Building a retirement stock portfolio can be a challenging process. You want stocks that can provide you with both regular income and a little bit of capital growth, but you need to be mindful of the risk you’re taking on. Retirement is not the time to be taking big risks with your money.
The good news for UK investors is that the FTSE 100 index contains a number of stocks that could be well suited to a retirement portfolio due to their defensive characteristics and reliable dividends. With that in mind, here’s a look at two FTSE 100 dividend stocks I’d be happy to buy for a retirement portfolio today.
One company that I believe could be a good pick for retiree investors is BAE Systems (LSE: BA), a multinational defence and security business that helps to protect national security and keep critical information and infrastructure secure. I realise that a defence company is not going to be everyone’s cup of tea, but from a retirement portfolio perspective, the stock offers considerable appeal, in my view.
For a start, with geopolitical uncertainty remaining high, earnings should be supported by government spending on security (both physical and cyber). In today’s volatile world, governments simply can’t afford to take security lightly. This should ensure that BAE can continue to generate solid returns for investors. Just recently, the group advised that it has an order backlog of £47bn, which suggests that demand for its products remains robust.
Secondly, BAE has considerable income appeal. Its yield is attractive at 4% and its dividend payout looks sustainable. Additionally, the company has now notched up 15 consecutive dividend increases, meaning the payout has grown significantly over time.
BAE is a stock I’ve been bullish on all year and while it’s had a good run in the last two months, I think it’s still cheap as its P/E ratio is just 12.4. Given this low valuation, and the attractive dividend yield on offer, I believe it’s a good time to be accumulating the stock.
Royal Dutch Shell
Another stock I’d be happy to pick up for a retirement portfolio today is oil giant Shell (LSE: RDSB). The largest company in the FTSE 100, it’s a favourite of institutional portfolio managers and private investors alike.
The thing to understand about Shell is that its share price can be a little volatile as it tends to rise and fall as oil prices fluctuate. For example, since late July, Shell’s share price has dipped from 2,600p to 2,300p as oil prices have declined. However, if you can ignore these fluctuations, Shell has the potential to be a cash cow for your portfolio. The stock offers a gigantic dividend yield of 6.7%, and the company has not cut its dividend since World War II.
Of course, with the world slowly moving away from oil, there’s a little uncertainty in relation to the long-term investment case here. However, Shell is actively taking steps to evolve and is currently exploring new opportunities in the renewables space through its ‘New Energies’ division. Given the company’s long-term track record, I’m backing it to evolve successfully over time. With the stock trading on a P/E ratio of around 10, I think it’s a good time to be building a position in the oil giant.
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Edward Sheldon owns shares in BAE Systems and Royal Dutch Shell. 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.