2 big dividend stocks I’d buy to beat the State Pension today

Pension equality day is upon us, but it still only pays a pittance. Here’s a suggestion for topping up your retirement income.

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A landmark of sorts was passed this week, with the the qualifying State Pension age for men and and women finally matching. On 6 November, for the first time since the State Pension was introduced, the pension age became gender-free at 65.

There’s still inequality in that 2017 figures put the the average woman’s pension at £126 a week, with the average man’s coming in at £154. But the key for us as investors is that the State Pension is simply not sufficient for a comfortable retirement.

Whether we invest extra in a SIPP or an ISA, I think dividend-paying stocks are the way to go. People often immediately think of FTSE 100 companies, but I see plenty of opportunities in the FTSE 250 too, with perhaps better chances of growth added on.

Insurance

I’ve always liked the insurance business, because it provides an essential service that will always be in demand. And while its nature of taking on risk means there can be short-term ups and downs, a long-term pension-horizon strategy should see those even out.

I’m quite shocked by the recent share price fall at Hastings Group (LSE: HSTG). The car insurance specialist spoke of a competitive market during its Q3 update last month, and said it is facing rising costs. But the sell-off looks seriously overdone to me.

Hastings’ dividends have been strongly progressive in the past few years and even if yields have not been exciting they are reasonable at around 4%. But the share price plunge has pushed the forecast yield as high as 7% this year, rising to 7.8% in 2019, and it looks like it would be reasonably well covered by earnings.

There has to be a worry that the firm’s comments might presage a cut in the dividend. But even if there is a small reduction, I still think I see good long-term value. Hastings reported a 4% year-on-year rise in live customer policies, with gross written premiums up 5%, and its share of the UK private care insurance market now up to 7.5%.

On a forward P/E of only nine, I think Hastings shares deserve a closer look.

Investment

I’m also a big fan of the investment management business, and while I wouldn’t hand over my cash to actually be managed, I’d certainly buy shares in companies that are doing the management.

Jupiter Fund Management (LSE: JUP) is a favourite of mine. The company offers a range of individual investment trusts and other investment vehicles, and it has a track record of earnings growth behind it.

But this is another business that has its cyclical nature, and analysts are predicting EPS falls of 6% to 7% this year and next, and that’s contributed to a sell-off of the shares — and the recent ‘FTSE 100 crash’ panics certainly haven’t helped.

An update in October reported a net funds outflow of £800m for the latest quarter. With many investors running scared of stock markets right now, that doesn’t really surprise me — and it’s something that happens inevitably in the funds management business.

The firm still had £47.7bn in assets under management, and the outflow represented just 1.7% of that total, so it’s hardly a ‘sky is falling’ scenario.

With the price drop lowering the forward P/E to under 11 and boosting forecast dividend yields to 7% and better, I see another good-value long-term pension investment here.

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.

Alan Oscroft 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.

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