If you have no savings at 40, panic not. There’s still time to build a nest egg that could help you retire early. These two shares, I think, have plenty of potential to grow in the coming years and offer a generous income that could swell the size of your investment portfolio.
An eye-watering yield
Housebuilder Persimmon (LSE: PSN) fits the bill, for me, because its dividend yield is currently around 10%, well above the average for a FTSE 100 company that sits nearer 4.5%.
Housebuilding has come under pressure because of Brexit, the end of help-to-buy and fears of an economic slowdown. This has put pressure on the share prices of listed housebuilders.
The pressure has been even greater at Persimmon because of the departure of the ex-CEO as a result of controversies around his huge bonus. Investigations into poor workmanship have also led to the company seeking to improve its customer care, which will hurt profits in the short term.
For an investor with no savings though, I think the combination of the high dividend yield, the low P/E, which is only a little over eight, and the fundamental imbalance between supply and demand in the UK housing market, makes Persimmon a good investment to build a portfolio around and to boost savings.
A business in transition
Pharmaceutical giant GlaxoSmithKline (LSE: GSK) is another share I think works well for an investor looking to boost savings. The group is transforming under the leadership of Emma Walmsley and taking big steps towards focusing on research and development and, within that, oncology.
The FTSE 100 with a market capitalisation of over £85bn has poured money into developing its oncology portfolio – a similar strategy to rival AstraZeneca that seems to have got a head start in this area. Glaxo has acquired Tesaro for $5.1bn, while a tie-up with Merck could set it back a further €3.7bn.
The growth in the drug pipeline precedes an eventual splitting up of the group. Rather than acting as a conglomerate as it does currently, Glaxo will, in the coming years, split into a pharma group and a consumer division. These are two very different businesses that should complement each other and offset some of the risks of being a pure pharma play like AstraZeneca.
With the big steps the business is currently taking, there is some risk for investors, but I’m confident that with a P/E just below 15, and a dividend yield of around 4.6%, GSK should be able to reward investors for many years to come. And if the strategic shifts work out as planned, then growth could skyrocket.
I do think dividends are very important when it comes to building an investment portfolio, so if you have no savings, make sure to invest in solid, dependable companies that have a proven track record. It’s for these reasons that I like these two high-yielding shares – which I believe will prosper over the long term.
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Andy Ross owns shares in Persimmon. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. 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