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Forget the State Pension or a Cash ISA! I’d live off these 10% dividend yields for my retirement

In a time of dividend cuts, I think these shares, with their 10% dividend yields, could provide vital income for those looking to fund retirement. 

Keeping the dividend and a 10% yield

There can be no doubt it’s been a tricky few years for FTSE 100 asset manager Standard Life Aberdeen (LSE: SLA). In 2018, the business was loss-making before leaping back into profit last year. Shareholders have been on a rollercoaster ride, which you might not expect from a mature business in a high-margin, stable industry.

So this isn’t the easiest share to live with. But would you expect it to be when it yields 10%? I’d argue not. The high yield is a sign that many investors are nervous about the business. Yet I’m optimistic.

The dividend has been held flat in the last year and is covered by earnings. It looks like management is keen not to cut it. So as long as the business doesn’t worsen from here, then investors should get income.

There’s the potential for future growth if the business recovers. But I think the main attraction is the dividend.

There are some glimmers of hope that this is happening. In 2019, gross inflows rose, as did earnings per share. The group is also keen to cut costs, which should drive value for shareholders in the long term.

Demand from China to keep dividends flowing 

Shares in miner Rio Tinto (LSE: RIO) look very cheap. They also offer a 10% dividend yield when special dividends are included. I expect the firm will be able to keep providing this high level of income for investors as long as there’s not a deep and prolonged recession following the Covid-19 outbreak.

The shares trade on a P/E of less than seven. Indicating that they can be picked up on a low multiple of earnings, which is good for investors.

Rio Tinto has experience of coming through difficult times, like when prices collapsed in 2015/16 when demand from key growth markets like China dried up. This led to a deep round of cost-cutting, which is likely to be of benefit to the business today.

With the Chinese economy now opening up again, and with lost ground to make up after factories shut down, iron ore demand could shoot up. As Rio’s main product, that could deliver a massive boost for the miner.

Before the shutdown, revenues from iron ore were soaring, driven by demand from China. This is why I’m confident in the outlook for the company.

Of course Rio is sensitive to commodity prices. But its strict control of costs and world-class mining assets give it better protection against fluctuating prices and the impact of coronavirus.

I think the income should be secure. Even if cut, it’s likely to remain at a high level of yield, which would also grow back over the coming years. I’d be inclined to invest now in order to generate income for retirement.

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Andy Ross 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.