Is retirement beginning to worry you? If so, you’re not alone. At some point, most people start fretting over whether they’ll have enough money in their pension pot to enjoy their later years.
Instead of worrying, you should do something about it. One thing you can do is to build a balanced portfolio of company shares from the FTSE 100, to give you a combination capital growth and dividend income.
If you invest inside an annual Stocks and Shares ISA allowance, you can take that growth and income free of tax, for life. You have scores of stocks to choose from, but I reckon these two are worth a closer look right now.
National Grid
Every portfolio should benefit from having one or two defensive stocks paying regular dividends, to reduce volatility. You can’t do much better than multinational gas and electricity utility National Grid (LSE: NG), which supplies the pipes and wires to deliver energy to customers across the UK and also the north-eastern US.
As a heavily regulated company, it has a secure stream of earnings. Stocks like these don’t typically deliver massive capital growth, so don’t expect the National Grid share price to double or triple over the years. Having said that, it’s climbed strongly in recent months, as the threat of nationalisation by a Labour government evaporated.
The real draw is the dividend income, especially given today’s low returns on cash. You should reinvest those dividends for growth while still working, then take them as income after you retire. Currently, National Grid yields a solid 4.9% a year, far more than you can get on cash.
Trading at 16.6 times earnings, National Grid is slightly expensive, but that shows how much investors admire what’s probably the pick of the utilities, and a great place to begin your portfolio.
Vodafone Group
Telecommunications giant Vodafone Group (LSE: VOD) is one of the most renowned FTSE 100 dividend income stocks, and with good reason. While the Vodafone share price has remained stuck in first gear, management continues to lavish shareholders with regular dividends, making it one of the most generous companies on the index.
Possibly too generous, because in May last year, it cut its payout by 40% amid weaker earnings. But many welcomed the move at the time, because it should free money to pay down the group’s debts, and invest for future growth.
The stock yields a more respectable 5.1% despite that cut, roughly 10 times the income you’ll get from the average savings account. Earnings are forecast to rise strongly over the next three years, and this should help fund the payout.
Analysts at Jefferies reckons Vodafone can also raise between €13bn and €16bn by selling off part of its mobile phone towers business, shrinking its debt further.
These two stocks should make great long-term buy-and-holds, helping you to look forward to your retirement rather than worrying about it.