If you want income when buying shares in retirement it's no use buying a stock on a 2.5% yield in anticipation of that yield growing to 5% in 5 years' time.
After all if you're in retirement and have no regular pay check coming in you'll want income today, not tomorrow.
You'll also potentially have a huge pile of superannuation burning a hole in your pocket, which means you'd prefer to look to the more reliable blue-chip end of the market for your investment returns.
You could look to a blue-chip asset manager like Macquarie Group Ltd (ASX: MQG), as it's been growing its earnings per share and dividends at a cracking pace recently and is still likely to offer a yield close to 5% in the 12 months ahead.
However, a steadier bet may be a former Macquarie-owned asset in Sydney Airport Holdings Ltd (ASX: SYD).
It offers a big yield, monopoly like defensive revenues, pricing power, and the tailwinds of growing inbound tourism from China in particular.
It's expecting to pay 39 cents per share in calendar year 2019 that places it on a yield of 5.3% over the next 12 months if it delivers on its target.
Importantly the total dividend payout is expected to be more than covered by its net operating cash profit over the year. The payout would represent a 4% lift on the 37.5 cents per share paid in 2018.
Moreover, the airport possesses some of the strongest pricing power among companies on the local market as carpark users or even airlines paying landing fees have no choice but to pay if they want to use the airport.
As such it can keep lifting fees across the board within reason, which is something very few other companies can do. Pricing power is an often underestimated quality in businesses and only the very best returning businesses possess it over the long term.
The airport's monopoly like status provides the defensive revenues and profits with the growing number of Chinese and wider South East Asian tourists providing a good long-term tailwind.
It should also perform reasonably well throughout economic cycles, although of course in the event of a serious economic downturn it's likely to suffer like every other blue chip.
Should you buy now?
To be honest I'm kicking myself for not picking up shares when they regularly fell below $6.50 in the final quarter of 2018 as at that price or under it offered a forward yield over 6% to compensate for the investment risks.
As such I'd be reluctant to pay more than $6.50 for the shares, but given the outlook for cash rates in Australia I'm not surprised the shares have been bid higher to $7.41 today.
However, investors should remember that substantials risks exist in particular around its debt load and the possibility of a force majeure or unavoidable catastrophe such as a terrorist event destroying the business model over the short term at least.
Therefore as a buyer, if I were being generous, I'd want the stock closer to $6.50 than $7.41.
