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 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 considered so you should 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

Close-up of British bank notes
Investing Articles

Forget income bonds! I’d buy these 2 high-yield UK dividend shares

These two UK dividend shares offer significantly more attractive passive income than boring bonds, in my opinion.

Read more »

Family holding hands in a circle on a beach
Investing Articles

11% dividend yield! 1 FTSE 100 dividend share to buy today

I'm hunting for the best dividend shares in the FTSE 100 and this industry leader could be one of my…

Read more »

Passive and Active: text from letters of the wooden alphabet on a green chalk board
Investing Articles

How I’d invest in UK dividend stocks to generate passive income for retirement

How I plan use the iShares UK dividend fund to invest in high-yield stocks in the UK to generate passive…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

GSK shares plummet 15% in a week! What’s going on here?

GSK shares had a bad time last week. They're down 15% as investors' sentiment soured ahead of litigation proceedings in…

Read more »

Burst your bubble thumbtack and balloon background
Investing Articles

Stock market recovery: have all the bubbles now burst?

Asset bubbles keep on coming, and here's what I'm doing to navigate through them and invest for the stock market…

Read more »

Shot of an young Indian businesswoman sitting alone in the office at night and using a digital tablet
Investing Articles

How I’d invest £290 a month in UK shares for a passive income that beats the State Pension

UK shares can offer a lucrative path for passive income. Our writer considers a plan to double his State Pension.

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

3 of the best shares to buy now with £2,000

I reckon the best shares to buy now have strong growth in earnings and recent good news flow, such as…

Read more »

Young female analyst working at her desk in the office
Investing Articles

How I’m aiming for £500 a month in income from dividend stocks 

Here's my three-step plan for achieving a growing income from dividend stocks and three companies I'd use to help execute…

Read more »