How well could you live on the maximum weekly State Pension of £168.60? It’s not going to pay for a life of luxury, and we at The Motley Fool are big champions of investing for ourselves to provide a better retirement income.
For me, the ideal investment strategy for retirement is to go for dividend-paying FTSE 100 shares. But facing a list of 100 companies and having to choose among them can be hard.
Narrower I’m often thinking about ways to narrow down the field, and I’ve just been examining the constituents of the FTSE 100 from when the index was first launched back in 1984. Out of the original companies from that very first incarnation, only 26 remain to this day.
That includes a few that have survived through mergers, but it surely shows those which had the longevity while others have fallen along the way. And while the new entries in the index will surely provide some great investment opportunities, I can’t help thinking that new investors could profitably narrow down their daunting search to those companies that have survived the test of time.
The survivors In the banking sector, we have Barclays (LON:BARC), Lloyds Banking Group (LON:LLOY), Royal Bank of Scotland Group (LON:RBS) and Standard Chartered (LON:STAN). So while we’ve had a banking crisis, they do seem to be among those that do well over the long term.
Legal & General, RSA Insurance (via Royal Insurance) and Prudential (LON:PRU) are there too, so even if the insurance business is cyclical, they can still provide the long-term rewards for those who look beyond short-term ups and downs. Talking of cyclicals, Rio Tinto (LON:RIO) has lasted the distance, but there are no other miners from those days.
On the retail front, we have Tesco (LON:TSCO), J Sainsbury (OTC:JSAIY) and Marks & Spencer, all of which are facing tough trading these days, and those stalwarts Unilever (LON:ULVR) and Reckitt Benckiser (the latter via Reckitt & Colman). Whitbread (LON:WTB) also represents the retail sector, as do the two tobacco giants, British American Tobacco (LON:BATS) and Imperial Brands (LON:IMB).
Oil giants Royal Dutch Shell (LON:RDSa) and BP (LON:BP) have not only survived but today are the largest and third largest companies in the FTSE 100, respectively. It’s also nice to see a good old engineer still there, in the form of BAE Systems (LON:BAES).
GlaxoSmithKline is still up there, and making up the rest of the 26 come Associated British Foods (LON:ABF), Johnson Matthey (LON:JMAT), Land Securities Group, Pearson, Smith & Nephew (LON:SN) and Taylor Wimpey (LON:TW) (as George Wimpey).
Down to 26 Now we’ve narrowed the FTSE 100 down to its 26 longest survivors, what should we do next? I think one profitable way would be to pick the biggest dividend payers in the represented sectors.
So maybe pick one of BP or Shell with forecast dividend yields close to 6%, Lloyds for its predicted 5.5% yield, Legal & General or RSA for yields of around 6.5%, perhaps Imperial Brands with an 8% yield forecast, and add GlaxoSmithKline’s predicted 5%.
I’d forget the supermarket and department store sector, but this approach has already bagged five top stocks with good yields, and I reckon the result would be a great start to a retirement portfolio.
Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended Associated British Foods, Barclays, Imperial Brands, Landsec, Lloyds Banking Group, Prudential, Standard Chartered, and Tesco. 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