5 Retirement-Worthy Stocks

08/31/2012 9:15 am EST


It's been a long time since these markets encouraged current and future retirees, but that doesn't mean there aren't some hopeful spots to put some long-term cash and get it working for you, observes the staff of Motley Fool UK.

The last five years have been tough for those in retirement. Portfolio valuations have been hammered and annuity rates have plunged. There's no sign of things improving anytime soon, either, as the Eurozone and the UK economy look set to muddle through at best for some years to come.

A great way of protecting yourself from the downturn, however, is by building your retirement fund with shares of large, well-run companies that should grow their earnings steadily over the coming decades. Over time, such investments ought to result in rising dividends and inflation-beating capital growth.

In this series, I'm tracking down the UK large-caps that have the potential to beat the FTSE-100 over the long term and support a lower-risk income-generating retirement fund. Over the last week or so, I've looked at Aviva (London: AV), British Land (London: BLND), Marks & Spencer Group (London: MKS), AstraZeneca (AZN), and BHP Billiton (BHP).

Aviva's 7.9% yield makes it a firm favorite with income investors, who believe that the company will pull through its rough patch. So far, I've been impressed with interim CEO John McFarlane's efforts at restructuring and refocusing the company, and the markets have liked it too; Aviva's share price has risen by 21% over the last three months, more than twice the 9% gain seen by the FTSE 100.

Despite this, there are risks—especially if the Eurozone crisis gets worse and any of the PIIGS countries are forced to exit the single currency.

Another share offering an outstandingly high yield is AstraZeneca, whose shares currently yield 6%. The UK's second-largest pharmaceutical has not dodged the patent cliff as successfully as peer GlaxoSmithKline (GSK), and markets have punished it accordingly.

This week's news that the company has appointed a new CEO, Pascal Soriot, may mark a turning point. Soriot was previously Chief Operating Officer of Swiss pharma giant Roche, and has a lot of top-level experience in the industry.

Three Solid Alternatives
Climbing down the yield ladder to a still attractive 4.9%, I found British Land. British Land is one of the largest and oldest property companies in the UK, and has a particular focus on prime London properties, providing it with a certain resilience to the economic woes affecting the rest of the UK.

I was pleasantly surprised by British Land, and have added it to my personal watch list. Its shares are currently trading at 2003 levels, having shed all of the gains made in the property boom. This should make its current valuation fairly stable.

These five shares were an unusually generous group in terms of dividends. The final two, Marks & Spencer and BHP Billiton, both offer attractive yields when compared to their peer groups.

M&S comes out first with a 4.7% yield that is covered more than twice, despite the languishing state of the company's clothing sales. New management has been brought in to turn the clothing division around, and recent bid speculation has also acted to firm up the share price, which is up 7.5% this month.

BHP Billiton's woes are caused by flagging growth in China and elsewhere, and are the main reason that its share price is 1.4% lower than it was a year ago—a period during which the FTSE-100 has risen by 17%. BHP recently announced that it was cancelling its planned $20 billion Olympic Dam project in Australia, and would be reviewing certain other capital expenditure commitments—suggesting that it believes there may be further clouds on the horizon.

However, BHP's flagging share price has helped boost its yield to 3.7%, an attractive level for a miner—so if you believe an upturn may come sooner rather than later, now could be a good time to add BHP's shares to your retirement portfolio.

Read more from Motley Fool UK here...

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