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These FTSE 100 dividend stocks could be retirement cash cows

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With inflation continuing to move higher, obtaining a real-terms income return is likely to become more challenging. With the FTSE 100 yielding around 3.8%, it offers a real-terms yield of just 1.1%. According to various forecasts, that return could be gradually eroded over the next couple of years as inflation moves higher. With that in mind, here are two FTSE 100 companies which look set to offer high income returns even after inflation.

A solid year

Reporting on Thursday was energy, transmission and distribution company National Grid (LSE: NG). Its performance in the most recent financial year was solid, and showed that its strategy is performing well. It was able to invest for future growth, while also continuing to deliver savings. The business is becoming more efficient and the sale of the 61% of its UK Gas Distribution business could lead to a leaner and simpler organisation in future.

The sale of the business also means National Grid will return £4bn to its investors. Alongside this is a dividend of 44.27p, which puts it on a dividend yield of 4.2%. Since dividends are covered 1.4 times by profit, there appears to be scope to increase them by at least as much as inflation over the medium term. This could help to boost the company’s share price, with its price-to-earnings (P/E) ratio of 16.3 indicating that it offers fair value for money.

In fact, with a mix of a relatively high yield, growing dividends and a fair valuation, National Grid could post relatively high total returns in the long run. Its shares may have already risen 11% this year, but there could be more to come owing to its stable and consistent business model.

Riskier returns

While National Grid is a relatively stable income prospect, travel company Tui (LSE: TUI) offers less robust earnings. That’s at least partly because it is a cyclical stock which is highly dependent upon the performance of the wider economy. However, Tui is also in the process of restructuring, which means its near-term outlook is arguably riskier than it otherwise normally would be.

Despite this, it appears to be an attractive income stock. Tui yields 5% from a dividend which is covered 1.6 times by profit. It is expected to increase dividends by over 8% next year. This seems to be highly affordable, since the company is forecast to post a rise in its bottom line of 13% in 2018. More dividend growth could lie ahead as its expansion into new areas could act as a positive catalyst on its share price.

Clearly, the macroeconomic outlook is highly uncertain. However, Tui is a relatively well-diversified business which has a sound track record of growth. Therefore, in the long run its shares may be volatile, but their income return could be exceptionally high. As such, now could be the perfect time to buy a slice of it.

Top income stocks

Of course, National Grid and Tui aren't the only companies that could be worth buying at the present time. With that in mind, the analysts at The Motley Fool have written a free and without obligation guide called Five Shares You Can Retire On.

The five companies in question offer stunning dividend yields, have fantastic long-term potential, and trade at very appealing valuations. They could improve your portfolio returns in 2017 and beyond.

Click here to find out all about them - it's completely free and without obligation to do so.

Peter Stephens owns shares of National Grid. 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.