One of my main investing goals is to build a portfolio of stocks that will provide a reliable income for many years.
In this article I’m going to look at a FTSE 100 stock and a smaller firm. I believe these stocks have the potential to pay generous dividends for decades to come.
Renewable profits
Shares in utility group SSE (LSE: SSE) have been a disappointing investment recently. The company has lost nearly 1.4m retail customers in less than two years. It’s also been forced to schedule its first dividend cut in its 21-year history for the 2019/20 financial year.
It would be easy to paint a gloomy picture of a business that’s in decline, but I think there are several good reasons to be optimistic about the future.
Long-term opportunities
This company remains structurally important, with nearly 6m home energy customers, and provides 11.2GW of electricity generating capacity. It’s also the UK’s largest renewable energy supplier.
SSE boss Alistair Phillips-Davies would like to sell the retail business to focus on power generation, where it’s harder for small firms to compete. Plans for a merger with the retail division of Npower fell through in December, but management still hopes to find a solution that will see this unit become a self-contained, profitable business.
A second opportunity is for the group to invest in new generation capacity. SSE and its rivals have been reluctant to do this in recent years because of a lack of clarity about long-term government policy. When this changes, I’d expect a strong focus on green energy. This should play to SSE’s strengths.
I think you’ll need to be patient to invest in it. But the shares trade on 12 times 2019/20 forecast earnings, with a dividend yield of 6.7% after this year’s cut. In my view, the stock makes sense as a long-term income buy.
Profit from emerging markets
Emerging markets in Latin America and Asia are often described as attractive long-term growth opportunities for investors. But for most of us, it’s not practical to invest directly in them.
In my view, it makes more sense to gain exposure by investing in emerging market asset managers. One company in this sector which I rate highly is Ashmore Group (LSE: ASHM).
Shares in this £3bn FTSE 250 company were down by 6% at the time of writing, after half-year profits came in slightly below expectations. Broker forecasts had indicated half-year earnings of 11.2p per share, but today’s results revealed a figure of 10.1p per share.
This disappointing performance seems mainly to have been caused by a drop in performance fees and by some losses in the firm’s seed funds — early-stage new investments.
I don’t think investors need to be too worried. Higher management fees helped to lift revenue by 11.3% to £152.1m during the period. The company also reported net inflows of $2.4bn, taking total assets under management to $76.6bn.
Importantly, the company seems to be performing well against the wider market. Ashmore says that 97% of its assets under management have outperformed their benchmarks over the last three years.
Founder and chief executive Mark Coombs believes the outlook for emerging markets is “positive” in 2019. The dividend has never been cut and the shares now offer a 4.4% yield. I think Ashmore stock could be a good way to diversify your income portfolio.