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Two FTSE 100 income stocks I would buy for a second income stream

The UK’s biggest housebuilder Barratt Developments (LSE: BDEV) reported record profits for 2018 towards the end of last year and rewarded investors with a substantial capital return — a final dividend of 17.9p a share plus a special dividend of 17.3p a share giving a full-year payout of 43.8p, a dividend yield of 8.7%

According to City analysts, the company will repeat this performance in 2019. Analysts have pencilled in a total dividend for the year of 43.6p. This will make the Barratt one of the most attractive income investments in the FTSE 100, and, in my opinion, a perfect buy for investors who want to build a second income stream with dividends.

I think Barratt is the perfect company to help you build such an income stream because the business is highly cash generative, has a cash-rich debt-free balance sheet and operates in a market where demand is far outstripping supply. 

Indeed, despite all of the government’s efforts over the past few years to increase home building in the UK, the number of homes being completed is still around 50% less than the total amount required. As the largest homebuilder in the UK, Barratt will almost certainly benefit from any efforts to increase home construction. 

It believes that its rates of housebuilding will grow by 3% to 5% per year in the medium term, which tells me this dividend giant is unlikely to disappoint investors anytime soon.

Even if the group does see a slow down in sales, it has plenty of cash on the balance sheet to maintain dividend payouts for the foreseeable future. At the end of the 2018 financial year, the company reported a net cash balance of £982m, that’s even after deducting the £435m distributed to investors via dividends during the year.

Defensive income 

Another FTSE 100 dividend stock that I believe can help you create a second income stream is Reckitt Benckiser (LSE: RB).

What I really like about this company is the fact that it owns and produces a portfolio of leading consumer products, which are used by virtually everyone. Even in the financial crisis, sales did not drop substantially, showing just how robust demand is even in the harshest environments.

I don’t see any reason why this trend will end any time soon, and in my view, the company’s defensive nature makes it one of the most attractive income plays in the FTSE 100.

Right now, shares in the company support a dividend yield of 2.9%, which may not seem like much compared to the market average of 4.7%. However, it is the long term dividend growth potential that I’m really interested in here. 

The company has a track record of growing its dividend at a mid-single-digit rate every year, and over the long term, these small incremental dividend hikes can really add up. For example, over the past six years, the distribution has grown by around 27% in total. As the dividend is covered just under two times by earnings per share, I see plenty of room for further growth in the years ahead. 

Put simply, if you are looking for a dependable income stream, I think you should consider Reckitt for your portfolio.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.