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Who else wants to build a second income stream with FTSE 100 dividend stocks?

My retirement investing approach is to build up a reliable dividend income stream, and for that I mostly concentrate on FTSE 100 stocks.

While there are some obvious big yields to be had these days, with the index as a whole forecast to deliver 4.7% in 2019, I think there are also some solid but overlooked dividend payers. Perhaps they’re a little too boring?

Delightfully dull

I reckon boring can often be best, and you can’t get much less exciting than paper and packaging. That’s what Mondi (LSEL MNDI) does, and it’s generating a decent cash stream from it.

An update Thursday spoke of “a strong performance in the first quarter,” with higher average selling prices and a strong operational performance. Costs were marginally higher, though, and there will be some impact this year due to maintenance shutdowns, but overall I’m getting a ‘steady as she goes’ feeling.

A 19% share price drop over the past 12 months has pushed the shares down to P/E multiples of around 10 or so, and the dividend yield up to 4.1%. The dividend would be covered more than 2.3 times by earnings, so even that attractive yield is based on a conservative approach to cash.

Track record

Roland Head has pointed out that Mondi is generating an average return on capital employed of 18%, and that its dividend growth has averaged around 16% per year since 2013.

My only concern is that net debt jumped in 2018, to €2,220m from €1,532m a year previously. But underlying EBITDA was up 19%, so that keeps a net debt to EBITDA ratio of 1.26 times — getting a bit close for comfort, but not too concerning at this stage.

On the whole, I think I’m seeing a tempting long-term income prospect.

Declining business?

My next pick was until recently in the FTSE 100 but now sits just outside, although it could be back there one day. It’s oil and gas support engineer Wood Group (LSE: WG).

On the face of it, Wood shares look very attractively priced, on P/E ratios of around 10 and with a dividend yield of 5.4%. The dividend, however, is only covered around 1.6 times, which I think would be fine if we were looking at steady growth expectations in the company’s sector.

The firm provides engineering and support for turbines used in the oil and gas business, and the oil price is looking reasonably healthy at around the $70 level — though it has retreated from a recent high approaching $74.

Saying that, Royston Wild has voiced fears of oversupply in the oil business, pointing to growth in the number of US rigs over the past few years. If oil declines and producers reduce their capital expenditure, Wood Group could be hit by falling orders.

New order

But Wood’s not so narrowly focused these days, especially after the acquisition of Amec Foster Wheeler in 2017, and has just landed a $1bn contract at Sellafield spanning the next 20 years.

Wood has been selected as a Design and Engineering Partner, and will “provide the front end design and engineering capability and services required to deliver a portfolio of major projects and site wide project delivery improvements.”

I don’t dismiss fears of declining oil and gas contracts, but I can help feeling the risks are more than reflected in the share price already. Wood Group is on my watch list.

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Alan Oscroft has no position in any of the shares 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.