Retirement is the most significant financial uncertainty for a large pool of salaried individuals. Retirees have to face challenges on their hands as they will have no more extended access to the money received from a paycheck. It is a tried and tested theory that suggests, the best way to achieve financial freedom till the time your reach to your retirement age, in a conventional asset allocation based time frame, the addition of alternative asset classes to achieve broader reach and holding dividend stocks as a means to hedge against market volatility.
Before thinking about retirement planning, it is very important first to understand why one should invest. Investment is all about attaining what you want to achieve in your life, it could be a comfortable retirement or maybe some tangible goals in long-term. Also, investment is a continuous process', not a one-time affair. The equity market in the UK has given an average return of 5% after inflation since 1901, but it is never the same smooth case. Returns are intermittent and not regular. That's what investing is about – taking some short-term risk for the possibility of longer-term benefit.
Before deciding whether dividends stocks are the best in class for retirement savings or not, it is required to invest some time on understanding how dividends work to create wealth for your retirement. When an investor buys a share, he or she receives proportional ownership in the company based on how many shares of stock are purchased, that's why shares are called as fractional ownership in the businesses. Due to the principal-agent relationship, profit achieved by the company through its various operations is shared with the shareholders in the form of a dividend. It is usually paid in cash on a quarterly basis and must be owned by the investors as on ex-dividend date to receive the declared dividend.
Dividends can become an important basis of income for your retirement planning. If you continuously reinvest your dividends while you are saving for your retirement, you could use dividends to buy more number of shares in the companies that are paying the dividends, and through this process, you will be able to build up a defensive portfolio of dividend-paying stocks. After retirement, the dividend proceeds can be used to meet some of your living expenditures, on the same time you can keep holding the ownership of the stocks, which in the foreseeable future will continue to provide dividends for your living.
As on August 28, 2019, the FTSE 100 index dividend yield stood at 4.85% (at the time of writing, before the market close), which is relatively higher than the dividend yield of the other global benchmark indices. Luckily, there are too many high-yield stocks that offer a better dividend yield against the FTSE 100 index. The six selected stocks based on different parameters have solid business models with competitive advantages and offering high dividend yields of over 5% that make them exclusively lucrative income stocks for the purpose of retirement income.
2-Year Price performances of BP, HSBA, ULVR, PNN, PAGE and RDSA. (Source: Thomson Reuters)
BP Plc (LSE: BP) – Dividend Yield: 6.38%
BP PLC is a London, the United Kingdom-headquartered British Integrated oil and gas company. It is a vertically integrated company, engaged in activities such as exploration and production of oil and natural gas for generating renewable energy and marketing chemicals. The company’s operations are divided into three reportable segments being Upstream, Downstream and Rosneft. For the first half of the financial year 2019, the company’s total revenue stood at $141,154 million as against $146,050 million in H1 FY2018. The company’s revenue declined due to the low revenue from the company’s Downstream business for the period. At the current trading level (as on August 28, 2019, before the market close) shares of the company were quoting at GBX 496.70.
HSBC Holdings PLC (LSE: HSBA) – Dividend Yield: 6.16%
HSBC Holdings PLC (HSBA) is a London, the United Kingdom-based group, which provides banking and financial services worldwide. It offers various banking products, and its business operations are spread across Asia, Europe, Middle East, North Africa, North America and Latin America. The company’s business is divided into four segments: Global Private Banking (GPB), Commercial Banking (CMB), Retail Banking & Wealth Management (RBWM), and Global Banking & Markets (GB&M). The company’s reported profit before tax increased by 15.8 per cent to $12.4 billion as compared to $10.7 billion in H1 2018. Adjusted profit before tax surged from $11.7 billion in H1 FY18 to $12.5 billion in H1 FY19. Reported profit after tax was up by 18.1 per cent to $9.9 billion against the $8.4 billion in the half-year of the Financial year 2018. Basic and diluted earnings per share increased by 16.67 per cent to $0.42 as compared with the H1 2018 of $0.36. At the current trading level (as on August 28, 2019, before the market close) shares of the company were quoting at GBX 581.60.
