Two FTSE 100 dividend stocks I’d buy for retirement income today

These two FTSE 100 (INDEXFTSE: UKX) dividend stocks could be an excellent source of retirement income due to their high yields, says Edward Sheldon.

| More on:

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.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you’re looking for high-yield stocks that could provide you with a solid income stream in retirement there’s no shortage of options right now as nearly 30 stocks in the FTSE 100 offer rolling dividend yields of 5% or more. With that in mind, here’s a look at two stocks I believe are well suited to those who are looking for retirement income.

Royal Dutch Shell

When it comes to income, it’s hard to ignore oil giant Royal Dutch Shell (LSE: RDSB), in my view. Not only does the stock yield a colossal 6.3% right now (over four times the best interest rate you’ll find on a savings account), but the company hasn’t cut its dividend payout since World War II, due to the fact that it places a priority on rewarding investors with dividends. Given its focus on paying reliable dividends, the oil major is a key holding for large-scale pension funds, sovereign wealth funds, and private investors alike.

One reason I like Shell as a retirement income play, aside from its high yield, is that the company should not be impacted by Brexit. As a global energy group that has operations in 70 countries, the state of the UK economy is largely irrelevant to its fortunes. Furthermore, if the pound was to fall in the event of a no-deal scenario, Shell shareholders would actually get a boost because its dividend is declared in US dollars. I see this Brexit protection factor as a big plus.

Of course, there are risks to be aware of. For example, the world is slowly moving away from oil and transitioning to more sustainable fuels. This could impact the company over time. However, to Shell’s credit, it is actively taking steps to explore new opportunities in the renewables space, such as wind and solar power through its New Energies business, so it’s definitely looking to evolve. I’ll also point out that oil and gas are likely to remain important for at least a few decades.

Right now, Shell shares are trading on a forward-looking P/E ratio of 13.2, a little under the median FTSE 100 P/E of 14.8. I see that as good value. Given this valuation, and the brilliant yield, I see Shell as a great retirement income stock.

Imperial Brands

From a retirement income perspective, I also like the look of tobacco giant Imperial Brands (LSE: IMB). Tobacco stocks are very much out of favour right now, and as a result, there are fantastic yields across the sector. In Imperial’s case, the prospective yield on offer is a high 12.2%!

Of course, as a tobacco manufacturer, there are plenty of risks to be aware of with IMB. Around the world, smoking rates are declining and regulators are making life difficult for tobacco companies. However, as I’ve often said in the past, I don’t think it’s game over for big tobacco just yet. High population growth across Asia and Africa (where smoking is still very common) should offset declining smoking rates in the Western world, and companies can also up their prices to offset declining volumes. In addition, next-generation products (NGPs) and cannabis provide a growth angle.

Imperial shares currently trade on a forward P/E ratio of around 6.3, which is under half the median FTSE 100 P/E. At that valuation, I think the stock is a bargain.

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.

Edward Sheldon owns shares in Royal Dutch Shell and Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.

More on Retirement Articles

Retirement Articles

3 exceptional investment trusts to consider for a SIPP in 2024

Investment trusts can be a great way to get broad exposure to global stock markets within a SIPP. Here are…

Read more »

Investing Articles

£10,000 in savings? I’d aim for £633k in FTSE 100 shares and £25k a year of passive income

I'm aiming for a blistering second income by prioritising investment in FTSE 100 shares. Here's how this strategy could supercharge…

Read more »

Middle-aged Caucasian woman deep in thought while looking out of the window
Investing Articles

I’d invest £480 a month in FTSE 100 stocks to target a comfortable retirement!

Regularly investing FTSE 100 stocks can help investors make a healthy passive income for retirement. Here Royston Wild reveals his…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

I’d aim to turn a £20k ISA into a £21,366 passive income with FTSE 250 shares!

Many Stocks and Shares ISA investors have made fortunes by buying FTSE 100 and FTSE 250 shares. Here's how I…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

I’d invest £570 a month in FTSE 100 and FTSE 250 shares to aim for a million!

FTSE 100 shares can be a great way to build wealth. Royston Wild describes how he plans to make money…

Read more »

Senior woman potting plant in garden at home
Investing Articles

Pension needs estimate rises £8K. These income shares could support my retirement

Oliver Rodzianko has found some income shares to help him with the most recent pension estimate needed for a moderate…

Read more »

A senior man and his wife holding hands walking up a hill on a footpath looking away from the camera at the view. The fishing village of Polperro is behind them.
Investing Articles

No savings at 40? Here’s how I’d aim to retire with a second income of £23,379 a year!

People with 25-30 years left before retirement still have plenty of time to build a decent second income for retirement.…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Here’s why I’m buying FTSE 100 stocks to generate passive income in retirement!

Is the State Pension age going to rise to 71? Royston Wild explains why he aims to keep buying FTSE…

Read more »