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Forget the cash ISA! 2 FTSE 100 dividend stocks I’d buy for retirement

After a hard day at work, it’s not always easy to find the time and energy needed to research new stock market investment opportunities.

That’s why I’m always on the lookout for shares I could buy today and hold until retirement. Today I’m going to take a look at two FTSE 100 income stocks I think could deliver the goods.

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A utility with growth prospects?

Utility stocks aren’t known for their growth. Indeed, recent years have seen some utilities struggle with falling profits and dividend cuts.

That’s not yet been the case with my first company, water utility Severn Trent (LSE: SVT). Alongside its regulated water and sewage treatment operations, this group has a growing non-regulated renewable energy business.

The Severn Trent Green Power business now includes anaerobic digestion plants, plus a number of wind turbines and solar sites. These assets aren’t generating much cash just yet. But over the longer term, I believe they could become a useful secondary source of income and growth.

The right time to buy?

Severn Trent’s core water and waste business appears to be performing quite well. Revenue rose by 3.6% to £881.5m during the first half of the year, while underlying operating profit climbed 4.3% to £299.1m. Earnings per share from continuing operations rose by 12% to 68.8p, thanks to a reduction in finance costs.

These figures suggest the group is on track to hit full-year forecasts for earnings of 134.5p per share, with a dividend of 93.1p. These figures put the shares on a forecast price/earnings ratio of 14.6 and a dividend yield of 4.75%.

I’d prefer to buy this stock when the yield is above 5%, to reflect the risks of higher interest rates and political interference. But overall, I think these shares could be a good retirement buy.

A business that won’t go away

One industry I expect to be going strong when I reach retirement age is packaging. One of the biggest players in the paper-based packaging sector is FTSE 100 firm Smurfit Kappa Group (LSE: SKG), which had sales of €8,562m in 2017.

Back in March, Dublin-based Smurfit received a takeover approach from US rival International Paper. The shares rocketed 30% to more than 3,100p, but in the end, the two firms failed to agree a deal. Smurfit’s stock has since fallen steadily and is now worth about 13% less than at the start of 2018.

I think this sell-off may have gone too far. The company’s valuation is starting to look quite tempting to me. One metric I like to use in these situations is earnings yield, which compares a company’s operating profit with its enterprise value (market cap + net debt).

I like earnings yield because it provides an indicator of the returns available to the owner of a company, excluding tax and finance costs. My sums show that at current levels, Smurfit has an earnings yield of 11.5%. That’s well above the 8% minimum I use when screening for potential investments.

Why I’d buy

Analysts expect earnings to rise by 52% to €2.83 per share this year, as organic growth, acquisitions and cost savings all contribute to rising profits.

These numbers put Smurfit Kappa shares on a 2018 forecast price/earnings ratio of 8.8, with a dividend yield of 3.8%. At this level, I’d rate the shares as a retirement buy.

Five Income Stocks For Retirement

Our top analysts have highlighted five shares in the FTSE 100 in our special free report "5 Shares To Retire On". To find out the names of the shares and the reasons behind their inclusion, simply click here to view it right away!

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.