The Motley Fool

Could these big dividend yields (like this FTSE 100 stock) make ISA investors rich in 2020?

If you’re scouring the FTSE 100 for big dividends at low cost then Anglo American (LSE: AAL) might be one of the stocks on your radar. At current prices, share pickers can grab the iron ore giant’s 4.1% dividend yield for 2020 with the business also changing hands on a rock-bottom forward P/E ratio of 10.1 times.

But buyer beware: Anglo American comes with a couple of giant caveats attached. A consensus of City forecasts suggests that earnings will slide 12% next year, a projection that creates expectations that the full-year dividend will be hacked back to 109 US cents per share from an anticipated 120 cents in the current period.

Sign up for FREE issues of The Motley Fool Collective. Do you want straightforward views on what’s happening with the stock market, direct to your inbox? Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio. Click here to get started now — it’s FREE!

Bad omens

It’s no wonder that the number crunchers are so gloomy as the outlook for iron ore demand gets murkier and murkier. As if things weren’t worrying enough, up popped the World Steel Association this week to report that crude steel output was down 2.8% year-on-year in October at 151.5m tonnes.

Anglo American cheered investors this month by upgrading its iron ore production estimates at its Minas-Rio complex in Brazil for 2019 (to 23m tonnes from 20m-22m previously) and for the next few years too. Concerns over the longer-term fundamental outlook as demand dips and supply of the steelmaking ingredient soars overshadows this news, though, certainly for this Fool. I reckon it’s far too risky for sensible investors.

The final word

I think investors on the hunt for big dividends would be better off buying into ContourGlobal (LSE: GLO), a big-yielding income hero that I would happily buy today. Dividend yields here sit ay 5.4% for this year and 6% for 2020.

Now, ContourGlobal isn’t listed on the Footsie like Anglo American. But I believe that all dividend chasers worth their salt need to pay this FTSE 250-quoted stock some serious attention given the brilliant defensive nature of the power plant owner’s operations. This is a critical quality for any reliable dividend grower and something that could stand it in good stead for 2020 as the slowing global economy boosts demand for so-called safe haven stocks.

This is not the only reason to buy this particular income stock today, however. The company is expanding its operations all over the world to turbocharge profits growth in the years ahead and it sealed the $724m purchase of two natural gas-fired combined heat and power plants from Alpek in Mexico, along with the necessary rights and permits to build a third.

In the more immediate term, ContourGlobal is expected to follow stratospheric earnings growth in this outgoing year with an extra 37% bottom-line improvement in 2020. This leaves the business trading on a great-value P/E ratio of 14.2 times and reinforces its appeal as a top stock to buy today. I reckon this is a stock that could make share pickers some big returns in 2020 and beyond.

You Really Could Make A Million

Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, “10 Steps To Making A Million In The Market”.

The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide.

Simply click here for your free copy.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.