Will these 2 dividend stocks keep you warm this winter?

Winter is coming and the typical investor’s thoughts turn to… income. Can the following stocks keep your portfolio nice and toasty over the months and years ahead?

Turn up the heat

The fortunes of British Gas owner Centrica (LSE: CNA) can change with the seasons. A cold winter that drives up gas and electricity demand in the UK and US can give investors a warm glow, but the mild winters of recent years have given many investors cold feet. The long-term climate has been bad for Centrica, with its share price down a chilly 30% over five years, due to a combination of political uncertainty, weaker commodity prices, warmer weather and falling revenues.

There has been no respite lately, with Centrica reporting a miserable 13% decline in revenue and a 17% decline in adjusted earnings per share (EPS) in its last set of quarterlies. With energy prices falling again, it could continue to struggle. Centrica invested a hefty £9bn in its upstream gas and power operations between 2007 and 2014 and the last thing it needed was a plunge in the oil price.

Poor comparison

On the home front, Centrica is likely to see continuing customer losses, as the Big Six face a growing number of new entrants with competitive tariffs, weakening their pricing power. Many households will be poring over their bills as inflation starts to pick up, and with comparison sites promising annual savings of more than £250 by switching, growing numbers are likely to move on.

Set against this, a forecast yield of 5.7% will warm the cockles, with tolerable cover of 1.4 times. EPS is forecast to fall 11% this year, but if predictions of a 6% rise next year prove accurate, investors might finally enjoy some share price growth as well. However, with a forecast valuation of 13.9 times earnings, you might have expected this serial underperformer to be a little cheaper.

Christmas spirit

Christmas is a time for giving, and what better gift than a bottle of what you fancy. So let’s raise a festive glass to Diageo (LSE: DGE) in the hope that it will keep our spirits up during the long winter ahead. This is one of those Brexit beneficiaries, with its share price up 11% since the referendum, as its hefty foreign earnings are worth more when converted back into sterling.

This has helped to offset the damage inflicted by the emerging market slowdown. A growing number of analysts are forecasting a pick-up on this front, and it would certainly be a boon if the world’s emerging middle class feels that it can afford to splash out on premium spirits brands again. I remain a little wary, as two of Diageo’s major markets, Brazil and China, still face their share of challenges.

At today’s surprisingly pricey forecast valuation of 24.6 times earnings, there is little margin for error. The 2.8% dividend is notably below the FTSE 100 average of 3.7%, although it comes with solid cover of 1.5 times. The most tempting number is a forecast 16% growth in EPS in the year to 30 June, which should give the share price extra kick. Cheers!

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