The State Pension is unlikely to be sufficient to fund most people’s retirements. Certainly, it may be a worthwhile supplementary income, but since it amounts to £730 per month it may be unable to provide financial freedom in older age.
By contrast, a number of FTSE 100 stocks could offer long-term income appeal. In many cases they yield more than 4%, and may be able to provide a rising income.
Here are two examples of large-cap shares that, while unpopular at the present time, could deliver impressive dividend appeal.
Imperial Brands
The recent decline in the Imperial Brands (LSE: IMB) share price means that the company now has a dividend yield of around 10%. With dividends being covered 1.5 times by net profit last year, they appear to be affordable at their current level.
Clearly, the company’s recent profit warning is a cause for concern. Cigarette volumes are likely to decline in future, while the outlook for e-cigarettes may be uncertain. Although there is scope for them to become increasingly popular among existing cigarette smokers, the regulatory environment that they face in a variety of countries remains unclear.
However, with Imperial Brands having such a high yield, it appears as though investors have factored in the risks facing the business. This could mean there is a buying opportunity for long-term investors who are able to withstand a period of volatility for the company’s share price. With the stock having a sound balance sheet and sufficient cash flow to invest in its next-generation products, it could prove to be a worthwhile income play.
Severn Trent
Another FTSE 100 stock that is unpopular at the present time is water services business Severn Trent (LSE: SVT). Its share price has declined by around 14% in the last three years, with investors being concerned during that time about the prospect of regulatory and political change.
The company’s recent update showed that it is on track to meet its financial and operational targets. While this may ultimately fail to equate to a fast-rising dividend, the company’s 4.6% income return and its defensive business model could become increasingly popular over the medium term.
Interest rates are expected to remain low in the UK over the next few years, which could make utility stocks more popular versus cash and bonds. Moreover, with there being significant risks facing the UK economy at the present time, investors may seek companies that are less positively correlated to the performance of the wider economy.
As such, Severn Trent could offer a sound investment outlook. It may prove to be more volatile in future than it has been in the past due to regulatory and political risks. But with a generous income return and its recent performance being in line with guidance, it could prove to be a sound means to generate a passive income in the long run.
