Standard Life Aberdeen (LSE: SLA) is in my view, one of the best retirement stocks on the market today.
Even though the company has had some problems over the past year, particularly the loss of Lloyds’ Scottish Widows’ business, it remains one of the largest asset managers and pension providers in the UK.
Scottish Widows represented 17% of the group’s overall £646bn of assets under management, but due to the fact the business was on a different contract to the rest of client assets, it only represents 5% of revenues. So, I do not believe that this will be a significant headwind for the company.
City analysts seem to agree with this view. Analysts have pencilled in growth of earnings per share of 6.7% for 2018, followed by an increase of 5.5% for 2019. Based on these targets, shares in the asset manager are trading at a forward P/E of 13.3.
And when it comes to income, Standard Life is currently one of the FTSE 100’s top dividend stocks with a dividend yield of 6%, more than 50% above the market average. Analysts believe that the distribution will grow in line with earnings over the next two years and is covered 1.3 times by earnings per share.
Growing monopoly
Standard Life has been managing retirement funds for nearly 200 years, and it is this heritage that gives it an edge over competitors. Meanwhile, Royal Mail (LSE: RMG) has its own advantage over its peers due to its UK wide distribution network that would cost billions for any competitor to replicate.
Even though the company is facing increased competition and a decline in letter volumes, it is managing to offset these negative factors by investing overseas and streamlining operations here in the UK. Indeed, last year international parcel delivery income grew 9% and now accounts for 25% of total revenue and 40% of operating profit.
Also, management is confident in hitting its £600m cost reduction target by 2017/18. As the company continues to invest in its overseas expansion, Royal Mail should be able to sustain its market-beating dividend yield.
Analysts have the company yielding 4.3% this year and 4.5% in 2019 as the distribution grows in line with earnings per share. The stock currently trades at a forward P/E of 13.4, which is hardly cheap but seems suitable considering the group’s steady growth, market-leading position, and dividend income.
Business transition
Tate & Lyle (LSE: TATE) is my final income retirement pick, and once again, this is a company with a rich heritage. Founded in 1921, over the past few years the business has been transforming itself into a specialist ingredients producer, away from its traditional business of sugar supply.
Following three profit warnings between 2014 and 2015, the company now seems to be back on track after announcing a 26% increase in first-half profits in November. Sales of new products are expected to hit $200m in 2020, up from $69m in 2014.
Unfortunately, City analysts are expecting the company’s earnings per share to decline over the next two years as the tailwind from weaker sterling vanishes. Still, Tate’s dividend distribution is expected to increase in line with inflation, and with the payout covered 1.7 times by earnings per share, there’s plenty of room for this growth if earnings stagnate.
The stock currently supports a dividend yield of 5.1% and trades at a forward P/E of 11.6 — a valuation that, in my opinion, more than makes up for Tate’s mixed outlook.
