Anybody who’s relying on the State Pension to fund their retirement is heading for a massive shortfall. While the new full State Pension for a single person is a maximum £8,767 a year, the average single pensioner spends £13,265 a year, according to new research from Just Group, leaving them to make up the remaining £4,498. Couples spend on average £26,244, leaving a £8,710 shortfall.
One way you can plug the gap is to invest in top FTSE 100 stocks offering the winning combination of share price growth and dividend income. Here are two top names to consider.
The big banks have made a meal of recovering from the financial crisis, but Asia-focused HSBC Holdings (LSE: HSBA) is still a tempting long-term buy-and-hold, currently offering generous dividend income at a dirt-cheap valuation.
HSBC has huge exposure to China, the world’s second biggest economy, which is one of the things that makes it so attractive. Lately this has worked against it, due to Donald Trump’s trade war and protests in Hong Kong, but in the long run it remains a major plus. Earlier this month, it posted a 15.9% rise in first-half pre-tax profits to $12.41bn, driven by higher retail banking and Asia revenues, while announcing a further share buyback worth $1bn.
Today, the HSBC share price is yours at just 10.1 times forward earnings, lower than the FTSE 100 average valuation of 17.33 times, while a price-to-book value of 0.7 also attempts. The biggest prize is its yield, with a current forecast income of 7.2%, covered 1.3 times by earnings. That’s way above the index average of 4.3%.
HSBC has challenges, especially as concerns grow about the slowing global economy, while a low valuation and high income is par for the course in the banking sector these days, so you might also want to check out rival banking opportunities.
If you want an all-out stonking yield, then FTSE 100 tobacco group Imperial Brands (LSE: IMB) is currently offering a mind-boggling forecast yield of 10.1%. At that rate, you’ll double your money in a little over seven years, even if the share price doesn’t grow at all. Cover is reasonably solid at 1.4 times earnings.
The tobacco sector is going through a troubled time as smoking declines in the developed world, and regulators stamp down on industry saviours such as vaping and e-cigarettes, especially in the US. I don’t expect that to change – in fact, the more popular these alternatives become, the more aggressive regulators are likely to be. The proposed merger of US tobacco rivals Philip Morris and Altria has also worried some investors, as this will up competition.
However, Imperial Brands has a proud record of maintaining revenues despite industry volume declines, while management recently reaffirmed a 10% final dividend hike. It also said future policy would be more progressive with payouts growing annually and reflecting underlying performance. The £20bn group also announced another share buyback, this time worth up to £200m.
The Imperial Brands share price may have halved in the last three years but this now makes a tempting entry point, as you can buy it at just 7.3 times earnings.
The State Pension shortfall is likely to grow in the years ahead, but that will be less of a worry if your portfolio is crammed with stocks like these two.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings 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.