3 Top Dividend Stocks to Maximize Your Retirement Income
Here's an eye-opening statistic: older Americans are more afraid of running out of money than of death itself.
Also, retirees who have constructed a nest egg have valid justifications to be concerned, since the traditional ways to plan for retirement may mean income can no longer cover expenses. Some retirees are now tapping their principal to make a decent living, pressed for time between decreasing investment balances and longer life expectancies.
Retirement investing approaches of the past don't work today.
For example, 10-year Treasury bonds in the late 1990s offered a yield of around 6.50%, which translated to an income source you could count on. However, today's yield is much lower and probably not a viable return option to fund typical retirements.
While this yield reduction may not seem drastic, it adds up: for a $1 million investment in 10-year Treasuries, the rate drop means a difference in yield of more than $1 million.
Today's retirees are getting hit hard by reduced bond yields - and the Social Security picture isn't too rosy either. Right now and for the near future, Social Security benefits are still being paid, but it has been estimated that the Social Security funds will be depleted as soon as 2035.
So what can retirees do? You could dramatically reduce your expenses, and go out on a limb hoping your Social Security benefits don't diminish. On the other hand, you could opt for an alternative investment that gives a steady, higher-rate income stream to supplant lessening bond yields.
Invest in Dividend Stocks
As we see it, dividend-paying stocks from generally low-risk, top notch companies are a brilliant way to create steady and solid income streams to supplant low risk, low yielding Treasury and fixed-income alternatives.
Look for stocks that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.
Going beyond those familiar names, you can find excellent dividend-paying stocks by following a few guidelines. Look for companies that pay a dividend yield of around 3%, with positive annual dividend growth. The growth rate is key to help combat the effects of inflation.
Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.
Bar Harbor Bankshares (BHB) is currently shelling out a dividend of $0.28 per share, with a dividend yield of 4.52%. This compares to the Banks - Northeast industry's yield of 3.24% and the S&P 500's yield of 1.77%. The company's annualized dividend growth in the past year was 7.69%. Check Bar Harbor Bankshares (BHB) dividend history here>>>
Orrstown Financial Services (ORRF) is paying out a dividend of $0.2 per share at the moment, with a dividend yield of 3.78% compared to the Banks - Northeast industry's yield of 3.24% and the S&P 500's yield. The annualized dividend growth of the company was 5.26% over the past year. Check Orrstown Financial Services (ORRF) dividend history here>>>
Currently paying a dividend of $0.59 per share, RTX (RTX) has a dividend yield of 3%. This is compared to the Aerospace - Defense industry's yield of 0% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 7.27%. Check RTX (RTX) dividend history here>>>
But aren't stocks generally more risky than bonds?
Overall, that is true. But stocks are a broad class, and you can reduce the risks significantly by selecting high-quality dividend stocks that can generate regular, predictable income and can also decrease the volatility of your portfolio compared to the overall stock market.
Combating the impact of inflation is one advantage of owning these dividend-paying stocks. Here's why: many of these stable, high-quality companies increase their dividends over time, which translates to rising dividend income that offsets the effects of inflation.
Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.
You may be thinking, "I like this dividend strategy, but instead of investing in individual stocks, I'm going to find a dividend-focused mutual fund or ETF." This approach can make sense, but be aware that some mutual funds and specialized ETFs carry high fees, which may reduce your dividend gains or income, and defeat the goal of this dividend investment approach. If you do wish to invest in a fund, do your research to find the best-quality dividend funds with the lowest fees.
Bottom Line
Seeking steady, consistent income through dividends can be a smart option for financial security in retirement, whether you invest in mutual funds, ETFs, or in dividend-paying stocks.
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Bar Harbor Bankshares, Inc. (BHB) : Free Stock Analysis Report
Orrstown Financial Services Inc (ORRF) : Free Stock Analysis Report
RTX Corporation (RTX) : Free Stock Analysis Report
