UK Markets closed

Retirement saving: a 5%+ FTSE 100 dividend yield I’d buy for September

Royston Wild
Dice engraved with the words buy and sell

Forget Bitcoin, the National Lottery, and other get-rich-quick fads. A much better way of making your money work for you would be buying DS Smith (LSE: SMDS) shares, I believe. And I say this in my role as a financial journalist and a holder of the stock.

It may take longer for you to make your fortune. But I reckon this big-yielding FTSE 100 firm has all the tools to help you to retire in luxury.

The packaging giant hasn’t had the best of times of late, to put it mildly. Its share price has failed to recover from the heavy falls of last autumn, declines caused by news of Chinese producers supercharging supply. And this leaves DS Smith boasting an ultra-low forward P/E ratio of 9.2 times.

Too cheap to ignore

It’s natural the boxbuilder’s lost some value amid signs of increased competition. But I would argue the scale of investor selling has been way over the top.

It’s not just that the market has been exaggerating the potential impact of Nine Dragons Paper’s capacity extensions in the US on the global containerboard market balance. It’s that they’re underestimating DS Smith’s excellent position in Central and Eastern European emerging markets, boosted by a steady stream of acquisitions over many years. The there’s the brilliant revenue opportunities afforded by its entry into the US, plus the steps it’s taking to exploit the booming e-commerce sector and resilient fast-moving consumer goods (FMCG) segments.

The forecast-beater

Indeed, the fruits of these endeavours were underlined perfectly in the company’s latest forecast-beating financials of mid-June. In those, the Footsie firm declared volumes grew across all regions and swelled 2.4% at group level in the fiscal year to April, a result that powered revenues 12% higher from the previous period.

Its drive to focus on the online and FMCG sweet spots is paying off handsomely and allowing it to continue growing ahead of the wider market. And so confident is DS Smith in its plan that, in spite of a worsening outlook for the global economy, it took the decision to upgrade its medium-term sales target to 10-12%.

DS Smith is slated to release first-quarter financials on Tuesday, 3 September, a release which I’m also expecting to impress and could help its share price to start gaining ground again.

The dividend dynamo

Also, you can’t talk about DS Smith without discussing its position as a white-hot income stock. So here we go. Dividends at the business have exploded in recent years, thanks to some dazzling profits growth and excellent cash generation, including the 13% on-year hike recorded in fiscal 2019.

No surprises then, that with City analysts expecting profits to keep swelling (by 6% this year and 5% next year) those rewards are predicted to keep rising too. A 17.2p per share reward is pencilled in for fiscal 2020, resulting in a chunky 5.3% yield. And the 18p payout guessed for next year nudges the dial to an outstanding 5.6%.

There’s plenty of excellent dividend shares to pick from on the FTSE 100, but I consider DS Smith to be one of the most attractive right now.

More reading

Royston Wild owns shares of DS Smith. The Motley Fool UK has recommended DS Smith. 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.

Motley Fool UK 2019