Investing in stocks to help fund your retirement doesn’t necessarily mean focusing on volatile growth stocks. Today, I’m going to look at two affordable dividend stocks I believe could be profitable long-term buys.
A proven cash machine
Life insurance group Standard Life (LSE: SL) has been trading since 1825. Such longevity isn’t a guarantee of future success, but I believe it’s a good indicator.
However, despite having been in business successfully for nearly 200 years, Standard Life isn’t resting on its laurels. The group recently announced plans for a merger with fellow Scottish group Aberdeen Asset Management.
Although I think Standard Life shares look attractive enough on their own, I believe the prospect of the two firms combining adds to the appeal of Standard Life. Aberdeen Asset Management has historically been a more profitable business, with an average return on equity since 2011 of 16.5%, compared to 9.5% for Standard Life.
The downside of Aberdeen’s business is that recent results suggest that it’s more heavily cyclical than Standard Life. Aberdeen is also under pressure to cut the costs of its active fund management model, in order to compete more effectively with low-cost passive funds.
I believe the Standard Life deal should help to address these risks by providing a lower-cost corporate environment for Aberdeen’s business. The overall effect — I hope — will be to improve the combined group’s cash generation and deliver more stable year-on-year profit growth. If I’m right, then future dividend growth should be strengthened by the deal.
Standard Life shares currently trade on a forecast P/E of 13.5, with a prospective yield of 5.6%. With further dividend growth expected over the next couple of years, buying at this level could make a lot of sense.
The best assets you can buy?
Historically, very few assets have proved safer than prime London property. Most of us lack the means to invest directly in such properties, but we can gain exposure through the stock market.
British Land Company (LSE: BLND) owns a £14.6bn portfolio of commercial property, mainly composed of large, well-located retail developments and London office space. The group had net assets of 919p per share at the end of March 2017, meaning that the current share price of 625p offers investors a chance to buy at a 32% discount to book value.
Of course, there is a reason for this. After a long period of growth, signs are emerging that the commercial property market could be slowing. British Land’s portfolio valuation fell by 1.4% last year.
In the short term, I think the shares might have further to fall. But for investors eyeing up a retirement, I believe British Land could be a smart buy. The group’s loan-to-value ratio is fairly modest, at 32%. The average unexpired lease length is nine years and the group’s weighted average debt maturity is 6.9 years.
What this suggests is that British Land’s cash flow should be fairly predictable for nearly a decade. On that basis, I believe the group’s forecast dividend yield of 4.7% looks appealing, regardless of the short-term outlook.
Tips for an early retirement
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Roland Head owns shares of Standard Life. The Motley Fool UK has recommended Aberdeen Asset Management. 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.