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

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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.

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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.

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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.

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