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Another year is drawing to a close and we’re all a bit closer to retirement, but have we got our ISA and SIPP accounts sorted out? We Britons often leave things until the last minute, and surveys typically find around a third of us don’t have any retirement plans beyond the State Pension.
ChatGPT was quick to unearth a few share options for a SIPP, but all this really did was show that quite a few analysts are talking about them. Still, three of the most popular right now are among my favourite dividend stocks. That’s encouraging but didn’t exactly teach me anything.
British American Tobacco
As we see from the chart above, British American Tobacco (LSE: BATS) shares have climbed strongly in the past couple of years — just like the other two. But we’re still looking at an attractive prospective dividend yield of 5.7%. And more importantly in my books, it’s raised its annual dividend for more than 25 years in a row, matching the coveted S&P 500 Dividend Knight status.
British American is worth considering for a SIPP well, in my view, as it pays quarterly dividends. That shouldn’t matter when we’re building up our retirement pots and reinvesting the cash. But once we’re drawing income, regular payments can make things a bit smoother.
The main risk might seem obvious — the whole tobacco thing. Will it finally go out of fashion, and what might regulation do to it? I think it could be around for a good while yet.
National Grid
Let’s start with perhaps the biggest risk facing National Grid (LSE: NG.) shareholders. The bedrock of many a retirement portfolio launched a massive £7bn equity issue in May 2024, aimed at contributing to £60bn in new energy infrastructure spending.
It rattled the share price and reset the per-share dividend downwards from 2025. And it blew the cobwebs off investors who’d assumed the company would never change and would just keep on paying more and more each year. Lesson: no dividend is ever guaranteed, and there are no exceptions.
The reminder that this can be a capital-intensive business is welcome. But I still rate National Grid as a long-term cash cow to think about. We’re looking at a more modest 4.1% dividend yield now. But it should be strongly covered by earnings. And forecasts show progressive rises over the next few years.
Aviva
I bought Aviva (LSE: AV.) for its long-term dividend potential, with an eye on its turnaround strategy. And it’s come through on both counts. With the share price more than doubling in the past five years, the forecast dividend yield is now down to 5.5%. But that’s still attractive, beating even today’s high inflation.
At interim results time, Aviva maintained “guidance for mid-single digit growth in the cash cost of the dividend beyond FY2025.” And that matches forecasts for well-covered growth in the next few years.
My main concern is the Aviva share price might be getting a bit toppy now, with a forward price-to-earnings (P/E) ratio of 14. I’m not sure that leaves enough safety room for the cyclical risk that always accompanies this sector. But it’s still a firm hold in my own retirement plans.
