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Thinking of relying on the State Pension in retirement? I’d rather buy the SSE share price

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Being an investor in SSE (LSE: SSE) has been especially tough over the last year. Continued uncertainty from a regulatory and political perspective, alongside changes being made to the company’s business model, have led to disappointing performance.

However, this now means the stock could offer good value for money. In fact, investors may now have priced in many of the risks it faces. This could make it worth buying alongside another cheap share that released results on Tuesday. Within a diversified portfolio, they could both help investors to overcome what may prove to be an inadequate State Pension in retirement.

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Margin of safety

The other stock releasing results on Tuesday was manufacturer and distributor of LED lighting products Luceco (LSE: LUCE). Its 2018 results showed its second half performance improved after a challenging first half. It was able to shift its focus towards higher margin sales, while making changes to its pricing and reductions in its overheads. It remains confident it will be able to return to previous levels of margins over the long run.

Net debt was also reduced during the period by 13.4%. It expects to make further progress in this regard in the current year, providing it with a more solid platform for future growth.

In the current year, Luceco is forecast to post a rise in earnings of 25%. Despite this forecast return to growth, it trades on a price-to-earnings growth (PEG) ratio of just 0.4. This suggests it offers a wide margin of safety and could generate improving returns in the long run.

Low valuation

As mentioned, SSE is making significant changes to its business model at present. The company is seeking to offload its energy supply division, which could be a sound move due to the political and regulatory risks it faces. It would also leave the company as a more focused renewable energy business. This sector could enjoy strong growth in the long run, with there being a general political consensus towards a greener future for the UK economy.

Having experienced a challenging year that has seen its share price fall by around 12%, SSE now trades on a price-to-earnings (P/E) ratio of around 9.6 As well as a low valuation, it has an ambitious dividend growth plan over the next five years that could mean shareholder payouts increasing by more than inflation. Since it already yields 7.3%, this could make it an enticing income share over the next few years.

Certainly, there are more popular shares in the FTSE 100 at the present time. But from an income and value investing perspective, SSE appears to be attractive. It could therefore help to boost the continued low payments from the State Pension in retirement when part of a diversified portfolio of shares.

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Peter Stephens owns shares of SSE. 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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