If you are in your forties and suddenly realise that your savings account is looking worryingly low, you may be tempted to assume that – at this point – there is no point in even trying. Do not give in to this temptation.
It’s never too late to start saving and investing. The State Pension will net you just £168.60 a week, or just under £8,800 a year – hardly enough to live on. You will most likely need to supplement this pension somewhat.
Consistently investing part of your income into FTSE 100 dividend stocks can create a second income stream for you and your household. Let’s do some simple calculations to see how this works.
At age 45, you are 22 years away from the age when you start to receive the State Pension. By investing £5,000 a year (less than £100 a week) at an average annual interest rate of 5% – quite a modest estimate – and reinvesting all dividends, you can create a nest egg worth just under £216,780.
This means that you could double the amount you get from your State Pension for almost 25 years! Not bad for some minor sacrifices. Here are two FTSE 100 dividend stocks that I think are perfect candidates for your retirement portfolio.
Shares of British banking giant Lloyds Bank (LSE: LLOY) are currently trading at 57p a share and sport a dividend yield of 5.7%, which outstrips the FTSE 100’s average dividend yield of 4.3% by a healthy margin.
I think that shareholders of Lloyds have a lot to look forward to in the post-Brexit UK and with Prime Minister Boris Johnson commanding a very large Conservative majority.
Historically, Conservative governments have been very friendly towards finance and the City of London, and there’s no reason to expect this to change in the near future. True, there are still some headwinds up ahead relating to the Brexit process, but I think that this uncertainty is largely already priced in.
With an estimated price-to-earnings ratio of 7.7, Lloyds is also priced relatively cheaply for bargain hunter investors.
For investors looking for exposure to the UK property market, REIT (real estate investment trust) British Land (LSE: BLND) offers a good entry point. Shares are currently trading at 567p a share and come with a dividend yield of 5.7%. The company has responded well to secular trends in the British property market, pivoting away from retail and towards commercial property.
What’s more, shares of British Land are priced at a substantial discount to the value of the real assets of the business, trading at a price-to-book ratio of 0.7. Of course, there is always a reason for this kind of hesitation on the part of the market.
In this case, the discount represents concerns over long-term demand in Britain for office space. As previously mentioned, my expectation is that the current government will be extremely charitable towards big business, which should bode well for the demand for commercial property in the country in the near to mid term.
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Stepan Lavrouks owns no shares mentioned. The Motley Fool UK has recommended British Land Co and Lloyds Banking Group. 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.