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2 star income stocks for 2020

We’re nearly into 2020 and it’s time to start thinking about which income shares could be the best to buy for dividends in 2020.

It’s getting harder to pick dividend shares because many of them generate earnings based on their assets, such as Goodman Group (ASX: GMG), but those assets are now priced very highly so there could be valuation risks.

The best way to invest is to give yourself a margin of safety. In other words, you try to buy them for less than you think they’re worth. Here are two income stocks to consider for 2020:

Viva Energy Reit Ltd (ASX: VVR) 

This is a real estate business which owns service stations across the country, its portfolio is getting closer to 500 sites in size.

It benefits from a contracted 3% rent escalation across 95% of the portfolio. Viva Energy continues to make acquisitions and aims to improve its sites to generate more rent.

Its portfolio had a weighted average lease expiry (WALE) of 12.1 years at the last disclosure and in FY19 it has predicted distributable earnings growth of 3% to 3.75%. It has a target distribution payout ratio of 100%.

Its distribution yield is currently 5.3% and is likely to keep growing at least 3% per annum.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) 

This is an investment house business which I think is the gold standard for dividend shares on the ASX.

One of the main things that stops me from investing in some dividend shares is that they’re stuck in a certain industry. If something affects the casino industry there’s not much that casino businesses like Crown Resorts Ltd (ASX: CWN) can do. But Soul Patts has the investment flexibility to change its underlying holdings to whatever it thinks is the best option.

It’s this wide-ranging investment mandate and Soul Patts’ long-term, contrarian investment style that makes me confident I can hold this particular investment for many years to come. Indeed, it has already been operating for over 100 years.

Soul Patts is invested in plenty of defensive, long-term businesses like TPG Telecom Ltd (ASX: TPM), Brickworks Limited (ASX: BKW) and Bki Investment Co Ltd (ASX: BKI).

The investment house has already increased its dividend every year for the past 20 years, I wouldn’t be surprised at all if that record extends at least to 2030.

It currently has a grossed-up dividend yield of 3.7%.

Foolish takeaway

Soul Patts would be my preferred dividend pick of the two. I think it’s better value, has a better long-term chance of outperforming and has excellent management.

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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Brickworks. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.