Man (and woman) cannot live by the State Pension alone, at least not if he (or she) wants to live comfortably. The pension gives you just £23 a day, and then only if you qualify for the maximum amount. You need to top this up from your own efforts.
Taking stock
The best option for many is to invest in a spread of funds, as this is less risky buying individual stocks. These five could give you a comfortable retirement. Alternatively, you can narrow your focus by investing in major blue-chip companies that offer both share price growth and blockbusting levels of income, like the following two.
Mining giant Rio Tinto (LSE: RIO) is a £66bn global behemoth that is listed on the FTSE 100 despite having most of its operations in Australia. Its speciality is iron ore, although it also digs for aluminium, copper, diamonds, energy and minerals, including uranium.
Adventures of Tinto
Rio has handsomely rewarded investors lately, recently returning a whopping $7.2bn to shareholders in buybacks and asset sales, after reporting a 12% rise in first-half profits to $4.42bn. It further rewarded loyal investors by lifting its interim dividend 15% to $1.27 a share. To give you an idea of the scale of the operation, it shipped 88.5m tonnes of iron ore in the second quarter of the year.
Commodity stocks like this one are notoriously cyclical. Iron ore is used to make iron to make steel. That’s the most widely used metal on earth, essential in cars, trains, ships, construction beams, tools, concrete reinforcing rods, bicycles and most important of all, paper clips. So when the global economy is booming, and we are making more of these things, demand and prices rise.
Income monsters
The downside is that in a recession, demand falls and stocks like Rio Tinto get punished. That is why you should look to buy and hold stocks like this for the long term, as you can then ignore short-term volatility and reinvest your dividends for growth, or take them as income. It currently offers a forecast yield of 5.6%, covered 1.7 times from earnings. By contrast, the average easy access savings account pays 0.53%.
FTSE 100-listed oil major Royal Dutch Shell (LSE: RDSB) pays an equally generous income, currently a forecast 5.5%, with cover of 1.4. It is renowned for paying its dividend every year since the war, although it was a close run thing during the recent oil price crash, when the price dropped below $27 a barrel in January 2016.
Big is beautiful
Shell weathered that storm and its position is a lot more comfortable with Brent crude trading above $70 at time of writing. Again, as an energy firm, it is subject to cyclical swings in global economic activity. So its share price could be relatively volatile for a £215bn operation, the biggest on the FTSE 100, with a market cap that is twice the size of BP and almost nine times the size of Tesco.
You can take share price ups and downs if investing for the long term, while letting the dividend income carry out its business. It certainly beats living on £23 a day.