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2 dividend stocks that could give you a lifetime income

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.

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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.