I want to keep maximising my income, even in retirement. One way I plan to do it is by buying the finest dividend shares.
I think it’s a necessity. Life expectancies are rising. As such, we’re spending more time in retirement than ever before.
I’d want to target income I could rely on, given that dividends are never guaranteed. Some dividend yields look enticing, such as Vodafone’s, but they’re not reliable. Instead, I’d focus on high-quality FTSE 100 companies that offer stable cash flows and the potential for rising yields.
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If I were entering retirement tomorrow, these two shares would be at the top of my list.
Consumer goods stalwart
I want to kick things off with Unilever (LSE: ULVR). Its yield isn’t the largest at 3.7%. However, this payout hasn’t been cut for over 50 years.
The stock has been on a tear this year, rising 9.3%. That’s in part down to the strong Q1 results it released in April.
For the period, underlying sales growth was up 4.4%. For its 30 Power Brands, which make up 75% of its revenue, this rose 6.1%.
However, what was arguably more notable was the fact the business managed to raise prices while in tandem increasing sales volume by 2.2%.
Given the current economic environment, that’s impressive. And if I were entering retirement, I’d want companies with strong pricing power that can provide stable growth such as Unilever in my portfolio.
It’s not immune to threats. Inflation remains a risk and while it can push up costs, that could lead to consumers switching to cheaper alternatives. One competitor that springs to mind is the fast-growing Aldi.
But Unilever’s recent growth highlights its prowess, in my opinion. This sort of stability places it in good stead to keep paying shareholders and hopefully increase its dividend.
Banking giant
Following the theme of targeting established, high-quality businesses, my next choice would be Lloyds (LSE: LLOY).
The stock currently boasts a yield of 5.3%, covered comfortably by earnings. After a stellar performance in 2023, the high street bank announced plans for a £2bn share buyback scheme.
Buybacks help reduce the number of shares in circulation. That in turn should help boost a company’s earnings per share.
I also think Lloyds shares look like great value for money at the moment. With its price sitting at 52p, that means the stock has a price-to-earnings ratio of just 6.9.
Its recent Q1 results showed that profits fell 28% for the period. That’s a concern. I’d expect this to be a theme in the coming months as interest rates begin to fall. While banks have enjoyed widened margins due to higher rates, this looks likely to be coming to an end.
But there are other factors that should help offset this, such as positive signs from the housing market. As the UK’s largest mortgage lender, it should gain some momentum from a revival in the property sector.
British house prices in March rose at their fastest annual pace since December 2022. Lloyds upped its prediction for house price increases this year. It now expects a 1.5% rise.
In the years to come, I think Lloyds is well-positioned to prosper. With that, I think it would make a smart buy were I retiring.
