My top FTSE 100 dividend stock for 2020

After a strong performance in 2019, this Fool thinks these FTSE 100 income stocks are set for a strong 2020 as well.

| 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.

At the beginning of 2019, I picked out my two top income plays for the year. Both of these investments have gone on to outperform the market this year substantially, and I think there’s a good chance they will repeat this performance in 2020.

Earnings growth

My first income pick for 2019 was soft drink producer Nichols (LSE: NICL). The company, which produces soft drinks under the Vimto brand, as well as the Feel Good, Starslush, Levi Roots and Sunkist brands, has a track record of delivering impressive returns for investors over the long term, and it didn’t disappoint in 2019.

Year-to-date, the stock has returned 22.2%, outperforming the broader market by 8.1%.

Shares in Nichols rallied strongly during the first half of the year following the publication of the company’s first-half results. Pre-tax profit increased by 2% during the first half, and revenue jumped 10.2%, putting the business on track to hit City expectations for the full year.

Analysts are expecting the company to report overall earnings growth of 4% for 2019, followed by growth of 5.3% for 2020. The dividend is expected to grow by 5.3% and 7% for each year respectively.

The last time I covered Nichols, I was wary of its high valuation. Still, considering the stock’s performance over the past 12 months, I’m willing to overlook the premium multiple the market has placed on the shares this time, I recommend this stock as an excellent income investment today. Shares in Nichols currently support a dividend yield of 2.6% and trade at a forward P/E of 21.6.

Beating the market

The other dividend stock that I recommended for 2019 was the much bigger Coca-Cola HBC (LSE: CCH). Over the past 12 months, this investment has outperformed the FTSE 100 by around 9%, including dividends. I reckon this trend is set to continue.

As I highlighted at the beginning of 2019, Coca-Cola HBC does not offer the highest dividend yield on the market (it currently yields 2.1%). However, what the company does have is a relatively clean balance sheet and robust cash flows. These factors should help support dividend growth going forward.

City analysts believe the firm has the potential to distribute €0.71 per share in 2020, which puts the payout on track for growth of nearly 100% since 2013. The same can be said for the company’s earnings per share.

Coca-Cola HBC has adopted a buy-and-build strategy. The company is reinvesting cash flows from operations back into acquisitions, which is helping the business grow revenues and improve profit margins at the same time as acquisition synergies flow through to the bottom line.

Using this strategy, as well as other cost-saving initiatives, the firm’s operating profit margin has increased from 5.4% in 2013 to around 9.6% for 2018.

So, while shares in Coca-Cola HBC, might immediately look expensive at first glance (trading at a forward P/E of 18.9) I think this is a price worth paying for the stock considering the growth it has produced over the past 10 years and is likely to generate over the next decade.

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

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

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 »