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No savings at 50? I’d buy these 2 FTSE 100 dividend shares to beat the State Pension

Peter Stephens
Senior Couple Walking With Pet Bulldog In Countryside

The State Pension is unlikely to be sufficient for most retirees to enjoy financial freedom in older age. It amounts to just £8,767 per annum, which is less than a third of the average UK salary.

As such, buying dividend shares could be a sound idea. They may be able to produce an inflation-beating passive income over the long run that reduces your reliance on the State Pension.

Since the FTSE 100 currently has a 4%+ dividend yield, now could be the right time to buy large-cap shares. With that in mind, here are two FTSE 100 dividend stocks that could improve your long-term income investing future.

National Grid

The threat of the utility sector being nationalised under a Labour government has now receded. This could cause investors to re-evaluate the merits of investing in companies such as National Grid (LSE: NG), which has a long history of delivering consistent dividend growth.

Although the prospects for the UK economy may improve as the Brexit process moves ahead, there continues to be uncertainty across the world economy. For example, tariffs on imported goods have been raised in recent years. They could cause global GDP growth to come under pressure, which may mean that investors adopt an increasingly cautious stance in the coming months.

National Grid’s robust business model that is relatively defensive may therefore become more popular with investors. Its dividend yield of 5.1% is relatively high, and could indicate that it offers a margin of safety. Therefore, alongside its potential to offer a reliable dividend that may increase at a faster pace than inflation, the income return prospects of the stock could mean that now is the right time to buy a slice of it.

RSA

The recent third-quarter update from insurer RSA (LSE: RSA) highlighted an improvement in its underwriting performance compared to previous quarters. This contributed to growth in its operating profit in the first nine months of the year, with the business being on track to deliver full-year results that are in line with its expectations.

RSA is seeking to improve its customer proposition, while growing its business where underwriting conditions allow. This is expected to catalyse its bottom-line growth over the next couple of years, with earnings growth of around 16% expected in the next financial year. Alongside a modest rating, this produces an attractive price-to-earnings growth (PEG) ratio of 0.9.

In terms of the company’s income investing appeal, it currently yields 4%. Its shareholder payouts are covered 1.7 times by net profit, while a rapid growth rate in profitability could lead to a large increase in dividends in the coming years. As such, with dividend investing potential and a valuation that suggests it offers growth at a reasonable price, there could be an appealing opportunity to buy the stock today for the long term.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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