You can build a comfortable retirement on stocks and shares, if you are willing to take a little risk and put in a bit of effort.
While investing in individual company stocks is too complicated for many people, it can be highly rewarding for those who take the trouble.
Stocks offer an unparalleled combination of capital growth from rising share prices, and income from company dividends.
Globally, companies paid out dividends worth an astonishing US$447.5 billion in the second quarter, a record high, according to the latest Janus Henderson Global Dividend Index. Janus Henderson reckons global dividends will hit $1.2 trillion across 2017, a rise of 5.5 per cent on last year.
You can share in this regular cash windfall by investing in top income-paying stocks from around the world.
While you are still working you should re-invest that income back into your portfolio to generate further growth. However, after you retire you can start drawing those dividends as income to top up your pensions and other retirement earnings.
Building a portfolio of equity income stocks is therefore worth considering at any stage in your life, but you really feel the benefit in retirement.
The following 10 global companies could help form the building blocks of a balanced portfolio, but remember, investing in individual companies is always risky, no matter how safe and secure they may appear to be. This isn't for everybody, but it could just work for you.
Royal Dutch Shell
Yield: 6.13 per cent
Clem Chambers, founder of global investment website Advfn.com, picks out London-listed global energy giant Royal Dutch Shell as one of his favourite income stocks. This Anglo-Dutch oil and gas behemoth, which has a market capitalisation of $115bn, has a proud record of never once cutting its dividend since the Second World War.
Shell has maintained this record throughout the recent oil price collapse, by cutting costs and disposing of non-core parts of its business operations.
Currently, the stock yields a generous 6.13 per cent, far more than you will get on any savings account. However, you must understand the risks as well as the rewards.
Mr Chambers says he takes advantage of Shell's share price volatility. "Typically, I buy its stock whenever its share price has fallen appreciably, reinvest the dividends and wait for the recovery. The income is almost unbeatable."
Yield: 8.21 per cent
Mr Chambers also tips French-owned energy giant Électricité de France, better known as EDF Energy, which generates and trades energy, operates transmission grids, and is a specialist in nuclear power.
EDF, listed on the Paris stock exchange, has a market cap of $35 billion and annual revenues of $83 billion. It currently yields a whopping 8.21 per cent.
Investors are usually wary of companies with such heady dividends. The yield is calculated by dividing the dividend per share by the current share price, which means that if the stock falls the yield automatically rises. A sky-high yield is often a sign of a company in trouble.
However, Mr Chambers says EDF, which has 37 million customers worldwide, is in recovery mode after recent troubles, with its share price up 15 per cent over the past year. “I believe it will benefit from the global shift towards electric cars, as this will require an estimated 50 per cent surge in electricity production, massively boosting demand and revenues."
Taiwan Semiconductor Manufacturing Company
Yield: 3.12 per cent
Russ Mould, investment director at online platform AJ Bell, picks out the Taiwan Semiconductor Manufacturing Company as one of his favourite income stocks. “It is a world-leading contract maker of silicon chips and is well positioned to ride the current technology wave,” he says.
The stock has been growing strongly, rising 25 per cent in the past 12 months, and offers a steady yield of 3.12 per cent.
Mr Mould says the company's earnings can be cyclical but the long-term trend is upwards. “The dividend is well covered by earnings, and the company offers the prospect both of rising profits and growing dividends in the future.”
Firms that generate enough profits to increase their dividend year after year are particularly attractive as they allow you to buy into a rising income.
Although TSMC is based in Taiwan, Mr Mould says it is possible to invest in the company on the New York Stock Exchange by purchasing its American Depository Receipts (ADRs), which allow investors to buy stakes in foreign listed companies.
Yield: 2.8 per cent
US bank Wells Fargo has endured a tough year after it was revealed that employees had created millions of false bank accounts in order to hit their sales targets.
However, Mr Mould says the bank, which has a market cap of $275bn, is fighting back strongly with its share price up 26 per cent in the past year. "Despite the recent scandal Wells Fargo has a terrific franchise in the world’s largest economy. The bank is building a good dividend growth profile and comes with a yield of 2.8 per cent a year,” he says.
Legal & General Group
Yield: 5.47 per cent
Laith Khalaf, senior analyst at UK wealth advisers Hargreaves Lansdown, picks out London-listed insurer Legal & General Group as his preferred income play.
L&G, which has a market cap of $20 billion, has benefited from being a pioneer in passive tracker funds, which are proving increasingly popular among investors. It operates in the UK, US, the Gulf, Europe and Asia, and its asset management arm is the 10th largest in the world.
L&G’s share price has doubled over the past five years, and is up 20 per cent in the past 12 months, Mr Khalaf says. “It has recovered from the initial Brexit shock and currently offers a generous yield of 5.47 per cent. The company should also benefit from rising interest rates.”
Yield: 4.78 per cent
Global mining giant BHP Billiton may be listed in London but it is a truly international operation with copper, zinc, iron ore, coal and potash projects across the Americas, mining and mineral assets in Australia, and oil production across the US, Australia and Trinidad and Tobago.
The $36bn company’s massive diversification has helped it recover from the commodity stock sell-off in 2014 and 2015.
BHP Billiton paid off $10bn of debt last year, and plans to pay out a minimum 50 per cent of earnings in dividends in the future. Currently, it yields 4.78 per cent. “No miner is without risk, but BHP Billiton’s high quality assets make it one of the best placed miners to weather the commodity cycle,” Mr Khalaf says.
Yield: 3.77 per cent
Lee Wild, head of equity strategy at stocks and shares website Interactive Investor, names $345 billion oil giant Exxon Mobil as one of his top income stocks. “Oil companies have been through the wringer since the collapse in crude prices three years ago but, like Shell, Exxon Mobil is passionate about its dividend. It has increased annual dividends for 35 consecutive years and grown the payout by 10 per cent on average over the past five years.”
Exxon is highly disciplined with a strong balance sheet and cash flow, and is able to fund its dividend even if oil fell to $40 a barrel. “It currently yields 3.77 per cent and is well placed to keep increasing returns to shareholders,” says Mr Wild.
Yield: 3.93 per cent
Mr Wild also tips Dominion Energy, the US-based electric transmission and distribution operator. The firm has also been generous to its shareholders, increasing its dividend for 14 consecutive years. “This $50 billion company currently yields 3.93 per cent and recently announced plans to ramp up its annual dividend growth from 8 to 10 per cent until at least 2020.”
Dominion is on a strong financial footing and as well as the dividend, its share price is up nearly 12 per cent over the past year.
Yield: 5.25 per cent
The big banks are still in recovery mode a decade after the financial crisis, but some are performing better than others.
HSBC Holdings is a truly global bank, with exposure to fast-growing China. The London-listed bank, which has a market cap of $197bn, has seen its share price grow 30 per cent over the past 12 months. It still yields a generous 5.25 per cent.
HSBC’s latest interim results showed reported profit before tax of $10.2 billion in 2017, up 5 per cent year-on-year.
Ian Forrest, investment research analyst at online stockbroker Share.com, says: “The bank’s management is confident with revenue growth, stronger trading conditions, lower loan impairments and rising US interest rates all helping performance.”