The Motley Fool

Saving for retirement? Here are two income shares I’d buy for an ISA

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.

Senior Couple Walking With Pet Bulldog In Countryside
Image source: Getty Images.

Persimmon (LSE:PSN) is the UK’s largest housebuilder and has hit the headlines recently for a lot of the wrong reasons. The company achieved an operating profits of more than £1bn this year, which earned CEO Jeff Fairburn a bonus worth £110m. These are eye-watering sums of money, but the main reason this has annoyed so many people is that most of the homes Persimmon has sold have been bought with assistance from the Help To Buy scheme. This is where the government provides an interest-free equity loan to help new buyers afford a home. Therefore some of Mr Fairburn’s bonus was indirectly paid for by the taxpayer. There has been a public backlash and he has since left the company.

Sustainable profits?

I have written a lot about whether the Help To Buy scheme has artificially inflated the new-build market and the profits of housebuilders. The market seems to think so, despite the protestations of the companies involved. Persimmon has a staggering dividend of 10.8% and a price-to-earnings ratio (P/E) of 7.7. The dividend would not be this high and the P/E this low if the market thought that Persimmon’s profits were sustainable. Nevertheless it needs to be considered whether the price is really low considering the risks.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

I think the share is worthy of closer inspection. The company has over £1bn in cash because of the profitability of its operations. It currently has an operating margin of 29% which makes profits extremely safe at current levels. With the amount of cash it has in the bank, I think the dividend is sustainable in the near future so the income potential for this share should outweigh the risks.

Solid income share

Aviva (LSE: AV) is another company that has a very high dividend, standing at 8.1%, again this is a case of the market anticipating the company having a fall in profits in future. I think this assessment is particularly unfair as Aviva has a good track record of paying a healthy and sustainable dividend. The dividend is easily covered by the free cashflow in the companies accounts.

Asset rich

The company is also very asset rich. Depending on your point of view, this could be a good or a bad thing as assets can be difficult to liquidate (turn into cash) so they can become problematic if they stop generating income. However, this is not currently a problem for Aviva and shareholders could be in for some bumper paydays if the company decides to start selling off some of its foreign businesses. It is currently trading below book value so you could argue that any future profits from the firm are a bonus as your initial investment is covered by assets.

Of course, a business trading below book value normally means there are investor concerns about the underlying operation. However the problem for Aviva seems mainly to be that its business is uninteresting.

Both Aviva and Persimmon can be bought in an ISA which will protect the profits from the taxman. Or you could invest in a Lifetime ISA, if you’re eligible, and the government will gift you 25% extra when you put up to £4,000 in per year. This can then be withdrawn when you reach 60 or buy your first home.

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story.

In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

RobertFaulkner1 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.