If you’ve reached 50 and don’t yet have any retirement savings, you may think it’s too late to get started. I don’t agree.
At this age, there’s still a lot you can do to build a passive income stream for your retirement. In this article, I’m going to look at two FTSE 250 stocks I think could provide a reliable income for many years to come.
22 years of dividend growth
Engineering group Babcock International Group (LSE: BAB) is best known for its defence business, which generated 52% of revenue last year. The firm’s military activities include building ships and submarines, managing the British Army’s fleet of 50,000 vehicles, and providing a wide range of training and maintenance services.
The firm also has two other significant areas of operation. It works on nuclear engineering and decommissioning projects, and it provides airborne emergency services, such as air ambulances and search and rescue.
One key attraction of all of these businesses is that they tend to run on long contracts. Babcock’s average defence contract is 10 years. For emergency services and nuclear, it’s eight years.
Long contracts should mean good visibility of revenue and cash flow. In turn, this should support reliable dividends. Babcock certainly has a good record in the dividend department. The group’s payout hasn’t been cut since 1997. That’s 22 years of unbroken growth.
Take the long view
Babcock shares are down by around 5% as I write, after the company warned that tough market conditions in its aviation business would lead to lower profits and a series of impairment charges this year.
However, the company confirmed its financial guidance for the full year, saying that net debt should fall and free cash flow generation should be “over £250 million.” This should cover the £150m dividend comfortably.
Babcock’s reliable cash generation is a key attraction for me. Although the company is going through a difficult period, I think now could be a good time to start buying. The stock trades on less than 8 times 2020 forecast earnings and offers a dividend yield of 5.5%. I see Babcock as a good income buy at this level.
A safe defensive buy?
My next pick is a traditional consumer defensive stock. C&C Group (LSE: CCR) owns drinks brands including Tennent’s, Magners and Bulmers. The group also has a growing portfolio of craft drinks and owns the Admiral Taverns pub chain, along with booze wholesalers Matthew Clark and Bibendum.
C&C’s roots are in Ireland, but the majority of its business is now in the UK and the company has recently switched its main stock market listing to the London Stock Exchange. That’s allowed the group to gain membership of the FTSE 250.
These changes have raised the firm’s profile, but it’s still below the radar for many UK investors. In my view, this could be a missed opportunity. The firm’s brands are large and well established and its performance has been pretty stable in recent years. Shareholders have enjoyed continued dividend growth since 2010 and debt levels look comfortable to me.
The shares currently trade on 14 times 2020/21 forecast earnings, with an expected dividend yield of 3.8%. I see C&C as a ‘buy and forget’ stock that could provide a reliable income for many years. It’s a stock I’d be happy to buy.
