Most investors later in life want an income stream. This leads them to chase shares which have a high yield. But sometimes this can be a mistake, as the shares may have a high yield for a reason – nobody wants them and they represent higher than average risk.
What's more important than a high starting yield, is a sustainable income. It's no good buying a high yield stock like Telstra Corporation Ltd (ASX: TLS) if it ends up cutting its dividend. This is a risk you don't want to take with your retirement income. Therefore, sustainability is very important.
Here are two companies I'd buy today for a very reliable sleep-at-night income stream…
Diversified United Investment Limited (ASX: DUI)
DUI is a listed investment company, founded in 1991. It holds a portfolio of shares based on current income and potential for future growth.
DUI holds shares in many large blue chip companies such as CSL Limited (ASX: CSL) and Commonwealth Bank of Australia (ASX: CBA). There's also international exposure, with international ETFs making up around 16% of the portfolio.
The company is run at a very cheap 0.15% per annum, which includes the fees for the ETFs it holds. DUI has proven its reliability over the decades. Since 1992, dividends have either been stable or increased every single year.
On top of that, DUI has been able to grow its dividend by 6.6% per annum over the last 25 years. So you can expect that income to grow nicely into the future. Shares currently trade on a gross dividend yield of 5.3%, including franking credits.
Brickworks Limited (ASX: BKW)
Brickworks is an unusual business. It's primarily a building materials company, but it also owns over 42% of Washington H. Soul Pattinson & Co Ltd (ASX: SOL) and has a large stake in an industrial property trust.
Both of these investments underpin the value of Brickworks, adds diversification and also boosts earnings when the construction cycle turns. In fact, the value of these investments is worth more than the current market cap of Brickworks, meaning you're buying the building materials business for free.
The company is an incredibly reliable dividend payer, having only cut dividends once in over 50 years. This year the dividend was increased by 6% and with a low payout ratio of only 39%, there's plenty of scope for further increases.
Brickworks currently trades on a gross dividend yield of 4.4%, including franking credits.
Foolish takeaway
With these two companies, you can sit back and watch the income growth over the years. Each has proven their worth as rock-solid dividend payers. To find out the Motley Fool's current number one dividend pick, check out the free report below.
