I’m building a balanced portfolio of FTSE 100 dividend shares to give me a high and rising income in retirement. I’ll aim to buy around a dozen for diversification purposes, but what if I was restricted to just three?
First, I’d want to pick stocks across different sectors, to spread my risk. And with just three companies to rely on, I’d want them all to be pretty solid.
My first stock almost chooses itself. Lloyds Banking Group (LSE: LLOY) has worked hard to rebuild its reputation since the financial crisis. It has quit risky investment banking activities altogether, and now focuses on personal and small business saving and lending. That’s a bit dull but if I want excitement in retirement, I’ll take up paragliding.
Solid income stocks
The Lloyds share price is up 26.65% in the last year but still looks decent value, trading at 7.78 times earnings.
The forecast yield is a handsome 5.5%. That’s better than I could get on easy access, and the return shouldn’t fall when interest rates do, unlike cash. The downside is that it isn’t guaranteed.
The Lloyds share price could take a hit if interest rate cuts squeeze margins. There’s also a potential motor finance mis-selling scandal looming.
No stock’s completely without risk and in the long run, I think Lloyds will deliver a high and rising dividend income for years.
Next, I’d choose housebuilder Taylor Wimpey (LSE: TW), which is forecast to yield 5.9% this year. It is thought to be a major beneficiary of the Labour Party’s bumper 1.5m house building programme, that will “bulldoze” planning restrictions.
It’s doing well enough without it, with the Taylor Wimpey share price up 34.18% over the last year. I don’t really like buying shares after they’ve had a good run, as it makes them pricier (and riskier), but I’ll make an exception here.
Taylor Wimpey aims to return around 7.5% of net assets to shareholders every year, with a minimum of £250m. It maintained dividends despite the recent housing market stagnation.
FTSE 100 favourites
The stock isn’t as cheap as it was, trading at 13.78 times earnings, but it could enjoy a fresh spurt once interest rates finally fall and the housing market picks up.
Finally, I’d buy the UK’s second biggest grocery chain Sainsbury’s (LSE: SBRY). It looks good value today trading at 12.3 times earnings with a trailing yield of 4.81%.
The big supermarkets have had a tough few years as Aldi and Lidl have stolen market share. However, Sainsbury’s now seems to have stabilised around the 15% mark. I remember shopping at Sainsbury’s with my mum, and I’d expect the supermarket to remain a retail fixture for the rest of my life (although we never know!).
While the yield’s high, the dividend per share has been held at 13.1p over the last three years. I’d hope to see that recover and grow over as the cost-of-living crisis eases. Who knows, maybe the Sainsbury’s share price will spring into life too. But it’s income I’m after here.
As I said, I’d rather hold 12 dividend stocks. But these three would set me up nicely.
