Special Free Report From The Motley Fool

Revealed:
The Motley Fool's Top 3 Dividend Stocks for 2020

Thanks for taking the time to access my report. My name's Edward Vesely and I'm the lead advisor of one of Australia's most popular stock picking services, Motley Fool Dividend Investor.

Very soon you'll receive your first issue of Take Stock. It's full of vital information and investment ideas that I believe will help you grow, and when necessary, protect your wealth. I recommend you give it a good read. It'll only take you a few minutes to read each issue, but it could prove to drastically change your future.

In fact, I think there's never been a more critical time to be getting unbiased, professional insight into the stock market and economy. Because after a bumpy 2018, with the ASX dipping into the red, and a strong rise during 2019, you need to be on high alert this year. The days of easy profits may have disappeared. If you get caught owning the wrong shares at the wrong time, it could prove disastrous to your wealth.

The good news is, we're confident there are still hidden gems out there that have the potential to hand you solid gains and income – even if the market continues to go south. But the question is, where do you find them?

That's where I come in. Today, I'm going to reveal to you 3 top dividend plays for 2020 (and beyond). Each of these three companies boast fully franked yields and could be a great fit for your diversified portfolio.

Not only that, I'm also going to show you how you can access all of my other top dividend BUY recommendations inside my exclusive Motley Fool Dividend Investor service. If you're looking for a wealth of NEW dividend investing ideas beyond the "usual suspects" like banks, Woolies and Wesfarmers, look no further.

But before I get to that, let's review 3 of my top dividend selections for the coming year.

Top dividend pick #1: Bapcor (ASX: BAP)

Bapcor is primarily a trade-focussed auto aftermarket parts business with operations in Australia, New Zealand and Thailand.

The company owns 181 trade stores around Australia, and another 58 across the Tasman, with plans to add between 10 and 12 more per annum over the next 5 years. Unlike most retailers,  however, these stores aren't located on busy street corners; they're conveniently located around nearby workshops, allowing them to quickly deliver the parts required by mechanics.

When a person's car runs into maintenance issues, they don't really have a choice: they have to get it repaired right away, which makes for steady business for Bapcor. Better yet, a recession can actually be seen as good news for Bapcor: as customers put off buying new cars, they must spend more on keeping the ones they own running.

In the trade business, Bapcor's customer is the mechanic, not the end user (the driver). That gives Bapcor a lot of pricing power, and is one of the reasons it has managed to grow its same store sales at an average of 4% per annum over the past five years.

The remainder of Bapcor's income comes from its retail (predominantly Autobarn) and specialist wholesale operations, which together accounted for 51% of revenue and 44% of earnings from continuing operations in FY 2019.

Bapcor is led by CEO Darryl Abotomey, who has pioneered the company's growth since 2011 (and led its IPO in 2014). He has signed a new contract extending his tenure in the top job until April 2022, and has approximately $9 million of his own shares in the company to ensure his interests are aligned with our own.

Risks and When We'd Sell

We think Bapcor's trade business is relatively protected from Amazon.com (NASDAQ: AMZN), due to its strong relationships with mechanics. But its retail network is susceptible, as well as to other competitors. This does have the potential to have an impact on Bapcor's overall performance, given its retail segment accounts for around 20% of its revenue and 16% of its operating earnings.

Bapcor has done a tremendous job integrating acquisitions to date, but there is always a risk that won't continue. An ill-timed acquisition, or simply paying too much, could be disastrous for the group.

The Foolish Bottom Line

Bapcor provides investors with resilient earnings, growth potential and a healthy dividend yield (2.5% fully franked, at the time of writing). It's time to drive Bapcor into your portfolio.

Top dividend pick #2: Propel Funeral Partners (ASX: PFP)

Propel has grown to be one of the largest providers of death care services in Australia and New Zealand (ANZ) after being established in 2012 when it started with one facility in Queensland. The company now operates from over 120 locations, including more than 25 cremation facilities and 9 cemeteries. 

Due to the highly fragmented nature of the industry, Propel still has a significant opportunity before it to participate in the consolidation of the many existing small and family-owned funeral businesses located around Australian and New Zealand. It has a clearly defined investment strategy of acquiring assets and has, so far, been able to demonstrate success in not overpaying; evidence of financial discipline, which we like.

Why We Like Propel

Propel is operating in an industry with tailwinds that are anticipated to support long term growth. In Australia and New Zealand growth in death volumes are set to accelerate over the next 20+ years due to an ageing population and, so long as the company can remain diligent in its capital allocation and continue to provide a quality service for its customers — without any hint of controversy — then we see Propel's long term prospects as attractive. 

