Forget Cash ISAs. I’d buy these 2 cheap FTSE 100 dividend stocks to beat the State Pension

I think these FTSE 100 (INDEXFTSE:UKX) dividend shares could offer a passive income that helps you to overcome an uncertain future for the State Pension.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE 100 dividend shares could become a more appealing means of generating a passive income in retirement as a result of the coronavirus pandemic. You see, the State Pension’s ‘triple lock’ could come under threat to help pay for recently increased government spending. Meanwhile a rising retirement age may mean that many people need a larger retirement nest egg through which to generate a passive income.

With interest rates at historic lows, these two FTSE 100 dividend stocks could offer relatively reliable incomes at a time when Cash ISAs offer low returns. As such, now could be the right time to buy them while they still offer attractive yields.

FTSE 100 utility company National Grid

National Grid’s (LSE: NG) recent investor update stated that it has not experienced any material impact from coronavirus. However, it may yet experience delays in areas such as capital spending and debt collection that could lead to a less favourable financial outlook for the business.

Despite this, the company’s business model could be among the most resilient in the FTSE 100. It has historically offered defensive characteristics during periods of economic uncertainty. This may make it a relatively popular stock among investors in today’s environment.

Unlike the FTSE 100, National Grid’s share price has recorded only a modest fall in 2020. It is down by 3%, while the wider index has declined by 23%. Further outperformance of the index could be ahead for the company if an uncertain economic outlook persists.

In terms of its dividend prospects, National Grid has a yield of 5.4%. Alongside its defensive characteristics, this could make it an attractive option for income investors who are struggling to obtain a worthwhile passive income while interest rates are at historic lows.

Pennon

Another FTSE 100 utility company that could offer income investing potential and defensive investing appeal at the present time is Pennon (LSE: PNN). The environmental infrastructure business recently reported that its trading has been in line with expectations.

It also confirmed that it has a solid financial position through which to overcome potential challenges that may be ahead. For example, it had £1.6bn in cash and committed facilities as at 30 March 2020.

Pennon recently agreed to the sale of its waste management business Viridor for a total consideration of £4.2bn. The company will now focus on its water and wastewater businesses.

The FTSE 100 stock currently yields 4.1% after its 10% share price rise since the start of the year. It plans to outline a new dividend policy over the next couple of months following the completion of the sale of Viridor. Its past dividend growth suggests that it is likely to offer a solid growth in shareholder payouts over the long run that could exceed inflation.

When combined with its defensive business model and sound overall strategy, this could make Pennon a worthwhile income investing opportunity over the long run.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

Up 125% in 5 years, the BAE share price has beaten Rolls-Royce. Which is better?

Both the BAE and Rolls-Royce share prices have been having a storming time. Here's how they stack up against each…

Read more »

Investing Articles

With P/E ratios of 7.2 and 9, I think these FTSE 100 shares are bargains!

The FTSE 100 has risen sharply in 2024, but there are still lots of top value shares out there. Royston…

Read more »

Investing Articles

This skyrocketing US growth stock has put all others to shame — including its core investment!

Up 378% this year, the spectacular growth of this US tech stock is leaving all others in the dust. But…

Read more »

Investing Articles

I’d buy this FTSE dividend share to target a lifelong second income

Our writer thinks investing in dividend stocks from the UK stock market is the best way for him to generate…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing For Beginners

The Barclays share price keeps surging! Was I wrong to sell the stock?

Jon Smith explains why the Barclays share price is still rising, even though he feels that further gains could be…

Read more »

Investing Articles

1 stock set to gatecrash the FTSE 100 in 2025!

Our writer considers a quality stock that's poised to join the FTSE 100 next year. Could there also be a…

Read more »

Businesswoman calculating finances in an office
Investing Articles

As earnings growth boosts the Imperial Brands share price, is it a top FTSE 100 dividend choice?

The Imperial Brands share price has come storming back as investors piled in for the big dividends. What's next, after…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
US Stock

Warren Buffett just bought and sold these stocks. Here’s why I don’t agree

Jon Smith takes a look at the recent regulatory filing for Berkshire Hathaway and Warren Buffett and comments on recent…

Read more »