With the State Pension age expected to rise to 68 in the coming decades, the prospect of retiring early may seem to be slipping away from many people.
In fact, increasing life expectancy and an ageing population could mean that the State Pension becomes increasingly unaffordable in its current form. As such, relying on it to fund your retirement may become a less realistic prospect over the long run.
While this may be disappointing, obtaining a passive income in older age through the purchase of FTSE 100 dividend shares could be a solution. The index currently offers a relatively high income return, with these two stocks being among the highest-yielding companies in the index at the present time.
While the UK commercial property sector is experiencing a challenging period at the present time, British Land’s (LSE: BLND) strategy could provide it with long-term growth potential.
The real estate investment trust (REIT) is pivoting away from its retail portfolio, investing in areas such as flexible workspace and build-to-rent. They are expected to experience increasing demand over the long run, which could strengthen the company’s ability to pay a rising dividend.
With a yield of 6.6%, British Land’s income return is fairly high relative to its historic levels. While this is to be expected due to the potential for falling property prices as the UK economy undergoes a period of significant change, the stock currently trades over 40% below its net asset value. This indicates that investors are pricing in the prospect of a property downturn, which suggests there is a wide margin of safety on offer for new investors.
Also undergoing a period of change at the present time is Imperial Brands (LSE: IMB). It is pivoting towards next-generation products such as e-cigarettes at a time when demand for tobacco products such as cigarettes is declining.
This may cause a degree of disruption in the short run for the business, with investors currently adopting a cautious stance towards the stock. For example, it trades on a price-to-earnings (P/E) ratio of under 8. This is historically low for the business. With it forecast to post positive earnings growth in the current year, it could offer good value for money.
Imperial brands currently has a dividend yield of just under 10%. While dividend growth may be more modest in future due to it experiencing a period of change that may require further investment, demand for next-generation products is expected to be high in the long run.
As such, investors in the stock may enjoy a high income return today, as well as the potential for growth as the business adapts to changing consumer tastes. This could lead to high total returns that reduce your reliance on the State Pension.
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Peter Stephens owns shares of British Land Co and Imperial Brands. The Motley Fool UK has recommended British Land Co and Imperial Brands. 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.