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Forget the Marks and Spencer share price! This FTSE 100 stock yielding 6.7% could help you retire early

Founded in 1884, Marks and Spencer (LSE: MKS) has been a consistent cash cow for investors for decades. But today, the firm is struggling as it tries to adapt to the changing retail environment.

After shifting its focus away from clothing towards food, M&S is now more diversified, although this hasn’t helped it overcome the so-called “Amazon effect” low-cost online retailers are having on traditional brick & mortar stores.

Slow to adapt 

Without doubt, M&S has been slow to adapt as the world has changed around it. The company, which is perhaps best known for its clothing ranges, particularly womenswear, has been criticised for failing to keep up with the rest of the market by offering dated styles and maintaining its large stores. 

To try and entice more customers into stores, management has redeveloped the portfolio, adding cafes and devoting a chunk of floor space to selling food.

This strategy worked initially, but now it seems to be running out of momentum. Earlier this year, the company announced that, due to sliding sales and rising costs, 100 of its stores across the UK would be closed by 2020. The firm is also putting the brakes on the expansion of its Simply Food outlets, after a sudden slowdown in food sales.

This restructuring plan is the brainchild of retail veteran Archie Norman, who recently took over as M&S chairman. At the company’s 2018 AGM, Norman told investors that “results in the next two years are not the most important thing,” before going on to say: “We’re here to deliver a profitable growing business in five years’ time.

With this being the case, it looks to me as if shares in M&S are unlikely to produce attractive returns for investors in the near term. The dividend yield of 6.5% is attractive, but I’m concerned about the sustainability of the payout. If Norman’s turnaround doesn’t yield the desired results, M&S’s long-term future could be in jeopardy.

After considering all of the above, I would avoid M&S in favour of FTSE 100 dividend champion Rio Tinto (LSE: RIO).

Cash cow 

Unlike M&S, Rio has proven to investors over the past five years that it can adapt to whatever the market throws at it. 

When commodity prices slumped in 2015, the company acted quickly to slash costs, reduce debt and re-evaluate its operations. As iron ore prices have recovered, the company is now in a stronger position than it has ever been before. 

And as growth has returned, management has ramped up shareholder returns. Last year, the company paid a total dividend of $3 per share to investors, giving a dividend yield of 6.7%. 

Based on the firm’s first-half numbers for 2018, I believe it’s on track to repeat this performance. Indeed, at the end of July, Rio reported a 12% increase in first-half profit to $4.4bn, up from $3.9bn the year before. Off the back of these figures, the company announced a record first-half dividend of $1.27 and added $1bn to its share buyback allowance.

Overall, looking at Rio’s future dividend potential, I believe the miner could be a great addition to your retirement portfolio.

Buy-And-Hold Investing

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Rupert Hargreaves owns no share mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. 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.