Let’s say I was retiring tomorrow, and had to pick FTSE shares that I believe could boost my retirement earnings. Two stocks I would have no hesitation in buying if I could are National Grid (LSE: NG.) and BAE Systems (LSE: BA.).
Here’s why!
National Grid
This first pick is a no-brainer, for a few key reasons. To start with, as the sole owner and operator of the gas and electricity transmission system, National Grid has no competitors in the UK. This allows stable revenues, which can boost investor returns.
Next, as a key piece of energy infrastructure, the stock has defensive traits. This is because everybody needs energy, even when the economic outlook is bleak, like now.
Moving on, the investment case gets better with current fundamentals. This includes an enticing valuation with the shares trading on a price-to-earnings ratio of just five.
Finally, the passive income opportunity is the crown jewel for me. This is where I think the shares could help my retirement plans. As a defensive business with stable revenues, I’d expect consistent dividends. A yield of over 5% today is attractive. However, it’s worth remembering that dividends are never guaranteed.
Despite my bullishness towards National Grid, there are risks that could impact my investment. Firstly, the government could curb payouts, which could severely hinder my aspirations of passive income in my leisure years. Next, maintenance of such a large and pivotal piece of infrastructure isn’t cheap, and the cost of this could hurt performance and payouts.
BAE Systems
As one of the world’s largest defence businesses in the world, there’s lots to like about BAE. The world’s population is growing, and technology evolution is ramping up too, therefore governments across the world are looking at ways to maintain their citizens’ peaceful way of life.
BAE’s excellent presence, profile, existing relationships, and track record make it an enticing prospect to continue to perform well, grow, and provide shareholder value, in my view.
A big part of this is the fact government contracts, which are BAE’s bread and butter, are usually long-term, and offer stability. Plus, when entering into a contract with a country, there’s a limited chance of defaults or cancellations, and this can help boost revenues and its balance sheet.
Recent trends have shown that defence spending is at an all-time high, and has been rising for a few years now. I’m sure this is linked to recent conflicts. Naturally, I’m hoping for a speedy resolution across said issues. However, there’s more to defence spending than weapons, such as cyber security, and more.
A dividend yield of 2.5% isn’t the highest. However, I’m more interested in consistent payouts, rather than higher yields with hit and miss dividends.
BAE shares aren’t as cheap as National Grid, trading on a P/E ratio of closer to 20. However, I have no qualms paying top dollar for the best companies when I’m looking to boost my retirement pot.
From a bearish view, the natural worry is that resolution of conflicts could prompt a drop in defence spending. In addition to this, in such a crucial sector like defence, any product issues or malfunctions could severely damage BAE’s reputation, financials, and investor returns.
