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A lot of people emphasise the importance of maintaining regular income streams when they retire. One way to do that – and to plan for it – is to build a retirement portfolio that contains a diversified mixture of high-quality dividend shares.
Dividends are never assured to last, which is one reason diversification is important. But buying a mixture of the right blue-chip shares can often provide an impressive long-term flow of dividends.
Here are five UK dividend shares I think an investor should eye for their retirement portfolio. Even someone in their twenties or thirties can already be planning financially for their retirement.
Proven long-term businesses
To begin, here are some companies that ought to benefit from long-term consumer demand.
One (Reckitt Benckiser) makes consumer goods like Dettol, while the other (J Sainsbury) sells such products.
I do not see these as exciting high-growth businesses. But I think each ought to benefit from ongoing demand for life’s everyday essentials. Reckitt yields 3.5% and Sainsbury 3.9%.
One risk I see for Reckitt is ongoing litigation threats related to its infant nutrition business. Sainsbury’s competitive environment is challenging and ongoing price competition could eat into profits.
Dividend growers
Next are some high-yield shares with impressive track records of dividend growth.
British American Tobacco (LSE: BATS) has grown its dividend per share annually for decades. It currently yields 5.8%.
The reason British American has been able to pay steadily rising dividends is because it generates so much spare cash from making and selling cigarettes.
That could change. After all, the company’s cigarette sales volumes are falling as part of ongoing declines in cigarette usage. If that continues it may threaten the dividend.
But for now at least, the business continues to throw off lots of spare cash for the company. It has also been growing its non-cigarette business. That might help it keep generating sizeable free cash flows.
Another FTSE 100 firm that has grown its dividend annually in recent years, albeit not for anything like as long as British American, is asset manager M&G (LSE: MNG).
Its yield of 7.5% could help a retirement portfolio produce passive income flows. It has a proven business model and millions of customers.
The company said today (5 November) that, after a strong first half to the year, it ‘maintained positive momentum‘ in the third quarter.
Choppy markets could be a risk if they lead some clients to withdraw funds, hurting profits. But M&G ended the quarter with assets under management and administration higher than the same point last year and also 3% higher than at the start of the quarter.
High-yield investment trust
Another share investors should consider for their retirement portfolio is 10.3%-yielding investment trust Henderson Far East Income.
It aims to do what it says on the tin, paying beefy dividends thanks to a strategy of investing in a range of Asian shares.
The dividend is substantial. But some Asian economies are performing sluggishly, which is a risk.
