2 dividend stocks you can retire on

These two stocks have all the hallmarks of buy-and-forget income champions.

| More on:

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.

Oil & gas minnow Soco International (LSE: SIA) has today announced a new production sharing agreement in offshore Vietnam, between it and PetroVietnam, SOVICO Holdings. The new deal will see Soco take on a 70% operated interest in two blocks, 125 & 126, located in moderate to deep water in the Phu Khanh Basin. 

According to initial reports, both of these have “multiple structural and stratigraphic plays.”  Interpretation of the existing data “indicates there is good potential for source, expulsion and migration of oil with numerous reservoir and seal intervals likely.” Soco is looking to further explore these prospects in the years ahead. Management is currently projecting that an exploration well could be drilled by 2021 if all goes to plan. 

Steady growth via exploration 

This is just the latest development in the history of Soco, a company that has produced huge returns for investors. 

Indeed, over the past few years, it has built a reputation for itself as one of the oil sector’s best income stocks. This year, analysts believe that the company will return 5p per share to investors, giving a dividend yield of 4.4%. However, next year analysts are currently projecting the payout to drop to 1p, giving a token yield of only 0.9%. 

I believe that this forecast is overly pessimistic.  Full-year production guidance has been maintained at 8,000 to 9,000 barrels a day, and pre-tax profit is expected to double this year. Moreover, the company’s oil sells at a premium to the Brent benchmark, indicating the quality of the offering. The firm’s production costs in Vietnam are less than $13 per barrel, which is right at the bottom of the cost curve and as oil prices increase, operational gearing should result in higher cash generation. 

Put simply, it looks as if City forecasts are highly conservative and Soco will remain a top dividend stock for the foreseeable future. 

One of a kind cash cow 

As well as Soco, I’m positive on retailer Moss Bros (LSE: MOSB) for long-term income seekers. 

Despite all the concerns about the demise of the high street, I believe that Moss Bros has what it takes to weather the storm. Buying and hiring formalwear, is a specialist business, and it’s just not possible to completely replicate the experience online. This means that the business is, to a certain extent, insulated from the likes of Amazon

City analysts are also optimistic about the prospects for the firm’s growth in the years ahead as well. Earnings per share growth of 2% to 6% is pencilled in for the next two years. 

The shares currently support a dividend yield of 6.2% and while this isn’t covered by earnings per share, the distribution is covered by cash generated from operations. For example, for 2017 total cash dividends paid out of £5.7m were easily covered by free cash flow from operations of £7.2m. 

As Moss Bros’ sales and earnings continue to expand, it looks as if the payout will remain well covered and secure for the long term. 

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.

Rupert Hargreaves does not own any share mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. 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

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Could the FTSE 100 be set to soar in 2024?

The FTSE 100 keeps threatening to go off on a growth spree. And weak sentiment keeps holding it back. But…

Read more »

Investing Articles

Is this FTSE 100 stalwart the perfect buy for my Stocks and Shares ISA?

As Shell considers leaving London for a New York listing. Stephen Wright wonders whether there’s an undervalued opportunity for his…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

3 things I’d do now to start buying shares

Christopher Ruane explains three steps he'd take to start buying shares for the very first time, if he'd never invested…

Read more »

Investing Articles

Investing £300 a month in FTSE shares could bag me £1,046 monthly passive income

Sumayya Mansoor explains how she’s looking to create an additional income stream through dividend-paying FTSE stocks to build wealth.

Read more »

Investing Articles

£10K to invest? Here’s how I’d turn that into £4,404 annual passive income

This Fool explains how using a £10K lump sum can turn into a passive income stream worth thousands for her…

Read more »

Investing Articles

1 magnificent FTSE 100 stock investors should consider buying

This Fool explains why this FTSE 100 stock is one for investors to seriously consider with its amazing brand power…

Read more »

Rainbow foil balloon of the number two on pink background
Investing For Beginners

2 under-the-radar FTSE 100 stocks under £2

Jon Smith identifies two FTSE 100 stocks that he believes are getting a lack of attention from some investors but…

Read more »

Investing Articles

£8,000 in savings? I’d use it as a start to aim for £30k a year in passive income

Here's how regular investing in the UK stock market, over the long term, could help us build up some nice…

Read more »