Forget the State Pension: these FTSE 250 dividend stocks could help you retire in comfort

Roland Head highlights two FTSE 250 (INDEXFTSE:MCX) stocks that could provide reliable incomes.

| 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.

The age of retirement is creeping ever higher. And government spending seems likely to remain under pressure. I’m not convinced that the State Pension will still be around in its present form when I reach retirement age.

In my view, it makes sense for investors to focus on building their own long-term income machines. So today I’m looking at two stocks with asset portfolios that could provide reliable dividends over many years.

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

A strong turnaround

First up is construction and infrastructure group Balfour Beatty (LSE: BBY). I admit that a business involved in construction wouldn’t normally be a good choice for long-term investors. But hear me out.

The group’s turnaround under chief executive Leo Quinn is going very well. Half-year accounts published on Wednesday showed the group’s underlying pre-tax profit for the period rose by 126% to £52m.

Cash generation — a key test for businesses of this type — has also improved. The firm reported average net cash of £161m during the first half of this year, compared to £45m during the same period last year.

Looking ahead, the outlook is bright. The troubled Aberdeen ring road contract should be completed later this year. And Balfour boasted an order book of £12.6bn at the end of June, up from £11.4bn at the end of 2017.

This is the interesting bit

Mr Quinn says that the construction and services business’s profit margins are now largely in line with industry norms. The problem is that these are very low — typically 1%-3% for construction.

This type of high-cost, low-margin business doesn’t really appeal to me. But what does interest me is that Balfour Beatty often also takes an equity stake in the projects on which it works.

This has left the company with a £1.2bn portfolio of infrastructure assets. This provides both income and capital gains. For example, the group sold a 12.5% stake in the company which operates and maintains the M25 during the first half, raising £108m and generating an accounting profit of £22m.

With careful management, this portfolio could continue to provide reliable profits for many years to come.

Why bother with construction?

Balfour Beatty trades on a 2018 forecast P/E of 15.7 with a dividend yield of 1.9%. This doesn’t seem a very attractive entry point to me, especially given the low-margin nature of the construction business.

Personally, I’d rather own the group’s asset portfolio without its construction business. So I’d like to suggest a possible alternative.

Don’t build, own

John Laing Group (LSE: JLG) has an asset portfolio similar to that of Balfour Beatty. Its investments in the US and Europe include renewable energy projects, roads and schools.

Happily, John Laing doesn’t get involved in the risky and low-margin business of construction. Instead, this FTSE 250 asset manager simply invests in major infrastructure projects, either during construction or after they’re complete.

Performance has been good since the firm floated in 2015. Dividends have risen from 5.3p per share in 2015 to a forecast total of 9.1p per share this year. And the shares have risen by about 65%.

The stock currently trades at about 290p, which is slightly below the group’s last reported net asset value of 306p per share. At this level, John Laing has a forecast dividend yield of 3.1%.

I’d prefer to see a bigger discount, but I’d still rate this stock as a long-term income buy at this level.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Roland Head has no position in any of the shares mentioned. 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.

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 considered, so you should consider taking independent financial advice.

More on Investing Articles

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How I’d apply the Warren Buffett method to buying shares

Learning from billionaire investor Warren Buffett, our writer explains his own approach to investing in shares for his portfolio.

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

This dividend share yields under 1% — but I’d still buy it

This dividend share has a low yield. So why would our writer consider adding it to his income portfolio?

Read more »

Young lady working from home office during coronavirus pandemic.
Investing Articles

Looking for a good share to buy? Here’s how I do it

Here are two approaches our writer uses when hunting for a good share to buy for his portfolio to aim…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

One cheap FTSE 100 share I’d buy for a new bull market

This FTSE 100 share is unloved and starting to look seriously cheap, says Roland Head.

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

How I’d invest £500 in UK shares in 2022

Investing a small amount of capital in UK shares can result in high commission costs. Zaven Boyrazian explains how to…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

2 battered FTSE dividend stocks to buy in July!

I'm still searching the FTSE 100 for the best bargains to buy. I think these two big dividend shares are…

Read more »

Woman pulling baffled face
Investing Articles

Can I trust Lloyds’ 6.1% dividend yield?

The Lloyds' share price has sunk in 2022, causing the bank's dividend yield to leap. But can I really trust…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

3 top stocks to buy before the market rebounds

Edward Sheldon highlights three beaten-up stocks he'd buy before global stock markets stage a recovery from their 2022 declines.

Read more »