I’ve got a fair way to go to retirement, but when the time comes I’ll be looking to have a stocks portfolio that provides a growing stream of dividend income to increase (or at least maintain) my real spending power in my golden years.
I reckon a portfolio of 20 to 25 stocks wouldn’t take too much time to monitor and would provide enough of a spread to enable me to sleep easy. I’d be aiming for a somewhat higher blended yield than a FTSE 100 tracker. And a bias towards defensive sectors, as I wouldn’t want to hold too many cyclical companies that are liable to cut their dividends during times of economic stress.
Whether I arrive at my grave in an attractive well-preserved body or skid in broadside, whisky in one hand and cigar in the other, hopefully such a portfolio would have served me well. Were I buying stocks for it today, National Grid (LSE: NG) and Unilever (LSE: ULVR) would be high on my list of priorities.
A unique business
Owning shares in National Grid gives you a stake in a unique and highly attractive business. The company is the sole owner and operator of gas transmission infrastructure in Great Britain. It also owns and operates the electricity transmission network in England and Wales (it operates but doesn’t own the Scottish networks).
Its near-monopoly of ownership and actual monopoly as operator of Britain’s principal gas and electricity arteries makes it a company of vital strategic importance. In its compact with the nation (via the regulator) National Grid is expected to maintain and improve the network. Provided it operates reliably and efficiently, it will receive a fair return, enabling it to both invest for the future and pay dividends to its shareholders.
The group also has other regulated businesses in the UK — for example, it owns four of the eight regional gas distribution networks — as well as a number of regulated businesses in the northeast US. Aside from the risk of regulators failing to live up to their end of the bargain, National Grid’s unique position of national dominance in UK gas and electricity transmission and the reliability of its cash flows bode well for steadily rising dividends well into the future. At a share price of 935p as I’m writing, the prospective starting yield for investors today is 4.8%.
Valuable brands
Consumer goods giant Unilever has neither the monopoly qualities nor the level of regulatory restraint of National Grid. However, its stable of hundreds of trusted brands (some global and some local) are historically embedded in many countries around the world and represent rare and valuable assets. Only a few consumer goods companies are in the same league.
These companies are likely to continue dominating their markets and to benefit from rising incomes across the developing world. As Unilever’s food, household and personal products are bought over and over again (so-called fast-moving consumer goods), the business is relatively non-cyclical, reliable and highly cash-generative. And that’s good news for steadily increasing dividends. The shares are trading at 4,520p as I’m writing, giving a current-year forecast yield of 2.8%. In this case, I might just be tempted to wait for a dip in the shares, as they can on occasion be picked up with a yield in the 3% to 4% region.