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Dividend paying investments could be the key to a profitable retirement

30th June 2017 Print

Graham Spooner, investment research analyst at The Share Centre, provides some dividend paying investments that could be suitable for longer-term SIPP investors:

“Savers who wish to build a bigger nest egg have a number of options. For those that want to combine the tax advantages of a pension while also being able to select their own investments, a Self-Invested Personal Pension, or ‘SIPP’, could be a suitable option.

“This type of pension account allows investors to take control of their retirement pot in order to help maximise returns and cut costs.

“A wide range of investments can be added to a SIPP, including individual company shares, unit trusts, investment trusts, exchange traded funds, gilts and corporate bonds, commercial property and cash. With such a big selection, choosing investments can be a daunting task.

“When considering investments for a pension, it is important to consider the time frame that you are investing over. Naturally, with this type of account, we can assume that most will be investing over the longer term. With this in mind, it is of my opinion that opting for investments that have attractive yields or track record of dividend growth could comfort longer term investors that they are getting value for money.

“From an equity point of view, there are a number of companies  that I think fit perfectly into this bracket. As a starting point, GlaxoSmithKline is definitely one for investors to consider. This is a research based pharmaceutical company that produces and develops vaccines, prescription and over the counter medicines, as well as health related consumer products and therefore has products that are unlikely to be going out of demand. As well as its defensive characteristics, Glaxo is very cash generative and is committed to using this towards increasing dividends, share buybacks and bolt-on acquisitions. The dividend yield which is currently in the region of 4.8% should prove attractive to longer-term investors.

“Other companies worth bearing in mind due to their reputable history of dividend growth include National Grid and Unilever.

“Regulated power and gas distribution group National Grid is the operator of the UK high-voltage electricity network and the high-pressure gas distribution system and it has additional operations in the US.  We have long been fans of the group for income seekers and the improving progress as well as the benefits it is getting from the weakness in sterling only strengthens this support. Investors should appreciate that this is a company that has been a consistent dividend payer, with an attractive dividend yield of around 4.5%. Furthermore, the dividend is due to grow by at least in line with inflation.

“The manufacturer of household brands including Dove, Flora, Ben & Jerry's, Knorr and PG Tips, Unilever has a good defensive appeal for investors seeking income and growth as sales of everyday, essential household goods, which tend to not be significantly affected by changes in background economic circumstances. Moreover, the large and diverse range of well-known global brands provides a solid foundation for sales and earnings growth. The group is currently implementing a new strategy that aims to improve sales growth, lowering costs and increasing returns to shareholders through raised dividends. The shares have a prospective yield of 3.2% and investors should appreciate that dividends will rise 12% in the current year and are then expected to increase well ahead of inflation in the following year.

“For investors wanting to branch out and away from individual equities, considering an investment trust like the City of London Investment Trust could be of use.The company’s objective is to provide long-term growth in income and capital, principally by investment in equities listed on the London Stock Exchange. City of London has one of the longest track records for continuous dividend growth, dating back fifty years, helped by one of the advantages that investment trusts have, of the ability to use revenue reserves in difficult times. The current yield is around 3.9% and investors should appreciate that expectations for future dividend growth are for around 4% to 5% a year. 

“Another alternative could be the SSGA SPDR S&P Global Dividend Aristocrats fund. This fund could well be suitable for investors seeking a regular income as it pays out quarterly with an annual dividend yield of around 4%. The Dividend Aristocrats series of funds do not just focus on the highest dividend payers, there is a strong emphasis on a good track record of dividend payments and sustainability into the future, providing SIPP investors with the possible sustainable dividend payments they require.”