Searching for income stocks to help fund your retirement isn’t always easy. So many companies seem to come unstuck at some point, leaving shareholders out of pocket, and facing a brutal pay cut.
Of course, dividend cuts will always happen. But with careful stock selection, I think investors can minimise their chances of income losses. Today, I’m going to look at two stocks which I think could be lifetime income buys.
The dividend hasn’t been cut since WWII
Oil and gas giant Royal Dutch Shell (LSE: RDSB) needs no introduction. But you may not realise that this FTSE 100 firm hasn’t cut its dividend since the Second World War. That’s an outstanding record that very few companies — or investment funds — can match.
Although I’m concerned about climate change, I don’t expect oil and gas consumption to collapse in the near future. What’s more, even if there’s a long-term decline, I believe Shell would be able to adjust its business to focus on cash generation and perhaps renewables.
The group’s large assets tend to have high development costs, but lower operating costs. I would expect that by cutting investment in new projects, management could run the business for cash for many years, funding generous shareholder returns.
The right time to buy?
Shell’s share price is no longer trading at the bargain levels seen during the oil market crash in 2016. But I don’t think the shares are expensive.
Analysts expect the group to report earnings of $2.72 per share for 2018, climbing by 19% to $3.23 per share in 2019. These projections put the stock on a 2018 forecast P/E of 12, falling to a P/E of 10 for 2019.
The stock offers a dividend yield of 5.7%. Earnings cover for the payout is improving, and a dividend hike may soon be possible. I rate Shell as an income buy.
This firm could be dividend royalty
My second pick today also has a distinguished dividend history. FTSE 100 wealth management group St James’s Place (LSE: STJ) has not cut its payout since 1998.
This firm uses a network of self-employed financial advisers to generate business for its retirement savings products.
In a trading statement today, St James’s said that net inflows of £7.7bn during first nine months of 2018 had lifted group funds under management to a record £100bn.
Many of the firm’s rivals have seen outflows in recent months, so this strong performance is particularly notable. According to chief executive Andrew Croft, one reason for the firm’s success is “strong retention” — customers tend to stay with the firm once they’ve signed up.
This may be one benefit of the group’s sales model. I suspect, however, online customers are less loyal, but those who deal directly with a financial adviser may feel less inclined to move.
The right time to buy?
The firm’s business model means that cash generation tends to be quite strong, while costs are limited.
The group’s underlying cash result, a post-tax measure of money available for dividends, was £281m last year. This provided comfortable cover for the dividend, which totalled about £227m.
St James’s Place currently offers a forecast dividend yield of 5%. Given the group’s strong track record, I’d be a buyer at this level.
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.