I think UK shares are a brilliant way of saving for retirement, as they offer a winning combination of dividend income and potential share price growth.
I’m over 50 now and relying on a portfolio of around 15 different stocks to build wealth in the final period of my working life, inside a Self-Invested Personal Pension (SIPP). Here are three of my favourites. They offer very different things but should all contribute to my retirement targets.
M&G is a top income stock
For income, I couldn’t resist wealth manager M&G (LSE: MNG). It offers a trailing yield of around 7.9%, and the share price has done pretty well too. Over the last year it’s climbed 22.7%, giving a total return of 30% once dividends are included. Over five years, the stock is up 70%.
It isn’t the easiest company to analyse, partly because results are now reported under IFRS 17 accounting standards, which has made comparisons more complicated across the insurance sector. In its half-year update on 4 September, it posted a £3m rise in profits before tax to £378m. Nothing spectacular, but steady enough.
Investors shouldn’t expect rapid dividend growth. Management is guiding for increases of around 2% a year, less than today’s inflation rate. Even so, I think the starting yield is hard to ignore. One risk is that if stock markets fall, customers could pull funds. The popularity of trackers does threaten its active. But I still think it’s one for income-focused investors to consider buying today.
JD Sports needs a break
Trainer and athleisure retailer JD Sports Fashion (LSE: JD) is a very different prospect. For years it was a growth star, but lately it’s been struggling. The share price has plunged 42% in the last 12 months, despite bouncing 20% in the past three months.
JD Sports shares are flat today (24 September), despite reporting an 18% jump in sales to £5.9bn over the six months to 2 August, while confirming it’s on track to meet full-year profits guidance.
First-half profit fell 13.5% to £351m, in line with guidance, and investors remain spooked by talk of “tough” trading environment.
Buying this stock is an act of faith given the recent performance. Yet its valuation is dirt cheap, with a price-to-earnings ratio of just 7.2. What it really needs is a stronger economy and jobs market. We’re not there yet. Risky, but worth considering.
Scottish Mortgage is a growth star
My third pick is more of a fund than a single stock: Scottish Mortgage Investment Trust (LSE: SMT). It’s been around for more than a century and its global portfolio includes US tech giants, Asian e-commerce businesses and some private companies too. The ongoing charge is relatively low at just 0.31%.
Of course, it comes with risk. The trust is heavily tilted towards US tech, so when that sector wobbles, so does Scottish Mortgage. It crashed by half during the tech sell-off in 2022, for example. The share price has done well recently, up 40% in the past year and 70% over two.
US tech valuations are looking a little toppy today, as AI mania continues, but I still think it is worth buying with a long-term view. If we get a stock market crash, it’s one to consider buying on the dip.
