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Picking the right retirement shares is a tricky business. Dividends can help fund plans well into the future, but even the most reliable payouts can be cut, delayed or even scrapped entirely.
Of course, diversification is key when building a portfolio for the long haul. Reducing single-stock risk in a portfolio is a bit of an easy win, and can help to weather the storm as the market has its ups and downs over time.
However, there are still a couple of large-cap stocks I like as retirement portfolio prospects. Both companies have strong business models, are industry leaders and have a history of stable or growing dividends.
I think investors who are building up their retirement portfolio with a long-term view should consider if either of these two are right for them.
Consumer goods giant
Unilever (LSE: ULVR) is the first of my retirement shares to consider. With a dividend yield of 3.2%, the stock pays a solid if slightly-below-average payout compared to the wider FTSE 100 index.
What I really like is the diverse brand portfolio across verticals like personal care, home cleaning and food products. This broad range gives Unilever access to a huge customer base with diverse tastes and helps to steady demand even when times get tough.
Management has shown a willingness to pay a reasonable and sustainable dividend over time. In fact, Unilever hasn’t paid a quarterly dividend of less than 30p per share since March 2017.
While Unilever is a globally recognised brand and industry leader, it’s not without its risks. Being consumer-facing can be a tough business, particularly if the economy slumps. While the product range can help, the consumer goods business is fiercely competitive. Shifting consumer habits, combined with ever-present cost pressures, could impact future profitability and limit dividend growth..
Pharmaceuticals giant
AstraZeneca (LSE: AZN) is another income stock that has caught my eye. Pharmaceutical stocks are often seen as a defensive play, and AstraZeneca is a prime example. I think the firm’s cutting-edge drug pipeline and global footprint position it well for sustained long-term growth.
The company’s dividend yield of 2.1% isn’t the punchiest on the market. However, I like the non-cyclical nature of the industry it operates in, which could help to deliver consistent payouts through the economic cycle.
Like Unilever, it is also recognised as a global leader in its field. The company’s valuation in excess of £170bn also makes it the largest company in the Footsie by market cap.
Significant reinvestment in research and development has helped to boost revenue growth and I think the company is well-positioned to deliver future dividends to investors.
That said, there are no guarantees in the pharmaceuticals business. Competition is rife, drugs are subject to rigorous trials, there are regulatory hurdles, and patents don’t last forever.
Research and development costs are high but returns can take years to materialise (if at all). That means future earnings can be uncertain despite the more defensive nature of the industry.
Verdict
Both Unilever and AstraZeneca offer attractive qualities as possible retirement shares.
While their yields aren’t the highest, their defensive nature and consistent performance make them potentially appealing and worth considering. Spreading investments across multiple shares can help to build a balanced portfolio, reducing overall risk and providing greater peace of mind.
