If you’re reading this article, then you’re one step closer to enjoying a comfortable retirement income — even if you’re already 60. By building a portfolio of the best dividend stocks in the market, I’m confident you can generate a reliable 5%+ income that will grow over time.
In this piece I want to look at two high-yield dividend stocks I’d buy for income today. Naturally, I’d hold them in a Stocks and Shares ISA so that all future income and capital gains will be tax-free.
The FTSE 100’s best dividend stock?
Shares in Cardiff-based motor insurer Admiral Group (LSE: ADM) have risen by 22% over the last year. The FTSE 100 index to which it belongs has fallen by 20% over the same period.
Admiral has an excellent reputation among investors, thanks to its history of strong returns. But the company seems to be popular with employees too — it’s been named as one of Sunday Times Best Companies To Work For every year since 2001.
Another thing that makes Admiral a little different is its ownership. The firm’s largest shareholder is its longstanding reinsurance partner Munich Re. The German insurance giant owns 10% of Admiral.
Next on the shareholder list is founder and former chief executive Henry Engelhardt, with about 9.5%. Current CEO and co-founder David Stevens owns 2.9%. Meanwhile, all staff at Admiral receive free shares twice a year after their first year.
This ownership structure suggests to me that Admiral is a business where staff, key leaders and commercial partners all have a real stake in the business.
What about that dividend?
Admiral’s insurance model means that the company normally pays out more than 90% of its earnings as dividends.
The way in which the payout is calculated means that the total dividend doesn’t always rise every year. Personally, I don’t mind this. This policy ensures that the payout remains sustainable, which I reckon is more important.
In any case, Admiral’s dividend has always risen over time. Last year’s dividend of 140p per share was more than double the 62p per share payment shareholders received in 2010.
I think Admiral is one of the best dividend stocks in the FTSE 100. With a 5.5% yield on offer for investors buying today, I think this stock could be a good fit for a retirement portfolio.
Protect yourself from the next stock market crash
My next pick has also outperformed the market this year. Shares in online financial trading firm IG Group Holdings (LSE: IGG) have risen by 10% so far this year and are up by 40% from their March lows.
The reason for this is that IG’s customers trade more in volatile markets. The stock market crash and the recovery that’s followed have created excellent conditions for these traders. As a shareholder, this is a big attraction for me. I know that when the market is crashing, IG will be doing well.
IG Group is the largest UK firm operating in this sector, with a market cap of around £2.9bn. Although growth has been weak in recent years, the firm is being revived under new management.
I rate IG as one of the best dividend stocks in the FTSE 250, thanks to its high profit margins and strong cash generation. As I write, the shares trade on 15 times forecast earnings, with a dividend yield of 5.6%. I’d keep buying IG.
Roland Head owns shares of IG Group Holdings. The Motley Fool UK has recommended Admiral 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.