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No savings at 40? 2 top FTSE 100 stocks I’d buy for early retirement

If you’ve reached 40 with no savings, it’s not too late to start building a stock portfolio that could help you retire early.

What’s important at this stage is to start putting as much cash away as possible so that you can benefit from growth and reinvested dividends over the coming years.

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In this article I’m going to look at two FTSE 100 dividend stocks I’d buy today to help build a retirement fund. In my view, both of these companies trade at attractively low valuations. I believe that both are good businesses that should deliver above-average returns in the coming years. This could help you take the first steps on the road to early retirement.

On the cusp of a turnaround

Television group ITV (LSE: ITV) has been out of favour for the last few years, as investors have worried about the company’s ability to adapt to the growth of on-demand TV. I think this difficult period may be nearing an end.

Chief executive Carolyn McCall is driving through a turnaround programme that’s delivering strong growth in online revenue and positioning the group to deliver a larger proportion of its programming through the ITV Hub app.

Alongside this, the ITV Studios business — which produces programmes for ITV and other companies such as the BBC and Netflix — is continuing to grow. ITV now generates about one third of its profits from programme production, rather than from commercial broadcasting.

Profits have fallen in recent years. But this remains a very profitable business, with an operating margin of about 18% and strong cash generation. With the shares trading on 10 times forecast earnings and offering a dividend yield of 6%, I believe ITV is likely to outperform the market from current levels.

Boring but brilliant

The next stock on my list is FTSE 100 packaging group DS Smith (LSE: SMDS). This firm recently sold its plastic packaging business, leaving it focused solely on cardboard-based packaging.

In my view, this recyclable packaging is a far more attractive business to be in at the moment, given environmental concerns over plastic. DS Smith’s service to its large clients includes collection and recycling — the vast majority of the fibre used in its products has been recycled more than once already.

The group’s customers include supermarkets, consumer goods firms and online retailers. These are all areas where I believe packaging will remain essential and be subject to increasingly tough recycling requirements.

DS Smith is well positioned to satisfy this demand across Europe and is expanding into the US market. Recent acquisitions appear to have been well-judged and successfully integrated. According to a recent update, performance remains in line with expectations.

The group’s earnings have risen by an average of about 14% per year since 2014, while the dividend has increased by an average of 12% per year.

With the shares trading on about 10 times forecast earnings and offering a yield of 4.6%, I continue to rate DS Smith as a good long-term buy.

A top income share with a juicy 6% forecast dividend yield

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But here’s the really exciting part…

Our analyst is predicting there’s potential for this company’s market value to soar by at least 50% over the next few years...

He even anticipates that the dividend could grow nicely too — as this much-loved household brand continues to rapidly expand its online business — and reinvent itself for the digital age.

With shares still changing hands at what he believes is an undemanding valuation, now could be the ideal time for patient, income-seeking investors to start building a long-term holding.

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Roland Head owns shares of DS Smith and ITV. The Motley Fool UK has recommended DS Smith and ITV. 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.