The Motley Fool

Could Standard Life Aberdeen boost your retirement income as the State Pension age rises?

As the State Pension amounts to just £164 per week and the age at which it is paid is set to increase, shares such as Standard Life Aberdeen (LSE: SLA) could become increasingly popular. The asset management company offers a relatively high yield, as well as capital growth potential. As such, it could produce strong total returns over the long run which help investors to overcome the challenges posed by a State Pension that is becoming less appealing.

Of course, it’s not the only stock which could generate impressive returns in the coming years. Reporting on Wednesday was a FTSE 250 share which seems to have an improving outlook in my opinion.

Impressive performance

The company in question is transport business Stagecoach (LSE: SGC). Its first-half results were ahead of expectations, with its share price gaining around 9% following the release. It benefitted from strong profitability in the Virgin Rail Group, while it was able to reach a positive resolution of contractual matters for the former South West Trains franchise. Its adjusted earnings per share of 12.9p was better than market forecasts, while its performance for the full year is expected to factor in the strong first-half period.

With Stagecoach having a dividend yield of 4.8% from a dividend which is covered 2.2 times by profit, it seems to be in a good position to deliver improving income returns in the long run. Although there is still work to be done on successfully implementing its strategy and its earnings growth forecasts for the next couple of years are somewhat disappointing, its long-term total return potential seems to be impressive. A price-to-earnings (P/E) ratio of 9.3 indicates that the stock includes a wide margin of safety. As such, now could be the right time to buy it.

Recovery stock

When Standard Life Aberdeen contemplated its merger, it probably had higher hopes for how it would turn out in the first year than has been the case. The stock has dropped in price by 47% in the last 12 months, with investors seemingly unimpressed with its operational and financial performance thus far as a combined entity. In the current year, for example, a 23% decline in net profit is expected as customer losses and a restructuring weigh on its financial outlook.

Investors, though, appear to have factored in potential challenges for the stock. Standard Life Aberdeen has a P/E ratio of just 10, which is relatively low compared to its industry peers. It also offers a dividend yield of over 9% at the present time. Although its dividend cover is expected to be just 1.1 in the current year, earnings growth of 9% are forecast for next year. This could help to improve its dividend affordability and provide investor sentiment with a potential catalyst. As a result, the stock seems to offer turnaround potential and could deliver improving long-term performance after a challenging period.

You Really Could Make A Million

Of course, picking the right shares and the strategy to be successful in the stock market isn't easy. But you can get ahead of the herd by reading the Motley Fool's FREE guide, "10 Steps To Making A Million In The Market".

The Motley Fool's experts show how a seven-figure-sum stock portfolio is within the reach of many ordinary investors in this straightforward step-by-step guide. Simply click here for your free copy.

Peter Stephens owns shares of Standard Life Aberdeen. The Motley Fool UK has recommended Standard Life Aberdeen. 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.