Nobody wants to be reliant on the State Pension for their retirement, right? And work pensions are becoming more miserly. These trends, along with a retirement age that is only going up, make me think saving for a richer retirement is essential. Over time, even small amounts saved into tax-efficient schemes like ISAs and SIPPs can help lessen reliance on the State Pension.
Here I’m looking at three shares I think should increase their value over the next decade and beyond. It’s their longevity that I believe makes them ideal investments with retirement in mind.
Despite its recent highly-publicised problems with blackouts, National Grid (LSE: NG) is still a solid company in my opinion. It operates in the UK and the US so has reduced risk to unstable parts of the world like oil companies have to deal with. I think this helps it to consistent earnings and means it can manage its debt effectively and invest for future growth. What it does is boring but profitable and to me this makes it perfect for a retirement fund in need of dependable companies.
The main attraction for investing in the electricity transmission company is the dividend yield. It’s currently 5.6% and receiving this year after year means an investor will benefit from compounding – receiving dividends that can be reinvested in shares and so receive more dividends. The share price is expensive with a current P/E just short of 20. But I consider that affordable for such a reliable stock
Waiting for a comeback
Continuing on the electricity theme, I think underperforming SSE (LSE: SSE) could have better times around the corner. With SSE, the biggest threat is no secret – potential nationalisation under a Jeremy Corbyn-led Labour government. Indeed the same threat does apply to National Grid, but I see it as unlikely to happen and this is why I’m happy to own the former.
SSE needs to sell its consumer division and that may happen very soon. Talks are going on with Ovo Energy, after talks with Npower collapsed. If achieved, the business would be able to focus on regulated activities to give it fantastic earnings reliability. It’s a share that would be safer than most to tuck away and forget about, I feel. The shares currently provide a dividend yield approaching 9%, again providing investors with an income that can be reinvested into buying more shares.
When it comes to consumer goods, giant Unilever (LSE: UNVR) is a truly global leader. I see it as a great complement to the more UK-focused National Grid and SSE, especially with Brexit still unresolved. The group overall makes operating margins of around 19%. As well as providing good margins, the consumer goods specialist has product and geographic diversification and its exposure to fast-growing emerging markets should keep it growing for many years to come.
In the last set of half-year results, Unilever managed to increase underlying sales in these vital emerging markets by 6.2%. As populations in Asia increase and the middle class gets bigger, the opportunity to sell more branded soaps and other consumer goods will become bigger. Unilever may find it gets more local competition, but it has the marketing budget to ensure that its products stay ahead. For this reason I think it’s a great share for a retirement fund.
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Andy Ross owns shares in National Grid. The Motley Fool UK owns shares of and has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019