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Forget the State Pension: FTSE 100 dividend share Royal Mail could help fund your retirement

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The income appeal of the FTSE 100 remains relatively high. The index yields 3.8% at the present time, which is towards the upper end of its historical range. This could help retirees to overcome what remains a relatively low State Pension, with the index offering an income return which is currently ahead of inflation.

Within the FTSE 100, though, are a number of shares such as Royal Mail (LSE: RMG) which offer even higher income returns than the index. As such, the company could be worth buying alongside a FTSE All-Share stock which reported an upbeat set of results on Wednesday.

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Improving outlook

The company in question is urban multi-let industrial property business Hansteen (LSE: HSTN). It reported half year results which showed an increased in its property valuation of 3.7% versus the same period of the previous year. Its profit increased to £29.2m from £13.3m in the first half of the previous year. It continued to enjoy high occupational demand, with supply being limited in all of its regions. Rents are continuing to grow, which could lead to further growth for the business over the medium term.

The company was able to sell its Industrial Multi Property Trust (IMPT) portfolio during the period, with it returning £144.5m of capital to shareholders. It expects to be a net seller for the foreseeable future as there remains a lack of meaningful supply on the horizon.

With Hansteen having a dividend yield of 4.8%, it offers a relatively high income return. It is due to deliver double-digit earnings growth in the next two financial years. This could allow it to return further capital to shareholders due in part to the lack of investment opportunities that it appears to have over the medium term.

Dividend growth

The dividend prospects for Royal Mail may also be relatively impressive. The company is expected to increase dividends per share by 4.4% in the next financial year. This puts it on a forward dividend yield of 5.6% for the 2020 financial year, which makes it one of the highest-yielding shares in the FTSE 100. This should ensure that its income return remains well above inflation even if a weaker pound leads to rising CPI over the next few years.

With Royal Mail in the process of change, the near term could be a relatively volatile period for the business. It has recently changed its CEO, and this could lead to a refreshed strategy in the short term. There is continued pressure on its UK operations. While parcel volumes are helping to offset declining letters volumes, the reality is that the division can only make a limited amount of efficiency improvements to offset disappointing revenue growth. As such, the international growth potential of the company could become increasingly important over the next few years.

Since Royal Mail has a price-to-earnings (P/E) ratio of around 13, it seems to offer good value for money. As such, now could be the right time to buy it for the long run.

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Peter Stephens owns shares of Hansteen Holdings. The Motley Fool UK has recommended Hansteen Holdings. 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.

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