I think these two dividend stars could help you beat the State Pension

If you’re looking for income investments to retire on, these companies are a great place to start, says this Fool.

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A regular income from dividend stocks can help you achieve a comfortable retirement and supplement your State Pension income.

However, not all income stocks are created equal, and some are better suited for this task than others. So today, I’m going to outline two dividend stars that I believe can help you beat the State Pension.

Cheap income

My first pick is homebuilder Redrow (LSE: RDW). This company immediately looks attractive from an income perspective. It supports a dividend yield of 5.7% and trades at a for P/E of 6.4.

Usually, such a low valuation is a red flag, a signal from the market that the company’s outlook isn’t as bright as management might want you to believe. But in this situation, I don’t think there’s anything to worry about. You see, as one of the largest homebuilders in the UK, Redrow is currently witnessing a boom in demand for it services as the country struggles to meet the ever-increasing rise in demand for new homes. Over the past five years, net profits are up more than 200% as revenues have jumped from £864m to just under £2bn.

Rather than distributing all of the company’s profits to investors, management has adopted a conservative dividend policy. 

Even though City analysts expect the dividend to increase by 28% for 2019, it will still be covered 2.5 times by earnings per share, and is backed up by more than £100m of cash on the balance sheet. According to my research, for the financial year ending June 2018, the company’s total dividend distribution only amounted to £74m, which tells me that Redrow’s dividend is safe even if profits fall substantially.

After considering all of the above, I think Redrow’s impeccable dividend credentials make it the perfect income investment to help you beat the State Pension.

Best-in-class 

Another dividend star I’m recommending, and one you might not have considered before, is Morgan Sindall Group (LSE: MGNS).

Usually, I wouldn’t consider a construction and regeneration company as an income investment, but Morgan Sindall is, in my opinion, one of the best run companies in the sector. Net profit has doubled over the past five years, and management has rewarded investors with impressive growth in the dividend. 

Today, alongside its full-year results, the company announced yet another dividend increase of 18%, surpassing the City’s 12% target. After factoring in this dividend growth, the stock now supports a dividend yield of 4.7%, and the payout is covered nearly three times by earnings per share. 

On top of this, Morgan’s balance sheet is stuffed full of cash. In fact, unlike most other construction sector giants, the enterprise has reported a net cash balance in each of the past six years. At the end of 2018, cash on the balance sheet totalled £207m. With the dividend costing around £22m per annum, this year-end cash balance implies the company has more than enough funds to sustain the distribution for the foreseeable future.

As long as management maintains its financial discipline, I think Morgan Sindall will remain a fantastic income investment for many years to come.

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.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Redrow. 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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