s share price was struggling even before this week’s troubles, falling 27.04% over one year and 37.83% over five years. However, that now makes a tempting entry point as it currently trades at just 10.1 times earnings.
A falling share price does not automatically mean good value but I’m optimistic as management anticipates “another year of strong operating profit growth”, despite challenging conditions.
In November, DCC reported a 13% increase in operating profit to £221m, driven by strong organic growth and recent acquisitions. The board hiked the interim dividend by 7.5%.
DCC now yields a solid 4.1%, up from 3.9% when I looked last month. It is covered 2.4 times by earnings.
I could secure much bigger yields from the FTSE 100 right now, but DCC’s management has an impressive track record of hiking shareholder payouts. If I invested half my ISA allowance today, I would get income of £410 in the first year. Hopefully more in future.
The big concern is that any recession will hit revenues as struggling clients slash marketing spend. This would lead to further share price falls and could even force management to freeze, cut, or axe the dividend. I think these risks are reflected in the lower valuation.
FTSE 100 paper and packaging group Mondi (LSE:MNDI) has also had a tough week, its stock falling 7.18%. Again, that seems to be part of the wider sell-off, rather than any stock-specific problems.
Recession worries linger
Yet Mondi has taken a hit as cash-strapped consumers order fewer cardboard-wrapped goodies online. Its stock is down 17.55% over one year, and a hefty 35.14% over five years.
One challenge is that wood prices are at “elevated levels” as sanctions hit supplies of Russian and Belarusian timber. However, Mondi expects them to soften as the year progresses and it ups supply from Finland.
Its yield has jumped from 4.4% to 4.7% in a matter of weeks, with cover of 2.8. If I invested the remaining £10k of my ISA allowance, that would give me income of £470 in year one. With Mondi’s yield forecast to hit 6% next year, I’d soon get more.
If we do get a recession, DCC and Mondi stock could fall further. Since I plan to hold for at least 10 years, and preferably longer, I can wait for them to bounce back.
If I invested £20k before 5 April, I could expect income of £880 in the first year, or £73.33 a month. Not bad. Both stocks are now firmly in the frame for my next purchases. Now let’s see what next week brings.
