The State Pension: Why I’d buy these 5%+ yielding FTSE 100 dividend stocks right now

These two income shares could outperform the FTSE 100 (INDEXFTSE:UKX) and help you to overcome a rising State Pension age in my view.

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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.

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With the State Pension age forecast to rise over the next couple of decades, it could become increasingly important to have a sizeable nest egg by retirement. One way of doing this is to invest in FTSE 100 dividend stocks, with there being a number of companies that currently offer income returns that are above 5%.

With that in mind, here are two prime examples of FTSE 100 stocks that could offer good value for money, as well as impressive income returns over the long run. Buying them now could help you to overcome what is an increasingly inadequate State Pension.

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FTSE 100 housebuilder Persimmon (LSE: PSN) released a trading update on Wednesday. Its performance in the 2019 year-to-date has been strong, with operating conditions having been resilient. Demand for new homes has remained high, with low interest rates and high levels of employment helping to support consumer confidence.

The company’s current forward sales position is strong, standing at £2,698m. Pricing conditions have remained firm across its regional markets, and it has made progress on goals to improve customer satisfaction rates and offer a better service to customers.

The wider housebuilding sector may continue to benefit from the Help to Buy scheme. It is skewing demand towards new-build properties, and making it easier for first-time buyers to get onto the property ladder. It is expected to continue through the current Parliament, and may offer a catalyst for Persimmon and its industry peers.

With Persimmon having a generous capital return plan, it is expected to yield over 10% in the current year. Since it has a large net cash position and favourable operating conditions, its dividend policy seems to be affordable and sustainable. As such, it could offer income investing potential while it trades on a price-to-earnings (P/E) ratio of around 8.

Severn Trent

Also offering income investing potential is FTSE 100 water services business Severn Trent (LSE: SVT). It currently yields around 5%, and has a track record of solid dividend growth. At a time when the prospects for the wider economy are uncertain, its lower correlation to the macroeconomic outlook may make it a popular choice for income-seeking investors who are cautious about the UK’s economic future.

Although there is a continued threat facing the water services industry from nationalisation, Severn Trent’s valuation appears to factor this in to some degree. The stock trades on a P/E ratio of 14, which is historically low for the sector. This suggests that investors are seeking a discount to its intrinsic value in order to plan for the risk of nationalisation over the medium term.

While Severn Trent may therefore be less defensive than it previously was, the company’s income investing prospects could make it appealing. As such, now could be a good time to buy the stock for the long term.

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Peter Stephens owns shares of Persimmon. 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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