With average life expectancy increasing, planning for a long retirement is becoming increasingly important. But if I had to suddenly retire tomorrow, I’d buy high-yield dividend shares.
Studies reveal the average UK retiree needs approximately £31,000 a year just to get by — and upwards of £43,000 to be comfortable. That’s more than double the average UK pensioner’s income currently.
I’ve already begun planning for this by building a portfolio of dividend stocks for passive income. For those who haven’t, it’s not too late. Even at a late stage, investing in the right stocks can secure a sufficient stream of additional income.
The FTSE 100 is full of high-quality dividend stocks that have stable cash flows and rising yields.
Here are two I’d buy if my retirement was imminent.
Aviva
Aviva (LSE: AV.) has delivered an impressive performance over the past year, gaining 27%. What’s more impressive, it has managed to maintain a yield above 7% since early 2023. And there’s been no interruption to dividends for over 20 years!
That makes it one of the most reliable dividend-payers in my opinion.
In its first half of 2024 results, revenue and earnings grew 11% and 63% respectively, with profit margins now at 5.7%. The growth was attributed to significant competitive gains in the home and motor insurance markets, where Aviva is already a leader.
The £242m acquisition of Probitas in July increased the firm’s exposure to specialist risk opportunities in the UK. All this helped drive the share price to a yearly high of 506p.
Yet even with the growth, it still looks like good value. It has a forward price-to-earnings (P/E) ratio of 10.5, below both the FTSE 100 and insurance industry averages.
Still, there’s no guarantee that will continue. Insurance is highly competitive and Aviva could lose its market share to the likes of Prudential or Legal & General. It’s also sensitive to economic tides which is evident from the price dips in 2000 and 2008. Such events can result in dividend cuts and short-term losses.
HSBC
At 7%, HSBC (LSE: HSBA) has the highest dividend yield of any major bank in the UK and the seventh-highest overall. The £116bn bank benefits from a massive, diversified international customer base. This can help soften the blow from localised economic issues. That said, heavy exposure to Asia has put it at risk recently as the region’s property market struggles.
China has faced issues for several years but recently, they’ve spilt over into Hong Kong. As of 30 June, HSBC is reportedly exposed to $3.2bn worth of defaulted commercial real estate loans in the financial hub. That’s a six-fold increase from $576m in the previous six months.
But like Aviva, it has a long history of dividend payments – which is of key importance. When retired, I don’t want to buy shares in a company only to have it cut dividends after a few years. That’s an ever present risk, recent examples being Vodafone and Burberry.
Although HSBC has made some minor reductions during economic downturns, overall, it has a progressive dividend policy. This has led to annual growth of almost 3% for the past 15 years.
