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Forget the State Pension: AstraZeneca could help you to enjoy a prosperous retirement

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Next year could be a game changer for pharmaceutical stock AstraZeneca (LSE: AZN). The company is expected to deliver double-digit earnings growth for the first time in over five years. This is expected to lead to dividend growth, which could make it a worthwhile income investment at the present time.

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Improving performance

That company is chilled dairy foods firm Dairy Crest (LSE: DCG). The performance of the business in the first quarter of the year has been in line with expectations, and shows that it is on track to meet guidance for the full year.

Combined sales of the company’s four key brands was 6% up on the previous year. This was boosted by the ongoing performance of its two largest brands, Cathedral City and Clover, which each delivered revenue growth of 10%. The performance of the spreads portfolio was also strong, while its Functional Ingredients business is becoming more established and is seeing its customer base grow.

With Dairy Crest having a dividend yield of around 5% from a payout that is covered 1.5 times by profit, its income prospects appear to be positive. Furthermore, a price-to-earnings (P/E) ratio of around 14 suggests that there could be a margin of safety on offer. As such, now could be the perfect time to buy the stock as it appears to offer a mix of value and income potential at the present time.

Turnaround prospects

As mentioned, AstraZeneca’s financial performance is expected to improve dramatically over the medium term. It has been hit hard by patent losses on key blockbuster drugs in the last few years, and this has caused its bottom line to come under severe pressure. Now, though, the stock is expected to report a rise in earnings of 12% next year, which could help to boost investor sentiment.

With AstraZeneca forecast to grow its dividend by less than 1% next year, it may seem as though growth here could be limited after what has been a tough period for the company. However, with dividends covered 1.4 times by profit, there could be relatively high rises in shareholder payouts over the medium term. In fact, it would be unsurprising for them to rise at a similar pace to profit growth, given the financial strength of the business.

While there’s still some way to go before the stock has successfully stepped away its patent cliff edge, it seems to be heading towards that goal. While the past few years have been tough on its investors, the pharma stock now seems to have a bright future. It could therefore offer an impressive income outlook over the long term.

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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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