I’d buy these 2 FTSE 100 dividend stocks to retire on a passive income

Roland Head explains how he plans to use FTSE 100 dividend stocks to provide a reliable retirement income. These two shares both yield over 5.5%.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

sdf

When I retire, I plan to use my portfolio of dividend shares to provide a passive income. Today, I’m going to look at two FTSE 100 dividend stocks I think have the long-term quality needed to help fund my retirement.

A global growth trend

Most developed countries around the world are reporting ageing populations. More people are living longer, while birth rates are falling. At the same time, economic development in emerging markets is driving demand for improved healthcare and consumer goods.

These trends suggest to me that demand for modern healthcare is likely to increase for the foreseeable future. This is one reason why I’ve chosen FTSE 100 pharmaceutical group GlaxoSmithKline (LSE: GSK) for my first pick.

GSK missed out on the rally enjoyed by many pharma stocks last year. This was partly because sales of regular vaccines business suffered during lockdown, as people stayed away from doctors’ surgeries.

However, the group’s turnaround is making progress. Sales of new pharmaceuticals rose by 12% to £2.5bn during the third quarter, accounting for 30% of all revenue. Glaxo also remained very profitable, with an operating margin of 22%.

I expect this progress to continue. I’m also positive on the outlook for the consumer healthcare business, which owns brands such as Sensodyne and Nicorette. Boss Emma Walmsley plans to spin out this division into a new company over the next year or so. I think this will release value for shareholders.

Glaxo’s unloved status means this FTSE 100 dividend stock currently trades on just 12 times forecast earnings. The stock’s dividend hasn’t been cut for 15 years and now provides a yield of 5.7%. I think GSK shares look too cheap. I’d bid up the share price if the company’s 2020 results showed continued progress.

I already own a chunk of GSK stock, but I’m thinking about buying more.

Still growing after 185 years

Companies with long histories aren’t guaranteed to survive. But I believe a long, successful history is a good clue a business will continue to evolve and grow in the future. One long-lived company I rate very highly is pensions and insurance firm Legal & General Group (LSE: LGEN).

Legal & General wrote its first life assurance policy in 1836. In 2019, the company reported assets under management of £1,196bn and generated a pre-tax profit of £2.1bn. Shareholders received £1.1bn in dividends, all of which was covered by surplus cash.

In recent years, the firm’s strategy of buying out corporate pension schemes has supported continued growth. So-called Pension Risk Transfer sales totalled £11.4bn in 2019.  This has enabled Legal & General to increase the dividend regularly while maintaining good levels of earnings cover.

Looking ahead, chief executive Nigel Wilson says that dividend payments are expected to total £5.6bn-£5.9bn between 2020 and 2024. That’s equivalent to around 36% of the current share price — not bad, in my view.

Investor worries about low interest rates and the outlook for the global economy have kept Legal & General’s share price pinned down over the last year. This has left the stock valued on just nine times forecast earnings, with a dividend yield of 6.6%. I’d like to buy this FTSE 100 dividend stock for my portfolio.

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.

Roland Head owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. 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 Investing Articles

Group of friends meet up in a pub
Investing Articles

Here’s a surprising winner after the UK stock market reacts to the latest US tariffs — Diageo

Our writer was pleasantly surprised to see Diageo shares rise after US trade tariff news hit the UK stock market.…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

Down from its all-time high, is the Rolls-Royce share price heading for a fall?

I keep thinking the Rolls-Royce share price could be set for a fall, and I keep being wrong. What about…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

The Jet2 share price nosedives despite record-breaking 2025 results

Investors sent the Jet2 share price lower in early trading today (9 July) as they reacted negatively to the leisure…

Read more »

British Pennies on a Pound Note
Investing Articles

At 36p, this penny stock could be worth considering

Edward Sheldon just scanned the UK market for penny stocks that are currently in strong upward trends. And this one…

Read more »

piggy bank, searching with binoculars
Investing Articles

Down 10% from May, is it time for me to buy more of this high-yielding FTSE heavyweight?

This FTSE 100 giant is forecast to have a 6.3% dividend yield by 2027, and looks substantially undervalued to me,…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Down 37% but with 47% forecast earnings growth and $1bn buyback announced, does Glencore’s share price look cheap to me?

Glencore’s share price has dropped over the year on concerns about China’s economic growth and US tariffs, but its earnings…

Read more »

Emma Raducanu for Vodafone billboard animation at Piccadilly Circus, London
Investing Articles

Up 10% in a month! What on earth’s going on with the Vodafone share price?

Our writer’s trying to find an explanation for the recent strong performance in the Vodafone share price. But it isn't…

Read more »

UK supporters with flag
Investing Articles

Up nearly 1,000%! Only 4 major US stocks are outperforming Rolls-Royce shares

Mark Hartley explores how Rolls-Royce shares beat the odds to recover nearly 1,000% in five years, outperforming all but five…

Read more »