When you’re considering retirement, arranging a secure and decent income for the rest of your life can be a real challenge. Unsurprisingly, with interest rates still near record lows, yields from bonds, particularly gilts, have been far from inspiring.
Equities have made up an increasing share of a retirement investors’ portfolio. But so have alternative asset classes, such as property, credit and infrastructure investments. Some of these offer attractive return and risk profiles, which is why I’m looking at two of such investments as potential sources of retirement income.
Infrastructure
First up is International Public Partnerships (LSE: INPP), which invest in long-duration public infrastructure projects. The investment trust has over 120 holdings across a variety of sectors, offering investors diversified exposure to the sector and limiting the impact of operational risks.
Infrastructure investments make attractive defensive income investments because they earn stable, long-term cash flows. These are derived from essential physical assets, such as health and education facilities, public transportation, water and waste projects, energy and urban infrastructure.
The income they earn also has a very limited correlation with traditional investments, such as stocks and bonds. This means the inclusion of such investments could offer investors greater downside protection against a broader market sell-off.
Strong track record
International Public Partnerships, in particular, has a strong track record of growing both its capital value and shareholder distributions. Since 2007, it has delivered average annual dividend growth of roughly 2.5%, giving it a forecast payout of 7.00p in 2018.
Total returns have been even more impressive, with total shareholder returns of 165% since its IPO in 2006. This exceeded the performance of the FTSE All-share Index by 68% percentage points, and represented growth of 9.2% on an annualised basis.
Shares in the investment trust currently trade at a 1% discount to its net asset value, and offer a prospective dividend yield of 4.9%.
Student property
Student property is another interesting asset class and, in this space, I’m taking a closer look at GCP Student Living (LSE: DIGS).
Unlike a lot of companies operating in the purpose-built student accommodation market, this investment company primarily invests in and around London. It focuses specifically on assets located in the capital because the investment managers believe investments there will particularly benefit from supply and demand imbalances. High land costs, combined with heavy competition for land, means supply in London will likely be far outstripped by demand growth, driven by rising student numbers.
This geographical focus does have its downsides as well, given falling property values in the capital and its greater reliance on international students. This puts it at a greater risk of tighter immigration rules that could reduce the number of student visa applications.
Nevertheless, the student accommodation sector is still an attractive asset class for defensive income investors, given the non-cyclical nature of demand for higher education and the chronic shortage of purpose-built student properties, which command a rental premium to residential properties. Yields from the sector are also higher, with GCP Student Living earning an average net initial yield of 5%.
Shares in the investment company currently trade at a 3% discount to its net asset value, and offer a prospective dividend yield of 4.1%.