Forget the Cash ISA! Here are 3 FTSE 100 dividend stocks I’d buy for 2020

Looking for ways to satisfy your blue-chip dividend fix in 2020? Paul Summers has three suggestions.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

No one knows what 2020 — or any year, for that matter — will bring for sure. Unfortunately, this lack of certainty will continue to be one reason why many in the UK settle for sticking their savings in a Cash ISA.

But holding cash beyond a stash for life’s little emergencies is not recommended as its value is slowly eroded by inflation. Stocks are a far better destination for your money over the long term, especially as a lot of companies pay dividends that juice returns even further if reinvested.

Today, I’ve picked out three FTSE 100 stocks that I’m confident will continue rewarding their holders next year (and indeed, for many years to come).

Strong and stable 

Owner of brands such as Baileys and Guinness, drinks behemoth Diageo (LSE: DGE) springs to mind whenever I think of resilient stocks that are unlikely to encounter problems in returning a proportion of profits to owners.

A yield of 2.3% isn’t exactly massive, but it’s definitely better than the 1.35% you’d currently get from the best Cash ISA. Considering the potential for growth in emerging markets, I’d say there’s a good chance of earnings, and subsequently dividends, continuing to move higher in the future. 

Thanks to it making the vast proportion of its money overseas, Diageo’s share price could be a bit volatile over 2020 if the value of sterling begins to recover. Having admired the business for years, I’ll be using any temporary drop in the valuation to finally take a stake.

The recovery is on!

I’ve been saying for some time that broadcaster ITV‘s (LSE: ITV) valuation is too low and its performance in recent months suggests I’m not alone in thinking this.  The shares are up 45% since mid-August. 

But there’s more to ITV than value. Another big attraction is the dividend on offer. This may not be growing at the current time due to concerns over dwindling advertising revenue, but next year’s forecast payout should still be around 8p per share, giving a yield of 5.3% covered 1.7 times by expected profits.

As a holder, I’ve no hesitation in sticking with the company for 2020. At 12 times earnings, it’s not the bargain it once was, but management regularly generates excellent returns on the money it invests, the new streaming service with the BBC (BritBox) is now up and running, and the firm’s Studio arm continues to produce quality content.

Bargain income

The fact that Legal & General‘s (LSE: LGEN) share price rose over 6% on December 13 shows just how relieved the City was that Boris Johnson had won. Although Brexit-related hurdles could still cause the shares to wobble going forward, I don’t think anyone investing for income will have much to fear in 2020.

Legal is forecast to return 18.7p per share in FY20, equating to a stonking yield of 5.7% based on the share price as I type. Positively, the total payout is likely to be covered over 1.7 times by expected profits. So, unless we get a very big economic shock next year, the dividends look safe.

To further sweeten the investment case, it’s worth mentioning that cash returns have been consistently hiked for many years. Big, sustainable dividends are nice but they’re even better if they’re growing

Still trading on less than 10 times earnings, Legal can/should be a core holding in an income-focused portfolio, in my view.

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 owns shares of ITV. The Motley Fool UK has recommended Diageo 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.

More on Investing Articles

Investing Articles

After a 9% price drop on its 2024 results, should I buy more shares in this FTSE 100 heavyweight?

This FTSE 100 stock has a high yield that could make investors significant passive income over time, especially if they…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

My Diageo shares stink! What should I do with them?

Diageo shares are having a negative impact on Edward Sheldon’s investment portfolio at the moment. Should he cut his losses…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

5 things that make me nervous about Barclays shares!

After more than doubling over the past year, Barclays shares are riding high. But the road ahead could be bumpy…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

3 reasons the NatWest share price could keep climbing

The NatWest share price has almost doubled in the last 12 months. But Stephen Wright thinks it might not be…

Read more »

Investing Articles

Billionaire’s hedge fund bets big against the GSK share price!

After years of limping along, the GSK share price has leapt 11% in one month. But one of America's richest…

Read more »

Investing Articles

Now at a 52-week high, can the Scottish Mortgage share price go even higher?

The Scottish Mortgage share price is firing on all cylinders, driven higher by outstanding progress at many of the trust's…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

FTSE shares: the perfect ‘get rich slow’ idea?

As a long-term investor, Christopher Ruane reckons the FTSE 100 could offer him the foundations to create stock market wealth.…

Read more »

Investing Articles

Here’s how an investor in their 30s could aim to turn a £10k ISA into £132,676 by retirement

Christopher Ruane explains how someone with a 30-year investing timeframe could aim to increase an ISA stuffed with blue-chip shares…

Read more »