The Motley Fool

Why retirees should buy Coles and Telstra shares for income

With term deposits offering paltry returns, I believe the share market remains the best place for retirees to invest their hard-earned money.

Whilst there are a good number of quality options for income investors, two quality dividend shares in particular jump out at me today. They are as follows:

Coles Group Ltd (ASX: COL)

The first ASX 100 share for retirees to consider buying is this supermarket giant. I think it would be a quality option for income investors in this low interest rate environment. This is because I believe Coles is well-placed to grow its earnings and dividend at a solid rate over the next decade thanks to its positive sales outlook and potential margin expansion from its focus on automation. The latter focus is expected to cut costs materially and make the company significantly more efficient. 

Another positive is its strong and defensive business model which has proven capable of delivering growth whatever the economy throws at it. Based on the latest Coles share price, I estimate that it provides investors with a fully franked 3.9% FY 2021 dividend yield.

Telstra Corporation Ltd (ASX: TLS)

While income investors may be a little wary of investing in Telstra after years of dividend cuts, I’m confident its dividend has reached the bottom and the cutting is now over. This is because with the NBN headwind easing and rational competition returning, Telstra appears well-positioned to generate sufficient free cash flows in the coming years to maintain its 16 cents per share fully franked dividend.

But perhaps best of all, is that I expect the company’s T22 strategy to result in the telco giant returning to growth once peak pain from the NBN rollout is reached in the next couple of years. This could mean Telstra starts to grow its dividend again from as soon as FY 2023. For now, based on the current Telstra share price, it offers investors an attractive fully franked 4.7% dividend yield.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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.

Related Articles...