Finding income stocks that you can retire on is a tricky process. Finding the best income stocks is hard in itself, but finding stocks that can continue to pay a dividend decades down the line is near impossible. But it's not completely impossible. There are some companies out there today that have all the hallmarks of long-term dividend champions.
Well-placed for growth
G4S(LSE: GFS) may not be the first company that comes to mind when thinking about dividend stocks, but I believe the company is well placed to capitalise on the rising demand for outsourced security services around the world.
G4S has hardly been the model company over the past 10 years. A number of scandals have rocked the group, and at one point analysts were questioning whether or not the firm could ever recover from the reputational damage.
So far, it looks as if these concerns are unfounded. For 2016 revenue jumped by more than 10% to £7.6bn while pre-tax profits increased 17.9% to £461m. Further growth is expected in the years ahead as the company unwinds unprofitable legacy contracts. The very fact that revenue grew last year thanks to a new global security contract for a major bank, and new facilities management services in Ireland shows that G4S's reputation is recovering and management can now build on this to continue growing.
Now that the company has learned from its mistakes, future growth should be more predictable. And it's not as if the firm will find it hard to get work. The UK security guarding services market is worth £5bn alone and is growing at a rate of 5% to 8% per annum. Meanwhile, the US contract security market is worth $43bn and has increased at a rate of around 4% per annum for the past few years. Growth in markets such as airport security is much faster than the average.
G4S is well placed to both grab market share and grow in line with the rest of the security industry, and as long as the company continues to put its reputation first, shareholders should be able to reap the benefits.
Shares in the company currently support a dividend yield of 3.2%, and according to current City forecasts, the payout will be covered twice by earnings per share for full-year 2018.
Just as G4S's reputation will ensure that the company can continue to grow, National Grid (LSE: NG) has an existing presence around the UK that virtually guarantees the firm will be able to produce dividends for investors for decades to come.
The group owns the majority of the UK's electricity infrastructure, which would be impossible for any competitor to replicate. With this being the case, National Grid has an enormous competitive advantage and earnings stability available to virtually no other company. As there is little risk to its earnings, the firm's dividend is one of the most secure on the market. Shares in the company currently support a dividend yield of 4.3%, and the payout is covered 1.5 times by earnings per share.
On the road to a million
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.