Pagegroup PLC (LSE: PAGE) – Dividend Yield: 5.73%
Pagegroup PLC is an Addlestone, the United Kingdom-based group, which provides the recruitment consultancy and other ancillary services. The company’s business is differentiated in four segments: EMEA, United Kingdom, Asia Pacific and Americas. The group has around three brands operating at several levels of the market: Michael Page, Page Personnel and Page Executive. The group's subsidiaries are Page Personnel Argentina SA, Michael Page International Argentina SA, Michael Page International GmbH, and Michael Page International (Australia) Pty Limited. The company was earlier known as Michael Page International PLC. For the first half of the financial year 2019, the company’s revenue surged by 18 per cent to £1,020 million from £867 million in the H1 FY2018. The increase in the revenue was driven by a surge in online sales and strong geographical performance from Australia and US businesses for the period. The company’s underlying earnings per share declined by 15 per cent to 148 pence in H1 FY2019 from 173.60 pence in the H1 FY2018. The dividend per share remained flat at 67 pence for the H1 FY2019. At the current trading level (as on August 28, 2019, before the market close) shares of the company were quoting at GBX 420.
Royal Dutch Shell PLC (LSE: RDSA) – Dividend Yield: 6.37%
Royal Dutch Shell PLC (RDSA) is a Hague, Netherlands-based international group of energy and petrochemical company, which engages in exploring, producing, refining and marketing oil and natural gas. The company explores for natural gas and crude oil globally, in conventional fields and from other sources, such as coal formations, tight rock and shale. The group also manufactures and markets chemicals. Royal Dutch Shell PLC, which is incorporated in England and Wales, is the parent company of the Shell group. In the first Quarter of the financial year 2019, the company's revenue stood at $83,735 million as against $89,235 million in Q1 FY2018. The decline in the revenue was driven by a dip in the sales from upstream and downstream businesses in the current period. The basic earnings per share for Q1 FY2019 was $0.74 versus $0.71 in Q1 FY2018. The diluted earnings per share for Q1 FY2019 was $0.73 versus $0.70 in Q1 FY2018. At the current trading level (as on August 28, 2019, before the market close) shares of the company were quoting at GBX 2,265.
Pennon Group PLC (LSE: PNN) – Dividend Yield: 6.0%
Pennon Group PLC is an Exeter, United Kingdom-headquartered environmental utility infrastructure company which is one of the largest environmental infrastructure groups in the UK. The company owns and operates South West Water Limited and Viridor Limited and has a workforce of around 5,000 people and assets of around GBP 6.5 billion. The operations of the groups are differentiated in three operating divisions: Water and wastewater services, Waste Management, and Non-household retail business. Group’s revenue during the FY19 surged by 6.1% to £1,478.2 from £1,393.0 in the year-ago period. Underlying Earnings per share (EPS) increased by 13.6% during the FY19 and dividend declared was 6.4% higher at 41.06%. At the current trading level (as on August 28, 2019, before the market close) shares of the company were quoting at GBX 737.20.
Unilever Plc (LSE: ULVR) – Dividend Yield: 6.19%
Unilever Plc is a global company selling fast-moving consumer goods, with two home countries: the Netherlands and the United Kingdom. The company is engaged in the production and marketing of a variety of products from different categories such as home care, food, health, beverages and wellbeing. The company has divided its operations into three reportable segments being Foods & Refreshment, Home Care and Beauty & Personal Care. For the First half of the financial year 2019, the company’s turnover declined by 0.9 per cent (AER) to €26,126 million as against €26,352 million in H1 FY2018. The revenue declined by 0.7 per cent on the CER (constant exchange rate) basis. The company’s operating profit was up by 1.3 per cent (AER) from €4,529 million in H1 FY2018 to €4,589 million in H1 FY2019. The Diluted earnings per share for H1 FY2019 stood at 1.14 euros versus 1.11 euros in H1 FY2018, up by 3.4 per cent and 2.3 per cent on AER and CER basic respectively. At the current trading level (as on August 28, 2019, before the market close) shares of the company were quoting at GBX 5,131.0.
With Bank of England reducing the interest rates to a historic low level, the spotlight is back on diverse investment opportunities.
Amidst this, are you getting worried about these falling interest rates and wondering where to put your money?
Well! Team Kalkine has a solution for you. You still can earn a relatively stable income by putting money in the dividend-paying stocks.
We think it is the perfect time when you should start accumulating selective dividend stocks to beat the low-interest rates, while we provide a tailored offering in view of valuable stock opportunities and any dividend cut backs to be considered amid scenarios including a prolonged market meltdown.