Not relying on the State Pension for income in retirement sounds like a prudent idea to me. And one way of doing this is to put some money to work in dividend-paying FTSE stocks.
With this in mind, here are a few suggestions for shares to ponder buying.
Passive income powerhouses
I’ll start with a trio of potential core holdings.
Regardless of how the UK economy is faring, we all need access to gas and electricity. I think this makes power provider National Grid a great option. Although changes in regulation could impact profitability, it currently boasts a dividend yield of 3.9%.
Another stock to consider is supermarket titan Tesco. Again, it provides things we regularly need, even if it isn’t the only option available to shoppers. But customer loyalty and sheer financial firepower has allowed Tesco to remain the market leader by some margin for some time. This all helps to support a yield of 3.2%
Pharmaceutical giant GSK is a third candidate for a portfolio focused on generating passive income. Getting new drugs approved is, of course, difficult and costly. Even so, populations around the world are ageing. This should provide a boost for the medicine and vaccines specialist’s earnings going forward. GSK shares yield 3.6%.
Sure, this is all pretty boring stuff so far. Where are the glitzy AI-related stocks?
Well, remember that we’re looking for FTSE stocks that generate stable levels of free cash flow that can then be distributed to shareholders. In this sense, ‘boring’ is exactly what investors should be looking for, even though dividends from any company can never be guaranteed.
6% dividend yield!
For added portfolio diversification, I reckon it’s worth considering stocks from outside the top tier, especially those that tend to dish out more cash every (or nearly every) year.
One such example is FTSE 250-listed wealth manager Rathbones Group (LSE: RAT). The £2bn cap is another business that is set to benefit from an ageing population as more people look for personalised financial advice from trusted names. The relationship that’s built also means that clients are more likely to stick around than go elsewhere.
Analysts currently have the stock yielding 6% in the next financial year. The average in the mid-cap index is around 3.6%!
Of course, Rathbones income from fees could suffer if stock markets crash. The emergence of new, lower-cost platforms is another challenge.
A final FTSE stock to consider
Another dividend-hiker that regularly flashes up on my screen is self-storage provider Safestore (LSE: SAFE). Yielding 4.5% as I type (18 November), the firm benefits from the beautifully simple business model that is charging people to temporarily house their possessions and clutter. Not depending on any single, large tenant also makes cash flow more resilient to setbacks.
Again, there are risks to consider. Safestore isn’t short of competition and may be forced to lower prices as a result. As an owner of real estate, the company is also exposed to higher borrowing costs.
However, this remains a relatively fragmented industry. That leads me to think the larger players will continue to benefit from brand power and acquisition opportunities.
Management’s goal to continue expanding internationally is another reason to think that earnings will keep moving in the right direction.
