2020 dividend forecasts: BP, Vodafone and Astrazeneca

Paul Summers takes a look at what income investors might expect from three FTSE 100 (INDEXFTSE:UKX) favourites next year.

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Earlier this month, my Foolish colleague Edward Sheldon looked at the dividend credentials of FTSE 100 financial giants Lloyds and Barclays, as well as revived supermarket Tesco going into 2020. Today, I’m doing the same with three other stocks, all of which are popular with those investing for income.

As Edward quite rightly stated back then, please remember that the numbers stated below are subject to change, particularly as we could see quite a bit of movement in the market before and after the election

BP

FY2020 dividend forecast: 41.2 cents (32p)
FY2020 prospective yield: 6.41%

Oil behemoth BP (LSE: BP) hasn’t had the best time of late, giving away the gains it had made in the first few months of 2019 over the second half of the year due to a falling oil price. That said, a lower valuation means the dividend yield now stands at 6.41% — more than the FTSE 100 average and slightly higher than Royal Dutch Shell. This payout is likely to be covered by earnings almost 1.4 times. That’s a little lower than I would normally like, but certainly better than it once was.

As always, a lot depends on things BP can’t control. Assuming 2020 brings the black gold bulls back from the shadows, however, now might be as good a time as any to invest.  

Vodafone

FY2021 dividend forecast: 9.4 cents (8.1p)
FY2021 prospective yield: 5.17%

There was a time when I would avoid shares in Vodafone (LSE: VOD) like the plague thanks to its dogged refusal to reduce its unaffordable dividend. Now that this has finally happened, I’m prepared to be a little more welcoming. Considering that its share price has climbed 19% since the announcement back in May, it seems I’m not alone. 

That’s not to say that I think income investors should necessarily pile into the stock. Vodafone’s proposed 9.4 cents per share cash return in FY2021 (beginning 1 April 2020) will still only be covered just 1.1 times by expected profits. Moreover, the company still carries an extraordinary amount of debt on its balance sheet — the reduction of which will depend on its ability to offload its European mobile mast business and continue taking contracts from rivals (the recent capture of Virgin Media from BT is an example). 

2019 could go down as the year that Vodafone’s fortunes began to turn, but I’d still proceed with caution. 

Astrazeneca

FY2020 dividend forecast: 275 cents (214p)
FY2020 prospective yield: 2.89%

Pharmaceutical powerhouse Astrazeneca (LSE: AZN) has been one of the index’s standout performers in 2019 with the share price a little over 25% higher today than where it was at the start of the year.

In contrast to the situation at BP, this has resulted in Astra’s yield moving lower. The firm is expected to return around 214p per share in FY2020 which equates to a yield of just 2.89%. Positively, dividend cover has improved over recent years and next year’s cash payout should be covered around 1.56 times by profits.

My only real concern with Astrazeneca right now is that the stock looks expensive relative to the general market and to peer GlaxoSmithKline (at 27 vs 14 times forecast earnings). Should sterling rise on December 13 following a perceived breakthrough on Brexit, it’s possible the former’s share price could come off the boil (since Astra makes most of its money overseas). As such, anyone considering the stock may wish to put off their purchase for now.

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.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. 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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