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Forget the State Pension: these FTSE 250 dividend stocks could help you retire in comfort

The age of retirement is creeping ever higher. And government spending seems likely to remain under pressure. I’m not convinced that the State Pension will still be around in its present form when I reach retirement age.

In my view, it makes sense for investors to focus on building their own long-term income machines. So today I’m looking at two stocks with asset portfolios that could provide reliable dividends over many years.

A strong turnaround

First up is construction and infrastructure group Balfour Beatty (LSE: BBY). I admit that a business involved in construction wouldn’t normally be a good choice for long-term investors. But hear me out.

The group’s turnaround under chief executive Leo Quinn is going very well. Half-year accounts published on Wednesday showed the group’s underlying pre-tax profit for the period rose by 126% to £52m.

Cash generation — a key test for businesses of this type — has also improved. The firm reported average net cash of £161m during the first half of this year, compared to £45m during the same period last year.

Looking ahead, the outlook is bright. The troubled Aberdeen ring road contract should be completed later this year. And Balfour boasted an order book of £12.6bn at the end of June, up from £11.4bn at the end of 2017.

This is the interesting bit

Mr Quinn says that the construction and services business’s profit margins are now largely in line with industry norms. The problem is that these are very low — typically 1%-3% for construction.

This type of high-cost, low-margin business doesn’t really appeal to me. But what does interest me is that Balfour Beatty often also takes an equity stake in the projects on which it works.

This has left the company with a £1.2bn portfolio of infrastructure assets. This provides both income and capital gains. For example, the group sold a 12.5% stake in the company which operates and maintains the M25 during the first half, raising £108m and generating an accounting profit of £22m.

With careful management, this portfolio could continue to provide reliable profits for many years to come.

Why bother with construction?

Balfour Beatty trades on a 2018 forecast P/E of 15.7 with a dividend yield of 1.9%. This doesn’t seem a very attractive entry point to me, especially given the low-margin nature of the construction business.

Personally, I’d rather own the group’s asset portfolio without its construction business. So I’d like to suggest a possible alternative.

Don’t build, own

John Laing Group (LSE: JLG) has an asset portfolio similar to that of Balfour Beatty. Its investments in the US and Europe include renewable energy projects, roads and schools.

Happily, John Laing doesn’t get involved in the risky and low-margin business of construction. Instead, this FTSE 250 asset manager simply invests in major infrastructure projects, either during construction or after they’re complete.

Performance has been good since the firm floated in 2015. Dividends have risen from 5.3p per share in 2015 to a forecast total of 9.1p per share this year. And the shares have risen by about 65%.

The stock currently trades at about 290p, which is slightly below the group’s last reported net asset value of 306p per share. At this level, John Laing has a forecast dividend yield of 3.1%.

I’d prefer to see a bigger discount, but I’d still rate this stock as a long-term income buy at this level.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.