Try this one once your child has begun to feel comfortable pretend reading with a book he or she has memorized. This activity encourages developing the concept of word.
Take one sentence from the book (very short, simple, memorable) and write it down in plain text on a piece of paper. The best sentences are those in which each word starts with a different letter. Read the sentence to your child, pointing at each word.
Next, have your child "read" the sentence back to you. Practice it a couple of times.
Cut the words apart, but leave them in order. Slide each word up or down on the table as you read it aloud, but leave the words in sentence order. Have you child try this activity.
If things are going well, it's time to try mixing the words up. Go slowly and let your child lead here. Then, go back to the beloved book and find the sentence in place.
You can try a similar activity with the letters in your child's name. Other words are probably too difficult at this point though. Believe it or not, it is easier to sequence a sentence than it is to identify all the internal sounds in a word.