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2 growth and dividend stocks I’d pick to help me beat the State Pension

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The meagre UK State Pension will only go a small way towards keeping us fed, clothed and happy in our old age, so we need more in the shape of company pensions and private investments.

That raises the age-old question of whether to go for stocks that are likely to provide capital growth, or those which provide a steady dividend income stream. If you’re still investing and not yet drawing your pension, I really don’t think it makes any difference — your total return is what you get, whichever way.

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A growth trust

I’m a big fan of investment trusts for providing retirement wealth, as they’re a way of offering pooled investments where there is no conflict of interest between retail customers and shareholders — because they are one and the same.

Alliance Trust (LSE: ATST) is one I like, especially after a 60% share price rise over the past five years — a period in which the FTSE 100 managed less than 25%. With dividends, the Footsie still handsomely beat a cash ISA, but the Alliance Trust performance is significantly better.

On Monday, it announced the sale of its Alliance Trust Savings (ATS) subsidiary to Interactive Investor for £40m. Its part of the trust’s plans to focus on its global equity portfolio, and, in the words of chairman Lord Smith of Kelvin: “ATS customers, many of whom are Alliance Trust shareholders, will benefit from Interactive Investor’s similar low flat-fee structure, as well as its increased scale and focus.”

Alliance Trust has also been paying progressive dividends, keeping its annual rises ahead of inflation, and that’s something else that I like to see. Although yields are relatively low at around 2%, dividend growth in real-terms can make a significant contribution to your final retirement pot.

Defensive dividends

If you don’t need to spend your dividends right now, you can boost your total retirement capital by reinvesting them in more shares, and I see a tempting dividend prospect in QinetiQ Group (LSE: QQ).

The defence and security specialist has been making some canny acquisitions of late, including the takeover of E.I.S. Aircraft Operations which completed earlier this month. E.I.S. provides airborne training services, and it looks like a good fit for the company to me.

The latest buy, announced Monday, is the acquisition of an 85% stake in Inzpire Group Limited, with an agreement for the remaining 15% after two years.

Inzpire also appears to fit in nicely with QinetiQ’s portfolio of services, with QinetiQ describing the company as “a leading provider of operational training and mission systems for military customers in the UK and internationally.”

Solid returns

The defence business has been in a bit of a squeeze in recent years, but it’s coming out of it, and QinetiQ has been managing to keep its dividend growing well ahead of inflation. In the four years from March 2014 to 2018, the dividend has been lifted by 37%, from 4.6p per share to 6.3p — and forecasts suggest a further 9% over the next two years.

And over the past five years, the share price has put on 38% (even if a bit erratically), providing a tasty overall return — especially for those future pensioners who bought new shares with their dividend cash.

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Alan Oscroft 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.

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