When you’re retired you want a good amount of income from your portfolio. Negative gearing from property isn’t much good – you want positive cashflow to fund your lifestyle, not a negative cashflow!
That’s why I think shares are great for generating the income you need in retirement. However, you shouldn’t just buy any old shares. Just because something is considered a blue chip, like Telstra Corporation Ltd (ASX: TLS), doesn’t mean it’s a good idea.
The underlying business has to be solid or else you could end up on the receiving end of a dividend cut.
That’s why I think these three shares could be good for retirees:
WAM Leaders Ltd (ASX: WLE)
WAM Leaders is a listed investment trust (LIC) that focuses on 200 of the biggest companies on the ASX. This hunting zone should hopefully provide more consistent returns whilst also still giving the investment team the flexibility to beat the index.
Over the past year the WAM Leaders portfolio has returned 17.8% before fees compared to the S&P/ASX 200 Accumulation Index’s return of 13%. WAM Leaders has managed to achieve this outperformance whilst holding some cash, the portfolio was 13.3% cash at the end of June 2018.
The WAM LICs have a good track record of increasing the dividend over time. WAM Leaders currently has a grossed-up dividend yield of 6%.
Magellan Global Trust (ASX: MGG)
Magellan Global is a listed investment trust (LIT) that looks to give its investors exposure to the highest quality businesses in the world. Some of the names it has invested in are Apple, Facebook, Alphabet (Google), Kraft Heinz, Visa, Mastercard and Oracle.
The LIT aims to outperform the MSCI World Index and also pay a distribution yield of 4% of its net asset value (NAV). So far it does achieved both of those goals and under Hamish Douglass’ management I imagine it will continue to perform.
Challenger Ltd (ASX: CGF)
Many people are expected to turn their capital into a guaranteed source of income with an annuity. Challenger is the clear leader in this space and is expected to benefit substantially from the growing retiree population over the next decade or two.
It could be a more profitable idea to simply invest in Challenger shares rather than buying an annuity.
It’s currently trading at 17x FY19’s estimated earnings with a grossed-up dividend yield of 4%.
I’d be very happy to have these three shares as part of my retirement portfolio. At the current prices I’d probably be drawn to Magellan Global Trust because of its quality holdings, whilst Challenger could also be a very good long-term buy – but the short-term could be volatile with rising interest rates.
I’m uncertain about a lot of Australia’s biggest companies at the moment, which is why I’d place WAM Leaders as third on my list.
Another option for a retiree portfolio could be this top dividend stock which is defensive and is predicted to grow its dividend by more than 25% this year.
You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!
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Motley Fool contributor Tristan Harrison owns shares of Challenger Limited and MAGLOBTRST UNITS. The Motley Fool Australia owns shares of and has recommended Challenger Limited. 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 Scott Phillips.