If you dream of enjoying your retirement, you had better get saving for it. Stocks and shares offer an unbeatable combination of share price growth and a rising dividend income as well. The following three companies could form the basis of a balanced retirement income portfolio, and help you beat today’s rock bottom savings rates.
BP
The oil sector has been volatile lately but the picture looks a little brighter now that oil has stabilised at around $50-$55 a barrel. This is a big improvement on $27, a low hit in January last year. Oil majors like BP (LSE: BP) have worked hard to survive the current era of cheap crude, selling off non-core assets, slashing headcount and capex, and dropping less productive exploration opportunities. The medicine has worked, the patient is largely restored.
BP still faces challenges. Crude could fall again. Recent OPEC and non-OPEC production cuts have been applied with greater rigour than sceptics anticipated but US shale drillers are plugging the shortfall. The days of $100 oil may never return. BP is still making money at this level, with a $400m profit for the final three months of 2016, if below analysts’s expectations of $567m. However, income seekers will be beguiled by its turbo-charged 6.57% yield, which is more than 26 times base rate. Let the dividends roll…
GlaxoSmithKline
Pharmaceuticals maker GlaxoSmithKline (LSE: GSK) is another FTSE 100 stalwart that has been through a volatile time. As with BP, the future is looking brighter, its share price up 20% over the past year, and almost 10% in the past month. This recent spike may be down to encouraging results from clinical tests on asthma sufferers of its Relvar Ellipta inhaler treatment, which would mark another step forward in the company’s drive to replenish its drugs pipeline.
Glaxo has also been upbeat about new HIV drug tests and is awaiting regulatory decisions on four major products this year – Shingrix, Closed Triple, Benlysta SC and sirukumab, with the results directly impacting on the share price. Glaxo currently offers dividend income of 4.8%, with the prospect of steady growth in future. The future looks promising, with forecast earnings per share growth of 9% this year and 3% in 2018. Possibly the ultimate retirement stock.
Unilever
Sorry, scrap that. Household goods giant Unilever (LSE: ULVR) is possibly the ultimate retirement stock. It has seen steady share price growth year after year, including another 25% in the last 12 months. Its current yield of 2.82% is better than it looks because management’s policy has always been very progressive, it’s just been difficult for the yield to keep up with the surging share price.
I was delighted to see the $143bn takeover offer from Kraft Heinz rebuffed. This well-run company has plenty to offer shareholders over the long term without takeover disruption. The failed attempt may have a positive side, forcing the company to bolster shareholder returns, and target an increase in its relatively low 15% operating margins. Unilever doesn’t divide investors, unlike its best-known product Marmite. They either love it, or they love it.
