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Have £5k to spend on your ISA? 2 dividend yields of 5% I’d buy to retire on

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Putting your money a Stocks and Shares ISA is a great way to invest for your retirement. And I think packing it with solid dividend shares is a great strategy.

A stock market investment should always be for the long term, and you can’t get much more long term than retirement, right?

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United Utilities (LSE: UU) offers a combination of very attractive characteristics, in my view. As a water management company, it provides essential services. And that gives it a desirable defensive edge, which shows in the 2020 share price performance. While the FTSE 100 is now down 22% so far this year, United shares have lost only a modest 8.5%.

Over five years, the share price has been largely flat, so it’s perhaps not one for growth investors. But dividends have been stable and progressive, and forecasts for 2020 suggest a tasty yield of 5%.

Dividend stability

A first-half trading update Thursday was nicely boring. It told us that everything is going according to expectations. So that full-year outlook is probably about right.

The company is in a regulated industry, which means it doesn’t have quite the same freedoms as it would in a completely free market. But that does help provide long-term visibility, and it means the dividend can be maximised with relatively little risk.

ISA investors who have held United Utilities shares over the past decade have done well on the dividend front. And for a retirement ISA focused mainly on income stability, I think United Utilities is hard to beat.

Another ISA candidate

GlaxoSmithKline (LSE: GSK) shares have not held up as well as we might have expected in 2020, with such a keen focus on pharmaceuticals companies. In the early days of the pandemic lockdown, the Glaxo price was a good bit more resilient than the FTSE 100. And it recovered its relatively modest fall pretty quickly.

But the shares have been sliding again, and we’re now looking at a year-to-date drop of 17%. Against that 22% fall for the index, I consider it a surprisingly poor performance. But in my books, the share price weakness makes for an even more attractive ISA dividend investment.

GlaxoSmithKline is big in the vaccine development business. It has fingers in the oncology and HIV pies too, among a wide range of areas with serious long-term cash-generation prospects.

Low share price valuation

With the GlaxoSmithKline share price having fallen, forecasts now suggest a year-end P/E of 13. To me, that seems way too cheap for a company with such positive long-term earnings potential. Oh, and I almost forgot the dividend, which I rate as the stock’s main attraction.

Glaxo has maintained its dividend for the past few years while its pipeline development works through to expected earnings growth. So there haven’t been any progressive rises for a little while. But the predicted yield is still at 5.2%, which has got to be one of the most attractive in the Footsie at the moment.

For a retirement portfolio, I’d stash away both of these in an ISA right now.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. 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.

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