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Two FTSE 100 dividend stocks I’d buy for retirement income today

Edward Sheldon, CFA
Happy retired couple on a yacht

If you’re looking for high-yield stocks that could provide you with a solid income stream in retirement there’s no shortage of options right now as nearly 30 stocks in the FTSE 100 offer rolling dividend yields of 5% or more. With that in mind, here’s a look at two stocks I believe are well suited to those who are looking for retirement income.

Royal Dutch Shell

When it comes to income, it’s hard to ignore oil giant Royal Dutch Shell (LSE: RDSB), in my view. Not only does the stock yield a colossal 6.3% right now (over four times the best interest rate you’ll find on a savings account), but the company hasn’t cut its dividend payout since World War II, due to the fact that it places a priority on rewarding investors with dividends. Given its focus on paying reliable dividends, the oil major is a key holding for large-scale pension funds, sovereign wealth funds, and private investors alike.

One reason I like Shell as a retirement income play, aside from its high yield, is that the company should not be impacted by Brexit. As a global energy group that has operations in 70 countries, the state of the UK economy is largely irrelevant to its fortunes. Furthermore, if the pound was to fall in the event of a no-deal scenario, Shell shareholders would actually get a boost because its dividend is declared in US dollars. I see this Brexit protection factor as a big plus.

Of course, there are risks to be aware of. For example, the world is slowly moving away from oil and transitioning to more sustainable fuels. This could impact the company over time. However, to Shell’s credit, it is actively taking steps to explore new opportunities in the renewables space, such as wind and solar power through its New Energies business, so it’s definitely looking to evolve. I’ll also point out that oil and gas are likely to remain important for at least a few decades.

Right now, Shell shares are trading on a forward-looking P/E ratio of 13.2, a little under the median FTSE 100 P/E of 14.8. I see that as good value. Given this valuation, and the brilliant yield, I see Shell as a great retirement income stock.

Imperial Brands

From a retirement income perspective, I also like the look of tobacco giant Imperial Brands (LSE: IMB). Tobacco stocks are very much out of favour right now, and as a result, there are fantastic yields across the sector. In Imperial’s case, the prospective yield on offer is a high 12.2%!

Of course, as a tobacco manufacturer, there are plenty of risks to be aware of with IMB. Around the world, smoking rates are declining and regulators are making life difficult for tobacco companies. However, as I’ve often said in the past, I don’t think it’s game over for big tobacco just yet. High population growth across Asia and Africa (where smoking is still very common) should offset declining smoking rates in the Western world, and companies can also up their prices to offset declining volumes. In addition, next-generation products (NGPs) and cannabis provide a growth angle.

Imperial shares currently trade on a forward P/E ratio of around 6.3, which is under half the median FTSE 100 P/E. At that valuation, I think the stock is a bargain.

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Edward Sheldon owns shares in Royal Dutch Shell and Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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