If you’ve turned 50 and haven’t got much pension savings then don’t panic, it’s not the end of the world. You must take action now, though. These two FTSE 100 dividend stocks could help you make up for lost time to build a decent pension nest egg by the time you retire.
Insurance giant Prudential (LSE: PRU) is one of my most successful stock trades, doubling my money in just a few years. I took my profits four or five years ago, and got my timing right, because its stock has idled since then.
This leaves the Prudential share price trading at a bargain valuation of just 8.8 times earnings, less than half the average valuation across the FTSE 100, which is currently 18 times earnings.
Now is a tempting entry point but why has the Prudential dipped like that? A key (and innocent) reason is that it recently peeled off its fund management arm, M&G, into a new business, a split that led to an instant 10% drop in the Pru’s share price.
Slimmed down Prudential has massive growth potential, as it looks to build on its strong position in emerging markets and Asia, where the fast-growing middle class population does not have state benefits to fall back on, and needs to buy its own pension and protection products. This gives the £36bn group a huge market to go for, and it recently struck a new deal to sell life insurance to customers of Vietnam’s Southeast Asia Commercial Joint Stock Bank.
Prudential currently yields income of 3.6% a year but dividends should continue to increase steadily, with earnings expected to rise 7% this year, then another 7% in 2021. Asia looks set to grow at a faster pace than the West. The Pru could be a good way to play that opportunity.
Phoenix Group Holdings
Phoenix Group Holdings (LSE: PHNX) is one of the unsung dividend champions of the FTSE 100. The £5.55bn group is a closed life assurance fund consolidator, which means it buys up life and pension funds that other insurers have closed to new business, and continues to run them for policyholders.
This means it does not have to spend any money marketing its services to new customers, but can focus its efforts on quietly managing existing funds, while using its size to cut costs and boost efficiencies.
This is a steady, conservative business whose main attraction is the regular stream of dividend income you should receive, which you can reinvest back into the stock to build your pension wealth, then take as income after you retire. Phoenix offers an attractive current yield of 6.2%, comfortably above the FTSE 100 average of 4.3%.
Investors have enjoyed share price growth as well, with the stock up 20% over the last year. Despite this, the Phoenix share price isn’t expensive, trading at 11.4 times earnings.
Combined or individually, stocks like these two could set you on the way to building the pension you need in retirement.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. 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.