Here’s a FTSE 250 dividend stock I’d pick for my pension ahead of the Morrisons share price

Wm Morrison Supermarkets plc (LON: MRW) is offering attractive dividends, but here’s a FTSE 250 (INDEXFTSE: MCX) payout I see as more sustainable.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I can see why people are attracted to the Wm Morrison Supermarkets (LSE: MRW) forecast 3.4% dividend, as the company looks to be successfully repositioning itself as more than just a supermarket retailer.

Tough environment

But incessantly growing competition, both from the likes of Lidl and Aldi, and from the Sainsbury-Asda merger (if it happens), could well put the annual payments under pressure. In fact, analysts are already predicting a slip to 2.8% for 2020.

The company’s latest setback at the Court of Appeal is not going to help, as judgment this week upheld a High Court verdict that it’s liable for a data breach. Employee Andrew Skelton stole payroll data, including bank and salary details, from 100,000 staff, and much of it ended up posted online.

Morrisons could now be facing compensation claims, unless it can manage to overturn the latest ruling through an appeal to the Supreme Court. With Skelton jailed for eight years, Morrisons argues that it’s not liable for his criminal misuse of the data.

Too expensive?

But the bottom line for me is that I see Morrisons shares as being on too high a valuation for such a competitive industry, with forecasts suggesting a P/E ratio as high as 17.5 for the year to January 2020. I see the sector as being unlikely to exceed average FTSE 100 dividend yields, and I can’t see those P/E multiples above the long-term average of around 14 as justifiable.

A forecast dividend yield for Tesco of 3.4% by 2020 is probably lending some support to the whole sector, but I’m not yet convinced such levels are sustainable. And Tesco is on a lower 2020 P/E than Morrisons, of under 13, with better forecast EPS growth.

More convincing dividend

For long-term pension dividends, I’ve liked the look of Man Group (LSE: EMG) for some time.

I like the idea of pooled investments as a way of spreading risk — for example, I reckon investment trusts can form a great cornerstone for a retirement portfolio. And I also see investing in a fund manager as something along the same lines, as your rewards will be dependent on how its total set of investments perform.

That’s in the long term, and an asset manager like Man Group can be affected by short-term ups and downs probably more than most. If markets are falling, for example, returns for clients won’t be so good, and Man won’t be able to charge the same performance-related fees.

Steady progress

But as there are considerably more up years than down years in stock markets, it should even out in the end. And though earnings have been volatile (and look likely to remain so), Man Group has been evening out its dividends pretty well.

Forecasts suggest big yields of 6.5% this year and 6.8% next, and I can see the cash as being sustainable over the long term. The payouts will perhaps be only thinly covered some years, but as long as there’s an overall progressive trend, I see no problems for those with a decades-long pension horizon.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. 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.

More on Investing Articles

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »