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How I’d build a second income stream with these FTSE 100 dividend stocks

Boring is beautiful. Boring is bountiful. Boring is key to my investment strategy these days. What I mean is that my days of seeking exciting startups and hot new growth opportunities are well behind me.

There’s nothing I like better than a company doing a plain, simple and unexciting job, generating steady cashflow from doing it and providing a steady income stream for investors.

On that score, Mondi (LSE: MNDI) is on my shortlist, offering what I see as attractive and well-covered dividends, at a low share-price valuation. Years of progressive dividends have led to a forecast yield for this year of 4%, approximately 2.3 times covered by earnings, and we’re looking at forward P/E multiples of around 11.

The business of Mondi, after the firm was spun off from Anglo American in 2007, is packaging and paper, which I see as suitably dull.

Better value

The share price did, I think, get a bit ahead of itself, exceeding £22 a year ago, though even that suggested a forward P/E of only around 14 — not excessive, but perhaps not as boring as I’d like. But since that peak, we’ve seen an 18% fall to £18.20. And I think that puts Mondi very much back in good-value territory — even though a trading update Tuesday pushed the price up a couple of percent.

First-half results are due on 1 August, and EBITDA is expected to come in ahead of the same period a year ago, with underlying EPS up between 4% and 11% to reach a range of 93p to 99p.

Any forthcoming economic downturn could hit the stock like any other. But I see Mondi as a solidly defensive investment, with the company producing basic essentials that businesses really can’t do without.

Necessities

Associated British Foods (LSE: ABF) is in two distinct businesses, both reassuringly unexciting and both good for generating long-term income.

One is the firm’s food business, incorporating a significant interest in sugar through its British Sugar subsidiary (which, incidentally, is the UK’s only producer of sugar from sugar beet) together with a range of well-known food brands including Twinings, Ovaltine and Kingsmill. On that score, ABF is similar to that other cash cow, Unilever.

But what picks out ABF is the other aspect to its business, value clothing retailer Primark. High street fashion is suffering, but Primark isn’t really competing in the fashion market. It’s competing in the cheap market, and I reckon its cheap basics are as good as a lot of significantly more expensive ones — I’m wearing Primark t-shirt, underpants and shorts while sitting here writing in this heat, and together they cost me less than a tenner.

Progressive

Primark is always packed when I look, and it consistently generates profit growth to add to ABF’s bottom line and beef up its dividend prospects.

The dividend yield isn’t massive at around 2%, but it’s strongly progressive — the 47p forecast for the current year would be 38% ahead of 2014’s 34p per share. That’s seriously good growth in just five years. And over the past decade, ABF has provided a total return of 13.5% per year.

If that’s not a worthwhile income stream, I don’t know what is.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. The Motley Fool UK has recommended Associated British Foods. 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.