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

Royal Mail plc (LON: RMG) appears to offer impressive income potential versus the FTSE 100 (INDEXFTSE: UKX).

| 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.

Various denominations of notes in a pile

Image source: Getty Images.

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.

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!

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.

More on Investing Articles

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Lloyds shares are down 10% in 2022. What next?

Lloyds shares have dropped by almost a tenth so far in 2022. But the bank is in good shape to…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

How to aim to use the Warren Buffett method to make a million, starting today

Why do investors love Warren Buffett so much? His 3.6 million percent investment return since 1965 probably has a lot…

Read more »

Various denominations of notes in a pile
Investing Articles

3 big income stocks hiding in plain sight

There are plenty of high-paying income stocks flying under the radar right now. Paul Summers offers three examples he likes.

Read more »

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

2 FTSE 100 shares I’m buying in July

Andrew Woods wonders whether these two FTSE 100 shares could bring growth to his portfolio and if he should add…

Read more »

positive mental health woman
Investing Articles

2 dirt-cheap stocks investors should buy to hold until 2030!

Recent market volatility means lots of UK shares now offer brilliant value. Here are two ultra-cheap stocks on my radar…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

My top 7 dividend shares to buy as inflation soars

Dividend shares can be an excellent way to earn some passive income. Our writer considers seven top picks to help…

Read more »

Woman looking at a jar of pennies
Investing Articles

I think the JD Sports share price is a bargain. Here’s why

Our writer explains why the JD Sports share price has led him to buy more for his portfolio.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is this tech stock one of the best shares to buy now?

Jabran Khan is on the hunt for the best shares to buy now for his holdings and takes a closer…

Read more »