If I were entering retirement tomorrow, I’d buy these dividend shares

For a more comfortable retirement, this Fool would focus on buying dividend shares. Here are two he’d be keen to add to his portfolio.

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As life expectancies rise, we’re spending more time in retirement now than ever before. To make some extra cash to alleviate financial pressure, I’d buy dividend shares.

A report released last year by The Pensions and Lifetime Savings Association said a single person will need £31,300 a year for a moderate income in retirement, and £43,100 for a comfortable retirement. For couples, those figures jumped to £43,100 and £59,000.

If I’m in retirement, I want to generate passive income that I can rely on. That’s where the FTSE 100 comes into play. It’s home to high-quality companies. Many are household names. As such, they have stable cash flows and rising yields.

Here are two that would be at the top of my list.

International giant

First up is a company that’s a relatively new addition to my portfolio, HSBC (LSE: HSBA). I purchased shares last month after the stock took a hit following the release of its 2023 results. An international bank trading on 6.7 times earnings? I couldn’t resist that.

There’s a lot I like about HSBC. But what really caught my attention was its 8% yield. That’s more than double the FTSE 100 average.

Being in retirement, I’d also want to see a progressive dividend policy. I don’t want to buy a company only for it to cut its dividend a few years down the line. There’s always that risk with dividends. HSBC upped its payout to 61 cents per share in 2023 from 32 cents the year before. That’s what I like to see.

I’m also a big fan of its exposure to Asia. This hurt the stock last year. China’s property industry has been in crisis lately. HSBC is heavily invested there, so it’s easy to see why investors have been spooked.

However, Asia is home to fast-growing economies driven by rising middle classes. In the years to come, demand for banking services should surge.

Industry leader

I have my eye on a couple of other banking stocks. But to hedge risk in my retirement, I’d make sure to diversify. Another stock I like is Tesco (LSE: TSCO).

Tesco yields slightly lower than HSBC at 4%. However, it has experienced solid growth in the last few years, with its dividend growing from 5.77p in 2019 to 10.9p in 2023.

On top of that, what I like about the business is its defensive nature. It sells essential goods, meaning that, to an extent, it’s resistant to the wider economic environment. With the UK in a ‘technical recession’, holding stocks like Tesco in my portfolio makes sense.

Legendary investor Warren Buffett says we should invest in companies we understand. With Tesco, it’s easy to see how it generates revenue. It’s also the clear frontrunner in the supermarket industry with a 27.2% market share.

That said, it’s faced pressure from competitors recently. Budget alternatives, most notably Aldi, have entered the scene in an attempt to grab a slice of the market. So far, they’ve been pretty successful in their efforts.

However, I’m confident Tesco can keep delivering. To combat rising competition, it’s growing its physical and online presence.

Both of these are large-cap companies with progressive dividend policies. If I had the cash, it’s businesses like these I’d target to help me with my retirement.

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.

HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Charlie Keough has positions in HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings and Tesco Plc. 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.

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