Have £3,000 to invest? Three FTSE 250 dividend stocks I’d buy today and hold forever

Retirement saving and pension planning
Retirement saving and pension planning

Finding stocks you can safely buy and tuck away for your retirement isn’t easy. One approach I like is to focus on companies that own long-term assets that generate a reliable income.

Today, I’m going to look at three FTSE 250 stocks which fit this description. Each firm offers a dividend yield of at least 5%.

Water and waste

Arguably, nothing is more fundamental to modern life than the supply and management of water, waste and recycling. Western society could not function without these services. My favourite stock in this sector is Pennon Group (LSE: PNN), which owns South West Water and recycling and waste management firm Viridor.

I like the group’s twin focus on water and waste. The regulated income provided by South West Water should be regular and highly predictable. Alongside this, I believe waste management and recycling offer opportunities for growth. This potentially allows Pennon shareholders to enjoy the best of both worlds.

Tuesday’s half-year accounts suggested that this formula is still working well. Revenue rose by 3.1% to £746.7m during the period, while pre-tax profit was 2.9% higher, at £133.6m. A lower tax bill helped boost post-tax profit, lifting earnings per share by 17.4% to 25.6p.

Shareholders will be rewarded with a 7.3% dividend increase, which puts the stock on track to deliver a yield of almost 5.5% for 2018/19. In my view, Pennon shares rate as an income buy.

Global infrastructure

If you want exposure to a wider range of infrastructure projects in the UK and overseas, HICL Infrastructure Company (LSE: HICL)might be a better choice. This £2.9bn market cap firm invests about 71% of its cash in the UK, with the remainder spread across the EU, North American and Australia.

Projects include hospitals, schools, roads, wind farms and water treatment facilities. The average asset life is 30 years, providing good long-term visibility for income. The fund’s net asset value per share was 156.4p at the end of September, broadly in line with HICL’s share price.

Many of the firm’s projects provide contracted income streams that rise each year with inflation. This is reflected in HICL’s dividend, which has kept pace with inflation for a number of years.

The stock offers a forecast yield of 5% for the current year. Trading on 12 times forecast earnings and at 1x book value, I think the price is fair. I’d be happy to buy at this level.

A cash machine?

My final choice is a company that owns long-term financial assets which generate fairly predictable cash flows. Phoenix Group Holdings (LSE: PHNX) is an insurance firm which specialises in buying up closed books of life assurance policies from other insurers, and running them to completion.

The group recently took a step up in size when it acquired the life assurance business of Standard Life Aberdeen for £2.9bn. This deal is expected to generate an extra £5.5bn of cash flow, including £1bn between 2018 and 2022.

Management expects this improved cash generation to support continued dividend growth. Analysts’ forecasts suggest a payout of 46p per share this year, giving Phoenix stock a forecast dividend yield of 7.6%.

For investors who want to receive the majority of their shareholder returns in the form of cash income, I believe Phoenix could be a good long-term buy.

Five Income Stocks For Retirement

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Pennon Group and Standard Life Aberdeen. 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.