My top FTSE 100 dividend stock for 2019

The combination of this FTSE 100 (INDEXFTSE: UKX) income champion and an AIM market star could boost your portfolio in 2019.

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If you’re looking for an income stock to add to your portfolio, I think you should consider Nichols (LSE: NICL) today. This company flies under the radar of most investors, but it really shouldn’t. 

The business, which produces soft drinks under the Vimto brand, as well as the Feel Good, Starslush, Levi Roots and Sunkist brands, has a record of turning out steady growth for investors year after year. Indeed, over the past six years, earnings per share have grown at a steady compound annual rate of just under 10%.

Slow and steady

It looks as if Nichols is on track to repeat this performance for 2018. In a trading update published today, the company announced that group sales for 2018 totalled £142m, up 6.9% year-on-year and significantly above the City’s projection for revenues of £139m. Despite the fact that some analysts have warned that the firm might see a downturn in sales due to the introduction of the sugar tax in the UK, this side of the business has managed to defy expectations. The UK, which is its largest market, reported sales growth of 12.6% to £114.6m.

These numbers are highly impressive, especially at a time when so many other UK consumer-focused businesses are struggling. Nichols seems to be outperforming the pack.

In some respects, this performance isn’t surprising. Nichols is still managed by the founder’s grandson who owns more than £30m of shares. He has so much skin in the game, the chairman is highly incentivised to provide a positive result for all investors.

I’m highly attracted to Nichols for all the reasons above, but the one thing that’s stopped me from jumping in is the current valuation. The shares are changing hands today at a forward P/E of 19.9. I’m happy to pay for quality, but this is a little too expensive for me. However, if the price drops significantly over the next 12 months, I won’t be able to resist adding Nichols to my portfolio.

High-quality income

Nichols is a bit too pricey for my tastes, but another high-quality stock I’m eyeing up is Coca-Cola HBC (LSE: CCH). From a valuation perspective, these two businesses are similar. Indeed, Coca-Cola HBC is trading at a forward P/E of 20.2. Nevertheless, I think the company is worth this multiple because of its size and association with the Coca-Cola brand. On top of this, with its international diversification (the business operates across Europe), I think it provides the perfect hedge against Brexit uncertainty.

That’s why I’m picking the company as one of my top FTSE 100 dividend stocks for 2019. The dividend yield of 2.3% might not seem immediately attractive, but the distribution has nearly doubled over the past five years and analysts believe it will continue to expand for the foreseeable future. The balance sheet is relatively clean, with a net gearing ratio of only 20.2%. Last year, the enterprise produced to free cash flow of €390m, easily covering the total dividend payout of €160m, leaving plenty of room for further distribution growth.

Put quite simply, this stock has all the qualities I look for in a dividend play. If it’s income you’re after, I believe you won’t waste your time taking a closer look at Coca-Cola HBC. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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