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2 ASX shares to fund your retirement

With more than 1.9 million Australians now aged 65 years or more, there is an increasing number of people in retirement looking to self fund their living.

With this in mind, once you are retired and need to live off your capital I think there are a few important considerations. Most likely you want to receive a relatively high income yield, which is also stable and hopefully increasing. That way you can at least keep up with the rising cost of living.

I think the 2 ASX shares below fit the bill – both provide a relatively high and defensive yield which is also growing, making them well suited to a retirees portfolio.

Rural Funds Group (ASX: RFF)

Rural Funds is a real estate investment trust which specialises in agricultural farmland. It owns a diversified portfolio of 50 assets across varying asset types and climatic regions. These assets include almond, macadamias, cotton, vineyards, cattle and poultry assets.

Rural Funds has a forward dividend yield of 5.6%, which has been increased each year since it started paying it in 2014. This looks set to continue, as the company has a stated goal of increasing its dividend by 4% each year. Pleasingly, this growth looks sustainable as its weighted average lease expiry on its assets is 11.3 years. In addition, these leases are mostly linked to index with CPI, or have fixed indexation with market review. This gives a steady increase in revenue built into the lease agreements. 

Another important measure of dividend sustainability is a company’s payout ratio. This is the ratio of earnings paid out to shareholders as a dividend. RFF has forecasted a healthy payout ratio of 77% for FY20, slightly down from 78% in FY19.

Macquarie Group Ltd (ASX: MQG)

Macquarie has seen 50 years of unbroken profitability. Since listing on the ASX in 1996 it has grown its dividends at a constant annual growth rate (CAGR) of 13%, far exceeding inflation in that time!

In 1H20, it generated 69% of its income from outside of Australia giving it earnings diversification, which is also fairly evenly split between annuity-style and market-facing assets.

Macquarie’s latest dividend was 16% higher than the prior corresponding payment. The best part is that despite this dividend growth, it has a payout ratio of just 61% of net earnings, which is on the bottom end of its stated policy of paying out 60–80%. Pleasingly, this shows that it has managed this growth while remaining on the conservative side of its stated dividend payout policy.

Macquarie currently trades with a net yield of 4.21%, which is partially franked, giving it a grossed-up dividend yield of 4.99%. 

Foolish takeaway

Both of these shares provide healthy yields of around 5% with strong payment histories. They have been increasing the dividend each year and appear to be in a position to continue this into the foreseeable future. As a result, I think both would be suited to a retiree’s portfolio or for someone who is looking for an additional steady income.

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Motley Fool contributor Michael Tonon owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and RURALFUNDS STAPLED. 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.

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