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Why I would buy Woolworths and this ASX share for a retirement portfolio

When you’re young and first start investing, you might buy fledgling growth shares for their high risk, high reward gains. This is because if things don’t go to plan, you have plenty of time to bounce back and recover your losses.

Things are very different when you approach retirement. At this point I think investments should focus on capital preservation and income.

But which shares would be great core holdings in a retirement portfolio? I think the two ASX shares listed below would be great options. Here’s why:

Rural Funds Group (ASX: RFF)

The first option to consider adding to a retirement portfolio is Rural Funds. It is a real estate investment trust which owns a diversified portfolio of high quality Australian agricultural assets that are leased to experienced agricultural operators. These include macadamia orchards, cattle assets, cotton assets, vineyards, and almond orchards. The latter two assets include Treasury Wine Estates Ltd (ASX: TWE) and Select Harvests Limited (ASX: SHV) as tenants.

Thanks to its ultra long-term tenancy agreements and periodic rent increases, I believe Rural Funds is in a strong position to deliver on its target of growing its distribution by ~4% per annum over the long term. Another positive is that Rural Funds pays its distribution in quarterly instalments, which provides investors with a regular source of income. In FY 2021 Rural Funds intends to pay an 11.28 cents per share distribution. Based on the latest Rural Funds share price, this equates to a 5.2% yield.

Woolworths Limited (ASX: WOW)

Another top option for a retirement portfolio could be Woolworths. I think it would be a good option for retirees due to the conglomerate’s numerous quality brands. These include Woolworths supermarkets, Dan Murphy’s, BWS, and BIG W. As a whole, I believe they are well-positioned for growth thanks to their defensive qualities and strong market positions.

Another potential driver of value in the future could be its supply chain improvement plans and the proposed spin-off of its $10 billion Endeavour segment. While the latter may be delayed until after the pandemic passes, I believe it could create value for shareholders. In the meantime, and based on the latest Woolworths share price, I estimate that it offers a fully franked 2.7% FY 2021 dividend yield.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool Australia owns shares of Woolworths 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.

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