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Have you forgotten how good these 2 income heroes are?

Photo: Ian Wilson. Cropped & adjusted. Licence: https://creativecommons.org/licenses/by/2.0/

These two FTSE 100 stalwarts are the gifts that keep giving, and all you have to do is keep pocketing those dividends and let the growth take care of itself.

The drugs do work

It’s hard to believe that pharmaceutical giant GlaxoSmithKline (LSE: GSK) was feeling rejected and unloved just a year or two ago, after the Chinese bribery scandal and growing concerns over its dwindling product pipeline. For a while, it was possible to buy the stock on a yield of more than 6% and a valuation of around 15 times earnings. I hope you showed it some love at that point because that was a great time to buy Glaxo at a rare discount.

The stock is looking much perkier today, having risen 25% in the last year. Unfortunately, it is also pricier, trading at almost 22 times earnings. The yield is also lower at 4.9% but still tempting.

Stick that in your pipeline

It’s all too easy to take a solid long-term performer like Glaxo for granted, but that would be a big mistake as the search for yield intensifies. It has enjoyed a major Brexit boost, as the value of its ample overseas earnings will be worth far more once converted back into sterling, although it isn’t all good news on that front, as the company has also been forced to revalue its liabilities in line with the weaker pound.

Chairman Sir Andrew Witty says Glaxo is reasonably well insulated from further Brexit fallout so what really matters now is whether it can deliver enough new products to offset the challenge from generics. The outlook has brightened as it applies for US approval for Shingrix, a new vaccine for the prevention of shingles, which could generate more than £650m in annual sales. You may have missed your chance to pick up the stock on the cheap, but even at today’s higher price it remains a buy.

Where there’s smoke

British American Tobacco (LSE: BATS) is another income stalwart that has been handing out the goodies to investors for so long that many people take it for granted. A quick glance at its 10-year performance chart shows an almost unbroken upwards trajectory, with dividends on top. The stock continues to power on, up 23% in the last year.

And it continues to force the pace with its announcement of the recent $47bn cash and stock acquisition of the remaining 58% stake in Reynolds American. Chief executive Nicandro Durante must feel that the 20% premium is worth paying to create the world’s largest listed tobacco company, with brands such as Newport, Kent and Pall Mall. An 8.1% rise in reported year-to-date revenues at constant exchange rates gave investors another reason to cheer. However, with 70% of its sales in emerging markets, British American Tobacco has been hit by currency appreciation in these regions.

Price power

If the Reynolds deal gets the green light it should generate around $400m of synergies and keep the cash flowing, which should feed through to shareholders in the shape of higher dividends. The hitch is that British American Tobacco is even more expensive than Glaxo, trading at 22.3 times earnings, while the yield has slipped to 3.3%. But who can complain about that given past successes, and with earnings per share forecast to leap 17% this year and another 14% in 2017.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.