I am trying to build a retirement portfolio for my father who would be retiring in a couple of months having no debt, living in own house and also having two years worth of expenses as emergency fund.
The goal of this portfolio would be to invest in stable, companies which can’t be easily disrupted and having a relatively higher dividend payout. My target is to generate around 3-4% dividend which can cover annual expenses and would possibly grow to cover inflation. All in all, these stocks are to be held as long as they are paying out decent dividend which they are increasing year after year.
These are some stocks which I have shortlisted:
Bajaj Auto/Hero Moto Corp: Both of them are having huge amounts of cash on their balance sheet. Although two wheelers are considered cyclical, they are not as cyclical as they look. With a dividend yield around 3-4% at CMP, these look attractive bets which can increase their dividends going forward.
Infosys/TCS: These also have huge cash on their books along with a highly stable business model. Dividend yield around 2-3% at CMP. With a cash generating business, these continuously raised their dividends consistently.
ITC: Powerful cash generating cigarette business. With the new dividend policy, the current dividend yield stands at more than 5%. This evergreen business will continue to throw cash and additional profitability from FMCG business is a bonus.
Colgate Palmolive India: Strong brand with around 55% market share, this is another stable business with dividend yield of 2-3%. Although it might not grow much, but a stable 8-10% growth is fine.
Marico: Market leader in hair and cooking oil. Along with this, the company is trying to invest in new venture which can drive further growth. Dividend yield around 2-3%
Power Grid: Virtual monopoly business. Continuous revenue from their grids. Very unlikely that a private player will enter, due to very high investments. Dividend yield is more than 5%.
Mahanagar Gas: Another utility business. A monopoly in the areas which it caters to. Dividend yield around 3-4%
Please mention your allocation levels and if possible average price.
Now coming back to your stock selection its fairly decent stocks with good dividend yield. I would like you to consider growth in business along with dividend yield because if stock price decline and you get dividend then its of no use.
I hope your father has some kind of fixed income like FD or Pradhan Mantri Vaya vandana scheme(7.4% interest rate with pension upto 12.5k per month).
Although I think investment in equities should not be done keeping dividend as top priority as dividend should be by product of growth. If underlying business does not grow and does not do well, dividend yielding stocks become traps.
Having said that, I see you have very carefully chosen your picks and they all are solid companies. I do not have idea about Mahanagar Gas business and the auto stocks can be tricky with multiple disruptions around. Rest - ITC, Infy/TCS, Colgate, Marico and Powergrid look stable businesses.
One suggestion - You can also look at excellent business wih slightly lower dividend, maybe 1-2% as with their excellence in business in 2-3 years, your dividend would come to your 2-3% range or maybe more.
I would not go stock specific as I presented an idea. But yes, among financials, HDFC Bank seems one of the better picks.
Having said that, financials are always the most risky investment bets.
You should lock in the current rate and max out (15+15L) in Senior Citizen Savings scheme provided your parents meet the age eligibility. After that whatever is excess should be invested across Gold, FD and equity. Objective of the assest allocation should be to retain their current lifestyle. In my opinion no need to have heavy equity exposure.
U can put money according to Ur risk in cororate fd like bajaj finance,HDFC ltd,or some portion in Tamil Nadu power finance(8.25 )or kerela transport finance fd and can also open AC in small finance AC where u can easily get up to 8% return(upto 5 lakh).
Instead of keeping money in saving @c(senior citizens) can do auto sweep in deposit(multi option deposit)in SBI and can opt for monthly interest payout option or quarterly.it provides 6.2%currently and provides liquidity like a savings ac.
Love your picks. My stable portfolio has good overlap with what you have picked.
As others have mentioned, I would suggest not to have > 60% equity exposure and invest in fixed income also as it is for your parents who might not like wild swings in stock values…
1 point to add. Suggest considering few media stocks as well. They are providing very good dividend yields (Eg: DB Corp and Jagran newspapers, TV Today (Aaj Tak & India Today), Zee and Sun TV etc.). Market has beaten down some of them to low single digit PE as if their death is near. So, good upside potential also.
Your portfolio comprises great stock, which has performed well in the past.
but there are various things which one should consider for a retiring person.
like
what is the actual portfolio distribution between them, and the amount you have invested in them.- as the amount of dividend given in the past is not we should base our thesis for the future as it as stocks can be unpredictable.
2.you should include a portion of debt fund as they are stable return providers when the equity is not performing well. Consider an investment in the gilt fund and liquid funds.
you can consider options like investing in mutual funds monthly dividend scheme where you can get 2-3% as an annual dividend on a monthly basis. There are substantial funds like HDFC balance advantage monthly dividend and growth plans which have made a significant chunk of money and their renowned management can be trusted.
4.now dividends are taxable to shareholders directly, so keep that in mind before investing your money into direct equity and mutual funds for purpose of dividends
People generally have kept their money in FD and in lockers as to cater their necessity needs- as you said above that emergency fund for 2 years expenses are already been made. you can use the left over funds to start a SWP in funds after a time as it will not just be an income for your father but it will also allow your funds invested to be above inflation levels
There is a website called trendlyne u can Google it
It has high dividend paying portfolio ,shuffles every 3 months …it gives u far better result in every condition ,u hv to just took manual trades quaterly, for decrease drawdown u can use CTC order type in zerodha with predefined stoploss, paid site 6000 per yr but u can ask them for demo …a must for calm n cool life
Just a curious question as all discussions on retirement and many, including me, suggest decent part in fixed income like FD or gov backed retirement instruments. All these are dependent on interest rates, so I was curious what do retirees in countries like US do for fixed income where interest rates are practically 0. How much does annuities, FD pay there and how do these people generate regular income? Thanks
I would like to look power grid from a different angle …
yes power grid is stable dividend paying company ,
but its debt / equity ration is 2.14 …
debt has grown from 41k cr to 146 kcr over last 10 years … yes its govt back company and monopoly sort of business …
please do take debt into consideration when you chose dividend paying companies …
they should be paying dividend from cash generated from company after the investment in company needs …
