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3 discounted dividend stocks to boost your retirement income

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Reserve Bank of Australia governor Glenn Stevens has become quite vocal recently about the challenges that retired or retiring investors face.

In comments reported in Fairfax media recently, Mr Stevens warned investors that ‘the price of buying a given annual flow of income has gone up a lot.’

In fact, according to the chairman of retirement income at Challenger Ltd (ASX: CGF) – quoted in the same article – investors retiring with $1 million in assets can expect to receive around $1,297 per fortnight, i.e., the same as the age pension.

So if you have less than $1 million in assets or want to live a more upmarket lifestyle, your investments are going to have to work a lot harder now than they have in recent years.

Buying value stocks with defensive characteristics and growing dividends is a good way to go, and the three stocks in today’s article have a lot to offer any investor:

FlexiGroup Limited (ASX: FXL) – trades on a P/E of 12, high-single digit growth, 5% yield fully franked

Trading on a Price to Earnings (P/E) equation of 12, FlexiGroup is definitely in the cheaper half of the ASX, especially considering its reasonable growth prospects and solid dividends.

Investors are apparently nervous over the headwinds facing the retail industry, but with FlexiGroup’s business still growing in the slim times I expect there should be further improvements once the sector rebounds.

Recent acquisitions in New Zealand and the potential for longer-term benefits from rising interest rates (improving the relative appeal of the FlexiRent offering) makes FlexiGroup look like a sound buy for the income and growth focussed investor.

Collection House Limited (ASX: CLH) – P/E of 15, double-digit growth, 3.8% yield fully franked

Debt collector Collection House has a powerful business model – buying the bad debts from companies like Commonwealth Bank of Australia (ASX: CBA) for a discount and collecting on them to turn a profit.

It’s a strategy that has delivered double-digit profit growth every year (except one) since the GFC, and given that interest rates and bad debts are so low, it’s easy to see how business could improve once rates rise again.

For this reason I believe that Collection House has powerful defensive and growth attributes that make it well suited to virtually any investor.

Woolworths Limited (ASX: WOW) – P/E of 15, low single digit growth, 4.7% yield fully franked

Good old Woolworths. While it might be out of favour at the moment thanks to Masters Hardware and sales growth that continuously lag competitor Wesfarmers Ltd (ASX: WES), Woolies isn’t going anywhere.

People will always buy groceries and petrol, Woolworths will continue to deliver strong, defensive profits, and once management gets a handle on the sales side of things investors could see a return to decent sales growth.

Buying at today’s low prices additionally increases your likelihood of achieving capital gains over time which, combined with a strong dividend and modest earnings increases making Woolworths shares appealing to retirees.

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Returns As of 6th October 2020

Motley Fool contributor Sean O'Neill owns shares in Collection House Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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