With the State Pension currently amounting to just £731 per month, it is unlikely to provide financial freedom for most retirees.
As such, investing in FTSE 100 dividend shares could be a means of building a nest egg from which you can draw a passive income in older age.
With that in mind, here are two FTSE 100 stocks that offer high yields today, but also the potential to increase dividends at a brisk pace over the coming years to improve your financial situation in retirement.
The recent trading update released by housebuilder Taylor Wimpey (LSE: TW) confirmed that its 2019 financial performance was in line with expectations. This is highly encouraging for investors, since political and economic uncertainty dominated much of the financial year.
Despite this, demand for new homes has been high according to the company’s recent updates. With government plans to help first-time buyers onto the property ladder expected to continue over the coming years, the company may be able to generate further net profit growth as low interest rates and a low supply of property contribute to resilient operating conditions for the sector.
Taylor Wimpey is forecast to yield 8.4% in 2020. This has fallen considerably from a double-digit figure in 2019 due to the stock’s price rise. However, it is still almost twice the FTSE 100’s dividend yield. It suggests that the housebuilder offers a strong income investing outlook, and that its shares could be undervalued at the present time.
As such, now could be an opportune moment to buy a slice of the stock. It faces an uncertain outlook, like much of the UK economy, but its low valuation, high yield and solid operating conditions could combine to deliver high total returns for its investors.
Legal & General
The most recent half-year results from Legal & General (LSE: LGEN) highlighted its continued strong financial performance. Its five operating segments delivered robust performances and contributed to a rise in net profit of 13% for the wider business.
The company highlighted the strong long-term growth potential of its various business units in its results. This suggests that investor sentiment could improve over the coming years as Legal & General maximises its potential in a range of markets and geographies.
The stock currently has a dividend yield of 6% from a shareholder payout that is covered 1.7 times by net profit. This shows that there is an ample amount of headroom when making its dividend payments, while forecast profit growth in the current year means that the business could deliver an above-inflation rise in shareholder payouts over the long run.
Since the stock trades on a price-to-earnings (P/E) ratio of just 9.8, it seems to offer good value for money. As such, its capital growth potential and its income investing prospects seem to be encouraging at the present time.
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Peter Stephens owns shares of Legal & General Group and Taylor Wimpey. 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.