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Building the right retirement portfolio partly depends on what your goals are.
Some investors want to keep accumulating capital. Others, eyeing the cost of living once they stop working, prioritise income.
Here are a handful of UK dividend shares I think income-focussed investors should consider for their portfolio.
Financial services giants
One place to look for high yields at the moment is in the financial services sector.
Take M&G (LSE: MNG) as an example.
The FTSE 100 asset manager has a dividend yield of 7.7% right now. The forward-looking yield is even higher, if M&G delivers on its aim to grow the dividend per share annually.
It has achieved that over the past few years. Its customer base is in the millions and M&G has proven itself capable of generating sizeable free cash flows that can help underpin its dividend.
One risk I see is investors pulling more funds out than they put in to M&G’s funds, reducing fee income. That has been a challenge in recent years and although the first half saw a positive trend, rocky financial markets mean such net outflows remain a risk.
Another FTSE 100 financial service giant with a high yield is Standard Life owner Phoenix Group (LSE: PHNX).
Its yield is even higher than M&G’s, at 8.3%. Like M&G, Phoenix has what is known as a progressive dividend policy, meaning it aims to grow its payout per share each year.
The firm’s focus on long-term savings and retirement products has given it specialist expertise. It also benefits from a massive customer base, of around 12m people.
One risk I see is that turbulent financial markets could potentially lead Phoenix to write down some asset values, hurting earnings.
FTSE 250 dividend shares
The FTE 100 index is not the only place to hunt for income shares for a retirement portfolio, of course.
I also think some in the FTSE 250 index merit consideration.
Broadcaster ITV saw its share price shoot up recently after speculation about interest in its broadcast business from a potential buyer.
The share price, though, is still 15% down over the past five years. That reflects ongoing challenges in the broadcast business, as digital rivals increasingly fragment the advertising market.
Still, ITV’s dividend yield of 6.5% looks tasty to me. The possible sale talk has highlighted the potential value in its profitable, well-established broadcasting business.
On top of that, the studios and production arm of ITV has unique assets that help it earn money.
While studios can be a money spinner, it is spins of a different type that have injected life into ME Group in recent years.
The old Photo-Me still has its picture booth business but has seen business boom partly thanks to its laundry machines.
One risk is that rivals try to muscle in to this economically attractive business space, pushing up rents for prime locations. Me Group shares yield 5.5%.
Long-term dividend raiser
The fifth share on my list is another FTSE 100 giant – British American Tobacco (LSE: BATS).
It has a 5.7% yield and an enviable track record of annual dividend per share growth stretching back decades.
Declining cigarette sales volumes pose a risk to both revenues and profits.
But the company’s strong brands give it pricing power and it has grown its non-cigarette business.