With interest rates at historically low levels and further cuts anticipated, investors who are saving for their retirement are yielding almost nothing from their term deposits. If you're planning for your retirement, now is the best time to take advantage of the outstanding yields offered by Australian shares.
A retiree's portfolio should hold primarily safer stocks, with a much lower risk of downturn than small caps. But the problem with "safe" companies such as Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ) and Wesfarmers (ASX: WES) is that they already seem to be fully priced.
I'd suggest instead that investors seek well-known stocks that are undervalued and offer a great dividend yield, to compound your investment. Here are three cheap stocks that are perfect for investors wanting to cruise through their retirement.
M2 Group
M2 Group (ASX: MTU) offers growth and dividends at a cheap price, the whole package indeed. The telecommunication provider is the owner of brands such as Dodo, Primus, Commander and Eftel. M2 has been growing earnings comfortably for the past 10 years and has more room for growth.
It has recently completed its negotiation of the Telstra Wholesale agreement, which seems both commercially and economically beneficial, supporting profit margins. Furthermore, M2 has had an exceptional track record of successful acquisitions and the introduction of its power and gas bundling businesses creates massive potential to replicate its success.
Although its share price has gained over 160% in the last three years, M2 is trading at a cheap price-to-earnings ratio of only 11.4 and offers a modest 3.8% fully franked dividend yield. M2 is definitely stock to buy and hold to build your retirement fund.
Coca-Cola Amatil
Coca-Cola Amatil (ASX: CCL) has been hammered recently due to poor consumer confidence, margin pressures from the big supermarket chains such as Woolworths (ASX: WOW) and massive write-downs from its struggling SPC Ardmona fruit cannery. But this shouldn't scare investors. In fact, legendary investor Warren Buffett took advantage of Coca-Cola in a similar situation and made it one of his most lucrative investments.
These short-term setbacks are insignificant given Coca-Cola's long-term prospects and stunning brand reputation. The aggressive structural changes and management reforms aim to reduce its cost base and improve efficiencies within its business functions. These optimistic tailwinds should drive growth for many years to come. Selling at such a cheap price and offering a fat dividend yield of 5.4%, Coca-Cola is a share that I would consider for my retirement portfolio.
