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No savings at 40? These FTSE 100 dividend stocks could help you retire early

It is never too late to start saving for retirement. If you have reached 40 years of age without any pension savings, then now is the time to start putting money away for the future.

One stock I think would be a great addition to any retirement portfolio is pensions and insurance group Aviva (LSE: AV).

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Time to buy 

Over the past year, investors have given this business a wide berth. The stock is down around 3% over the past 12 months. 

As my Foolish colleague Andy Ross recently explained, a lack of strategy seems to be the main reason why investors are avoiding the business.

On top of this, Aviva isn’t the most exciting business in the world, and earnings have only grown at a rate of 3.8% per annum over the past six years. The firm was also without a CEO last year after its previous manager left the business following a botched attempt to redeem the company’s preference shares.

Still, where Aviva excels is its dividend yield. At the time of writing, the stock supports a yield of 7.6%, nearly double the market average. The payout is covered 1.9 times by earnings per share, so it looks as if the company can certainly afford the distribution based on these figures. Also, at the end of 2018, Aviva reported a solvency cover ratio — a measure of insurers’ balance sheet strength — of 204%.

With this level of income on offer, assuming earnings grow at a rate equal to or slightly above inflation for the foreseeable future, there’s a good chance the stock could return 10% or more per annum going forward.

At that rate of return, my figures suggest that it is possible to accumulate a pension pot worth half a million pounds in just 20 years with a monthly contribution of £700.

Cash cow 

The other stock that I think could help you retire early is British American Tobacco (LSE: BATS). Once again, this is a company investors have been avoiding over the past 12 months.

The stock is down around a third, excluding dividends, in 2019. The market seems to be worried about British American’s growth prospects. However, the City is not. In the past six months alone, analysts have increased their growth forecasts for the company by around 3% for 2019. Overall, they are forecasting earnings growth for 2019 of 13%.

Despite this growth target, shares in the company are currently changing hands at a forward P/E of just 8.5, compared to the five-year average of 15. There’s also a 7.8% dividend yield on offer.

If confidence returns and shares in British American return to their historical average multiple, there’s a good chance the stock could rise by more 75% from current levels. When you add in the dividend yield as well, this suggests a total potential return of 83%. Even if this does not happen, I do not think it is unreasonable to suggest that the stock could return 10% per annum going forward through a combination of capital growth and income. 

On that basis, when combined with Aviva in a portfolio, I think British American could help turbocharge your investment returns and help you quit the rat race before the official State Pension age.

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Rupert Hargreaves owns no share mentioned. 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.