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My top FTSE 100 dividend stock for 2020

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.

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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.