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In 2025, the full UK State Pension works out to be roughly £11,975 a year. That’s certainly a lot better than nothing. But alone, it’s far from sufficient to live comfortably. For reference, according to Pensions UK, the minimum cost of living is closer to £13,400.
However, by investing prudently in high-quality, dividend-paying companies, individuals can seek to match or even exceed the State Pension. And with UK stocks having some of the most generous dividend policies in the world, investors are spoilt for choice.
In fact, at its current payout, just 7,212 Spirax Group (LSE:SPX) shares can offer the same payout as the State. And with a 26-year track record of hiking shareholder payouts, the stock could be a lucrative goldmine of passive income.
So how much do investors need to buy the roughly 7,200 shares needed? And is it actually a good idea?
Crunching the numbers
Most UK shares tend to trade below the £10 mark. Sadly, Spirax isn’t one of them. Rather, due to a relatively low number of shares outstanding, the stock trades closer to £70. Therefore, to build a 7,212 share position, an investor would need around £508,450.
Needless to say, that’s pretty substantial. Even with a high dividend per share, the company’s phenomenal track record of expanding cash flow and dividends hasn’t gone unnoticed. With more investors snapping up shares, the company enjoys a fairly significant premium to its market-cap, resulting in a relatively low 2.4% yield.
Considering there are other FTSE 100 stocks offering yields closer to 6%, Spirax doesn’t exactly seem like a terrific bargain right now. However, given enough time, that could change.
On average, management’s increased dividends by around 10% a year. So while the yield isn’t very impressive right now, in the long run it could compound into something far more spectacular. And by reinvesting dividends along the way, investors may not actually need channel half a million to enjoy an extra £12,000 annual passive income.
Is Spirax a good investment?
As a leading thermal and fluid engineering specialist, Spirax is a critical piece within the industrial processes value chain that countless other industries rely upon. This includes the healthcare sector, pharmaceuticals, transportation, energy, and even food production.
None of these industries is at risk of disappearing anytime soon. What’s more, they’re also highly resilient to economic downturns, enabling Spirax’s cash flows to benefit as well. With that in mind, it isn’t so surprising to see the business continue to exceed expectations and outperform in 2025.
Is it a perfect investment? Of course not – there’s no such thing.
Analysts have started flagging potential headwinds coming from artificial intelligence (AI), specifically the risk of industrial optimisation enabling longer equipment replacement cycles as well as shifting demand patterns.
In both cases, that’s potential headwinds that could hamper future sales and dividend growth. And with a premium valuation, a slowdown could open the door to unwanted volatility.
Despite these threats, I remain optimistic. Management’s proven its ability to navigate through cyclical and structural shifts throughout the company’s history. And while there are high-yielding dividend stocks out there, I think income investors may still want to take a closer look.
