Diageo (LSE: DGE) and Anglo American (LSE: AAL) are two dividend stocks I’ll be looking to snap up when I next can. I reckon they’ll help me in my aim of securing a second income stream. Here’s why I like them.
Diageo
International spirits maker and brewer Diageo is one of the stand out blue-chip stocks on the UK’s premier index. You may be familiar with some of its best known brands including Baileys, Smirnoff, and Captain Morgan, to mention a few.
It has recently come under pressure due to external headwinds. Soaring costs and other macroeconomic issues have created a cost-of-living crisis. This has perhaps shifted the focus of consumers away from luxuries such as alcohol, and towards mortgages and energy bills. Rising costs, which may need to be passed to customers, and falling demand are short-term risks, in my eyes.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Over a 12-month period, the shares are down 28% from 3,688p at this time last year, to current levels of 2,694p.
Despite the ongoing issues mentioned, a dividend yield of 3% is enticing. This is especially the case when I consider the firm’s popularity, brand power, and profile. This leads me to think the payouts could be consistent, and grow further too. However, it’s worth mentioning that dividends are never guaranteed.
In addition to this, the share price falling has thrown up an excellent opportunity to buy cheaper shares on a price-to-earnings ratio of just 14. Although not the cheapest, I’ve got no qualms paying a fair price for a top notch company.
As I’m a long-term investor, I’ll prepare for short-term volatility, and look to capitalise on future performance. This will primarily be driven by external headwinds easing, and demand returning to previous levels.
Anglo American
Despite the cyclical nature of mining stocks, I find myself drawn to Anglo American shares for passive income.
This past year has been a tough one for the miner of iron ore, copper, nickel, and more. The shares have lost 47% from 3,580p to current levels of 1,864p.
Macroeconomic volatility has certainly played its part. Dampening demand for commodities linked to growth fears – such as the slowdown in the Chinese economy – has been tough on the FTSE 100 stock. This is a risk I’ll keep a close eye on. Plus, mining is not a straightforward endeavour. Operational or geopolitical issues could impact production levels, which underpin performance and investor returns.
However, I reckon the bull case for commodities outweighs the current malaise. Demand for commodities is only set to rise linked to increased urbanisation, the green revolution, and dealing with a surging population. Anglo is well positioned to mine commodities, and sell them to benefit performance and provide consistent payouts.
A dividend yield of 5.8% is attractive, but has been pushed up by a falling share price. However, it still looks well covered. Trading on a P/E ratio of 11 makes the shares look like a great buy now, before the potential surge when volatility subsides.
Similar to Diageo, volatility at present could be off-putting, but looking at the bigger picture, the grass seems greener in the longer term, if you ask me. Juicy dividends now, and in the future, could help bolster my second income stream.
