Most experts agree that the current State Pension, which stands at £8,546 per year is not enough for most people to live on comfortably.
So today, I’m looking at one stock that could help you top up the government payment and achieve a better standard of living in retirement.
Cash is king
2017 was a landmark year for the UK banking industry as card-based payments outstripped cash for the first time.
A total of 13.2bn card payments were made in 2017, compared to 13.1bn cash deals. The overall value of cash-based payments fell by 15% in total. Businesses and customers are adopting digital payments in their droves because of the ease and speed of card and contactless payment methods.
PayPoint (LSE: PAY) is one of the largest cashless payment processors in the UK, helping more than 28,000 retailers manage their cashless operations. The company operates ATMs, electronic point of sale systems, card payment processing and bill payment services.
Put simply, the group is more than just a payment processor, it is a bridge between the digital payment world and the real world.
Indeed, PayPoint’s bill payment services allow customers to pay bills (from utilities to local authorities, EE and TV Licensing) at their local convenience store, a vital service for the nearly three in 10 people over 65 who say they have never used a computer.
PayPoint provides a vital service for millions of people around the UK and it has built a hugely profitable business out of it.
Last year the firm reported an operating profit margin of 25% and a return on capital — a measure of profit for every £1 invested in the business — of just under 87%, which according to my figures makes it one of the most profitable companies listed on the London market.
As the company is positioned to profit from both cashless and cash transactions, I reckon demand for PayPoint’s services will only increase going forward as the number of cashless transactions continues to expand and people who can’t or won’t use digital payments make use of the firm’s bill payment service.
With this being the case, in my view, PayPoint is a fantastic investment to buy and hold until retirement. And the company’s market-beating profitability also makes it a top dividend candidate.
City analysts believe it will distribute a total of 75p per share for its current financial year, giving a dividend yield of 8.1%. A similar level of distribution is predicted for the following fiscal period.
Usually, when a dividend yield reaches the high-single-digits, it is a sign that the market believes the payout is not sustainable. However, in this case, I think investors have nothing to worry about because PayPoint’s balance sheet is stuffed full of cash (£46m at the end of fiscal 2018) and last year, operating cash flow covered the distribution 1.2 times.
So overall, I reckon PayPoint has all the makings of a great long-term income buy, with the potential to help you double your income in retirement.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of PayPoint. 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.