Reckitt Benckiser Group (LSE: RB) shares have dropped back over the past two years, though they had previously reached P/E valuations in the twenties. There have been concerns over its pharmaceuticals business, though some of the high valuation would surely have been as a result of a ‘flight to safety’ triggered by a few tumultuous stock market years, so it’s arguable that it was a deserved correction.
Solid record
Nevertheless, the shares are actually still up 27% over the past five years, while the FTSE 100 has managed a meagre 8% — and Reckitt Benckiser has been reporting steady earnings gains and lifting its dividend every year.
We’re looking at forecast dividend yields of around the 3% mark, so not among the biggest, but with such a great track record of progressive rises I rate Reckitt Benckiser as a long-term dividend champion.
According to chief executive Rakesh Kapoor, “Q1 saw a slow start to the year, especially in OTC.” But he went on to say that “we expect to see improving growth in the remainder of the year, particularly in H2.”
E-commerce
A key point for me is that e-commerce is making inroads, up 25% in the first quarter and now accounting for 10% of revenue in the firm’s health business.
The City is expecting a modest EPS improvement of 2% this year, and though it’s still early, Reckitt Benckiser says it’s on course to meet full-year targets. The firm’s outlook for like-for-like revenue growth is put at 3%-4%, with adjusted operating margins expected to remain stable.
For a retirement portfolio, I see shares like Reckitt Benckiser’s as ideal for forming a bedrock of very safe companies with dependable long-term dividend income streams.
Wealth
Investment manager Schroders (LSE: SDR) is another I see as a good long-term income provider, and it is also off to a decent start in 2019.
At the end of the first quarter, total assets under management were up 4.2% to £424.4bn, comprising a 4% rise to £377.9bn in the firm’s Asset Management business itself, and a 6.4% jump in Wealth Management to £46.5bn.
The dividend should be flat this year, with a small boost predicted for 2020, providing well-covered yields of 4.2% and 4.3% respectively. Though that doesn’t represent any rise this year, the dividend has still soared from 78p per share in 2014 to 114p last year, and 46% in just four years is not to be sniffed at.
The Schroders share price has been volatile over the past five years, and that can happen with fund managers — their shares can climb and fall disproportionately as stock market sentiment waxes and wanes. That resulted in a bit of a disaster in 2018, with a loss of 30%.
Low valuation
But it left the shares on a P/E multiple of only 11.3 at the end of the year, which looks very much like a bottom-of-the-cycle valuation to me.
In December, my colleague Rupert Hargreaves named Schroders as one of the FTSE 100 dividend stocks he’d buy before 2019. That’s turned out to be a bit of astute timing, as the Schroders share price has soared by 30% so far this year. And we’re still looking at what I consider undemanding P/E valuations of around 13.
While Schroders’ volatility might put off some investors who are already retired, I’m certainly seeing a stock I’d buy to build a retirement portfolio.
