It’s been many years since the full State Pension, currently a little over £8,500 per year, has been seen as enough to get us comfortably through our more mature years. And with the age at which we qualify for it steadily rising, the sooner we plan for retirement the better.
I’ve had a couple of company pensions through my career, and while having my employers contributing to my fund was a very good thing, the ability for pension fund managers to deliver an attractive retirement income is not apparent to me. The classic route of buying an annuity would leave me with two things I definitely don’t want — a poor annual return, and the capital gone should I die even the day after I retire.
Managing your pension
I’ve already transferred one of my pensions to my Self-Invested Personal Pension (SIPP), because I’m convinced that the best person to manage my long-term interests is me. And I’m in the process of transferring another, so I’m building a shortlist of candidates.
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Knowing that shares in top UK companies have wiped the floor with other forms of investment for more than a century has convinced me to base my pension strategy on dividend-paying FTSE 100 shares. I think that’s especially valid today with the index set to deliver a yield of almost 4.5% — and picking the better yielders can surely get me a better overall dividend return than that.
I also see another advantage to doing it myself, in that my long-term horizon means I can ignore the market sentiments that would turn many big fund managers away from currently unpopular stocks. They really don’t like to be seen as holding short-term losers when it’s time to release those quarterly figures.
Barclays on the list
That’s one of the reasons I’m seriously looking at Barclays (LSE: BARC) shares right now. Taking a contrarian position on the stock, I like buying shares when I believe the market is wrong about them.
I know the whole banking sector is in the dumps because of Brexit, and the major uncertainty it leaves hanging over the business. But while the City institutions hate uncertainty, I’ve grown to love it over the years and have managed to use it to buy cheap shares many times.
On the dividend front, Barclays is forecast to deliver a yield of 4% this year, with 2019 predictions pushing that up to 4.8%. Yield alone is not a sufficient reason to buy a stock, mind, as there’s no guarantee it will be forthcoming. But Barclays’ dividends are set to be covered around 3.3 times by earnings this year, with cover still coming in at 2.8 times, even after the mooted 2019 hike in the payment.
I see undervaluation
The other attraction of Barclays is that its shares are trading at only around half the Footsie’s long-term P/E valuation, with the predicted multiple of 7.7 this year, dropping to 7.2 for 2019.
I’m not going to pretend that Barclays doesn’t still face potential problems, but I found my colleague Roland Head’s take on last month’s Q3 figures enlightening. Roland’s thoughts suggest to me that Barclays is now past the turnaround point, and it’s firmly on my SIPP shortlist.
