Building a retirement nest egg from age 40 is a very achievable goal. Not only can compounding have a significant impact on a retirement portfolio over a 20-plus year time period, the FTSE 100 appears to offer a number of undervalued income shares at present.
Buying a range of them today could be a shrewd move that ultimately produces improving financial prospects in older age. Here are two such companies that, while facing uncertain near-term outlooks, could deliver improving income returns in the long run.
BT
BT’s (LSE: BT.A) recent half-year results showed it’s making progress in delivering its strategy. For example, the telecoms giant launched a variety of new products for consumers and businesses which could strengthen its offering and improve its competitiveness. It’s also delivering on its modernisation strategy that will produce up to £1.1bn in transformation benefits, while investing in 5G services.
Certainly, its financial performance continues to be somewhat disappointing. Revenue declined by 1% in the first half of the current year, while its profitability is expected to fall modestly in the current year and rise by just 2% next year. This may mean investors are underwhelmed in the short run.
However, with a dividend yield of 7.7%, which is expected to be covered 1.6 times by net profit in the current year, BT could offer income investing appeal. Furthermore, trading on a price-to-earnings (P/E) ratio of just 8, investors appear to be downbeat about its prospects. This may mean there’s a margin of safety on offer that improves the stock’s risk/reward ratio and makes it a worthwhile long-term buy within a diverse portfolio of companies.
St. James’s Place
Wealth management business St. James’s Place (LSE: STJ) could also offer income investing potential. The company’s recent quarterly update highlighted an increase in its funds under management of 7.7% compared to the same period of the previous year.
Looking ahead, the company’s performance could be negatively impacted by an uncertain outlook for the global economy. This may cause a slowdown in discretionary investment flows in the near term, with a global trade war and Brexit having the potential to reduce its growth rate. However, St. James’s Place has a strong position within its wider market that could produce improving performance in the long run.
The stock currently yields around 4.6%, with its dividends per share having more than doubled over the last four years. A similar pace of growth may not be achievable in the next four years, given the uncertain outlook for the world economy. However, the company has a solid track record of delivering rising profitability which may mean its total returns are relatively impressive over the long run.
As such, buying a slice of it could improve your portfolio returns and boost your retirement prospects over the coming years.
