2 dividend stocks that could give you a lifetime income

These cashed-up dividend stocks could help you to retire early.

| 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.

Today I’m looking at two stocks I believe could help you build a reliable lifetime income from stocks.

Pure royalty

Shares of mining royalty firm Anglo Pacific Group (LSE: APF) rose by nearly 5% today after the company said its royalty income rose by about 90% to £37m last year.

Anglo Pacific makes money by owning stakes in mines operated by other companies. Essentially, it pays for a stake in a mine, and then sits back and collects royalties for years to come.

The group’s largest single producing royalty is its stake in Rio Tinto‘s Kestrel coal mine in Australia. In 2016, only 67% of the coal mined from Kestrel came from Anglo Pacific’s land. But in 2017, this figure increased to 93%. This increase in volume came together with a 40% increase in the average coal price realised at Kestrel, providing a big boost to royalty incomes.

A long-term prospect?

The board has recommended a 16.7% increase in the dividend this year, taking the total payout to 7p. That’s equivalent to a yield of about 4.8%, at the last-seen share price of 145p.

Management expects at least 90% of Kestrel output to come from royalty land in 2018. Many of the group’s other royalty interests are also expected to perform well, so this could be another bumper year for the firm.

The downside for shareholders is that long-term visibility of earnings is very poor. There’s no way for us to predict when commodity prices will fall, or when mining will shift away from the group’s royalty lands.

These risks mean that I wouldn’t put a high valuation on this stock. However, the group’s shares currently trade on a 2018 forecast P/E of 8.5 with a prospective yield of 5.4%. I’d consider this for an income buy.

Wake up and smell the coffee

One company that would definitely be on my shortlist for a lifetime income portfolio is Whitbread (LSE: WTB). The owner of Premier Inn and Costa Coffee is a proven cash machine, whose profits have risen by an average of 9.5% per year since 2012.

Although “tougher market conditions” reduced UK like-for-like growth to just 0.3% during the third quarter, new coffee shops and hotels helped lift overall sales by 5.8% during the period.

I can see a number of potential reasons to own the shares today.

Three reasons

The first is that a falling share price over the last year has left the business looking quite attractively priced. A forecast P/E of 14.7 and a prospective yield of 2.7% seem tempting to me, given the group’s track record of growth.

A second attraction is that some investors believe the group will eventually be split into two. The most likely route would be for management to spin out Costa Coffee into a separate business. As a standalone coffee group, Costa could attract a higher valuation. US rival Starbucks trades on more than 20 times forecast earnings.

One final attraction is Whitbread’s 15-year history of dividend growth. The group’s dividend has risen by an average of about 13% per year since 2002. Dividend growth is expected to be more modest at 4%-6% over the next couple of years, but this payout should be covered 2.5 times by earnings. This leaves plenty of room for further growth.

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.

Roland Head owns shares of Rio Tinto. The Motley Fool UK owns shares of and has recommended Starbucks. The Motley Fool UK owns shares of Anglo Pacific. 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

Person holding magnifying glass over important document, reading the small print
Investing Articles

Just released: our top 3 small-cap stocks to consider buying in October [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »