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.

| 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.

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.

More on Investing Articles

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »