Why Barratt is a FTSE 100 dividend stock that could help you to beat the State Pension
With the State Pension amounting to just under £164 per week, many people are going to find themselves in need of alternative sources of income in retirement without doubt. The FTSE 100 continues to offer a relatively impressive yield, which is just below 4%. However, housebuilder Barratt (LSE: BDEV) could deliver a significantly higher income return over the medium term.
Of course, it's not the only FTSE 350 share with dividend-investing potential. Reporting on Tuesday was a FTSE 250 share with a yield that appears to be well-covered at the present time.
Strong performance
That company is precious metals mining group Polymetal (LSE: POLY). It reported half-year results which showed it was able to deliver an impressive financial performance. Revenue increased by 16% to $789m, driven by gold equivalent production growth of 11%. Average realised prices were up 6% for gold, while silver was down 4%.
All-in sustaining cash costs amounted to $893/GE oz, which was a 1% reduction on the same period in the prior year. Costs are due to decline further in the second half as a result of seasonally-higher production and sales.
Looking ahead, Polymetal is expected to report a rise in earnings of 32% in the next financial year. This means that dividend growth could be impressive, with the stock expected to yield 7% in 2019. While the gold price could be volatile as US interest rates rise, the company's shareholder payouts are expected to be covered twice by profit next year. This suggests that further dividend growth could be ahead in the coming years.
Margin of safety
Barratt's dividend prospects also appear to be highly appealing to those investing for retirement. The company has one of the highest yields in the FTSE 100 at present, when special dividends are included, standing at 8.3%. That's more than double the yield of the wider index. Since dividends are expected to be covered 1.5 times by profit this year, they seem to be highly sustainable and could even increase over the medium term.
Although the outlook for the UK economy continues to be challenging ahead of Brexit, housebuilders are still reporting positive trading conditions. Demand is ahead of supply and this could be helped further by low interest rates and the government's Help to Buy scheme over the next few years. As such, the financial performance of housebuilders could be stronger than many investors are currently anticipating.
With Barratt forecast to post a rise in its bottom line of 4% in the next financial year, its outlook seems to be upbeat. Its price-to-earnings (P/E) ratio of 7.8 indicates that it could offer a wide margin of safety should trading conditions deteriorate during the Brexit process. As such, now could be a perfect time to buy, with the potential to provide an impressive income return to boost the State Pension.
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Peter Stephens owns shares of Barratt Developments. 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.
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