The business has also made several acquisitions of late, and may make more. These acquisitions should have an immediate and ongoing impact on earnings growth.

Risk and When We'd Sell

Much of the company's future growth is expected to come from acquisitions and further consolidation of the industry, but this strategy has its risks. Propel needs to remain diligent on the price that it pays for its acquisitions, and ensure that each of its facilities have the right support to continue to generate growth. We also expect that an investment in Propel will come with an element of volatility due to the cyclical nature of death rates that impact on funeral volumes. For this reason, it'll be important for investors to remain wary of this volatility and not panic when the cycle does turn against the business model.

The Foolish Bottom Line

Propel has, to date, executed very well on its strategy and is delivering both organic and acquisition based growth. The company provides dividend-focused investors a fully-franked yield of 3.3% at current prices and, with industry tailwinds behind it and significant inside ownership by management — aligning their interests with those of other shareholders –, these shares could be a useful addition to your portfolio.

Top dividend pick #3: Helloworld Travel (ASX: HLO)

Helloworld Travel is a leading travel agent with more than 2,400 independent franchised travel agents — a key differentiator to its listed cousin Flight Centre (ASX:FLT). But it's much more than that: the company has diversified revenues across not only its retail division, but also wholesale and corporate.

You may recognise and have seen a number of these brands. As well as there being an increasing number of Helloworld stores, the company also operates Seven Oceans, Viva! Holidays and Qantas Holidays. Qantas (ASX:QAN) itself has a 15% ownership interest in the Helloworld business, aiming to benefit from the higher-margins that result from packaged holidays sold through Helloworld's network and that of other holiday retailers.

The other element to its business model is that of its corporate and government division which is growing steadily after its winning of a number of corporate account tenders along with several key acquisitions. A good example here is the acquisition of TravelEdge — one of Australia's largest privately-owned corporate travel management companies — which is expected to be earnings accretive in FY20 and beyond..

Helloworld Travel is, therefore, a diversified exposure to the Australian and New Zealand tourism sector.

Why Buy Helloworld Travel

In the midst of a downturn in consumer spending, the company's financial performance has  been impressive. In FY19, it increased its net profit by 24% to $382 million on the back of a 10% revenue increase to $358 million. The company also increased its total dividend for the year by 14% to 20.5 cents per share.. 

Pleasingly, Helloworld has also had a strong start to the current financial year and is forecasting for operating earnings to be between $83 million and $87 million. This represents growth between 7.3% and 12.5% on the pcp.

Risks and When We'd Sell

Investing in tourism businesses such as Helloworld Travel means business performance can prove to be quite cyclical. Despite its diversified source of earnings, if consumer sentiment continues to remain weak, lower levels of spending on tourism and travel-related products could impact the company.

Additionally, the industry the company operates in is highly competitive and there's always the risk of lower margins due price matching. Its margins have actually increased in the last half year, so this isn't necessarily a problem today, but it's something you need to be mindful of if you're going to invest in Helloworld Travel.

The Foolish Bottom Line

Helloworld Travel is a well-run company with senior management owning a large proportion of the shares. It's proven itself to be able to make useful bolt-on acquisitions from time-to-time, has increasing scale, a broad array of products and services, and good brand awareness. With a 4.1% fully franked yield, Helloworld Travel could be a useful addition to a diversified portfolio.

Australia's best dividend shares—and where to find them

It doesn't matter how good a company is – if you want to make money from an investment you need to get in at the right time, and at the right price. Now there's no way you can predict when the market might fall, and anyone who tells you they can is flat out lying…

But you CAN figure out what price to pay for your shares, something that should give you the best chance to get the maximum upside from your investment.

That's what I do for the readers of my paid investment advisory Dividend Investor. And just as importantly, I let them know the best time to get out. Because however much the stock price goes up, it doesn't mean anything until it's cash sitting in your bank account.

Now while I would love to share that information with you here, out of respect for my paid-up members, I can't share it publicly. But there is a very easy way for you to access all of my premium dividend research at a steep discount.

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As you may know, every day at The Motley Fool, I scour the market for the very best dividend shares available. Shares that can pay you a steady income over the next 5, 10 even 20 years while gaining in value for a fat payout should you decide to sell.

Just imagine how much more you could do with a stream of cash flowing into your bank account like clockwork every few months. A few smart investments now could even mean an extra ten, twenty, thirty thousand dollars a year in your retirement.

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To your dividend wealth (and getting the very best advice at a steep discount),

Edward Vesely
Lead Advisor, Motley Fool Dividend Investor

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As of 6 January 2020.