Two dividend stocks I think would be ideal for helping me build a second income stream are GSK (LSE: GSK) and Anglo American (LSE: AAL). Here’s why!
Essential healthcare
GSK is one of the biggest pharmaceutical businesses in the world with a mammoth footprint and a plethora of well-known products used everyday by millions of people.
Due to macroeconomic and geopolitical volatility, GSK shares have meandered up and down in the past 12 months. However, they’re up 10% from 1,414p at this time last year, to current levels of 1,567p.
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A big reason GSK is a great passive income stock for me is its defensive nature. Healthcare is essential for all no matter the economic outlook. This can span day-to-day drugs to more complex treatments for illnesses. This defensive ability allows the business to record stable earnings and reward investors.
Speaking of returns, a dividend yield of 4% is pretty attractive and it looks well covered by earnings, which is important. However, it’s worth remembering that dividends are never guaranteed. GSK also shares look excellent value for money right now on a price-to-earnings ratio of 10.
From a risk perspective, when pharma firms experience product issues, sentiment, performance, and returns can be impacted. GSK has had this before. It has faced lawsuits due to its discontinued Zantac heartburn drug.
Overall I’d be willing to buy GSK shares for my holdings the next time I have some investable cash.
Mining giant
Anglo American is one of the biggest mining businesses in the world and mines commodities including iron ore, copper, and nickel.
To say 2023 was a difficult year for Anglo American shares would be an understatement. The shares have fallen 47% over a 12-month period from 3,493p at this time last year to current levels of 1,849p.
Commodities are cyclical, which is a big risk. Production issues can hurt performance, returns, and sentiment. This has hurt Anglo in recent times as it has downgraded production forecasts.
However, I reckon the long-term outlook is favourable. Major initiatives in the future that will require huge quantities of the commodities that Anglo mines will boost the business, in my opinion. These include decarbonisation and infrastructure building. This is in line with the world’s growing population. For example, copper is essential in building infrastructure, as well as electricity grids for new and growing cities. This increased demand should help boost performance and returns.
Speaking of returns, an enticing dividend yield of 5.5% has been pushed up by the falling share price. However, the business has an excellent track record of investor returns and an attractive policy of returning 40% of underlying earnings to investors. I’m conscious that past performance is not a guarantee of the future and policies can change, as dividends are paid at the discretion of the business.
Anglo is another stock I’d be willing to buy when I next have some spare cash to invest. A mixed 2023 hasn’t fazed me. In fact, it’s thrown up an opportunity to buy cheaper shares now on a P/E ratio of 10, ahead of any rally and bull run.
