What should you do if you arrive at the age of 50 and find yourself without any meaningful savings? I reckon you should do exactly as you could have done at 20, 30 and 40 – invest in shares with good-quality underlying businesses.
I’d look for companies with a strong record of trading and finances, and invest in the shares to collect the shareholder dividends. Leading up to retirement I’d reinvest the income from dividends back into shares to compound the investment. Then, in retirement, I’d collect the dividends to live on passive income.
Pharmaceuticals
The pharmaceutical sector, in general, is known for its defensive characteristics and companies operating in the industry often generate steady cash flow, which supports shareholder dividends.
The FTSE 100’s AstraZeneca (LSE: AZN), with its share price near 7,624p, has a forward-looking dividend yield for 2020 of around 2.8%. And the directors have held the dividend flat for several years, despite the well-publicised problems in the sector relating to patent expiry issues.
From 2016 through to 2018, the company’s profits suffered, but since 2019 they’ve been bouncing back. And City analysts following the firm expect earnings to cover the dividend payment more than 1.5 times in 2020. That situation will mark a nice recovery for the firm, and it’s been driven by a vibrant research and development pipeline that has been producing new big-earning products.
Once again, the future looks bright for AstraZeneca, in my opinion, and I’d be keen to add some of the shares to my long-term retirement portfolio.
Fast-moving consumer goods
Companies don’t have to sell medicines to reap repetitive business from consumers. Reckitt Benckiser (LSE: RB) is another in London’s lead FTSE 100 index that tends to enjoy strong, dependable cash flow because of customers that return often for more.
The firm sells products in the area of hygiene with brands names such as Dettol, Harpic, Cillit Bang, Vanish and Finish. And it also has one foot in the healthcare market with brands such as Gaviscon and Nurofen.
Although earnings have been a little weak lately, the cash flow has been standing up well by remaining broadly flat. And the dividends keep on coming for shareholders. I think the company could make a good long-term hold for investors and may return to growth in the future. And chief executive Laxman Narasimhan said in an update last October that he thinks the company has “significant potential” because of its “outstanding” set of brands in structural growth categories.
With the shares at 6,250p, the forward-looking dividend yield is running near 2.7% and City analysts following the firm expect earnings to cover the shareholder payment almost twice. Meanwhile, the share price is down from the peak it achieved in the summer of 2017, and I think now could be a good time to add the stock to my long-term portfolio.
