3 Top Dividend Stocks to Maximize Your Retirement Income
Believe it or not, seniors fear running out of cash more than they fear dying.
And retirees have good reason to be worried about making their assets last. People are living longer, so that money has to cover a longer period. Making matters worse, income generated using tried-and-true retirement planning approaches may not cover expenses these days. That means seniors must dip into principal to meet living expenses.
In today's economic environment, traditional income investments are not working.
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.
The impact of this rate decline is sizable: over 20 years, the difference in yield for a $1 million investment in 10-year Treasuries is more than $1 million.
In addition to the considerable drop in bond yields, today's retirees are nervous about their future Social Security benefits. Because of certain demographic factors, it's been estimated that the funds that pay the Social Security benefits will run out of money in 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
We feel that these dividend-paying equities - as long as they are from high-quality, low-risk issuers - can give retirement investors a smart option to replace low-yielding Treasury bonds (or other bonds).
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.
Kite Realty Group (KRG) is currently shelling out a dividend of $0.24 per share, with a dividend yield of 4.58%. This compares to the REIT and Equity Trust - Retail industry's yield of 4.48% and the S&P 500's yield of 1.72%. The company's annualized dividend growth in the past year was 26.32%. Check Kite Realty Group (KRG) dividend history here>>>
New Jersey Resources (NJR) is paying out a dividend of $0.39 per share at the moment, with a dividend yield of 3.24% compared to the Utility - Gas Distribution industry's yield of 3.25% and the S&P 500's yield. The annualized dividend growth of the company was 7.59% over the past year. Check New Jersey Resources (NJR) dividend history here>>>
Currently paying a dividend of $0.27 per share, Perrigo (PRGO) has a dividend yield of 3.3%. This is compared to the Medical - Products industry's yield of 0% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5%. Check Perrigo (PRGO) 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.
An advantage of owning dividend stocks for your retirement nest egg is that numerous companies, particularly blue chip stocks, raise their dividends over time, helping alleviate the impact of inflation on your potential retirement income.
Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.
If you're interested in investing in dividends, but are thinking about mutual funds or ETFs rather than stocks, beware of fees. Mutual funds and specialized ETFs may carry high fees, which could lower the overall gains you earn from dividends, undercutting your dividend income strategy. Be sure to look for funds with low fees if you decide on this approach.
Bottom Line
Pursuing a dividend investing strategy can help protect your retirement portfolio. Whether you choose to invest in stocks or through low-fee mutual funds or ETFs, this approach can potentially help you achieve a more secure and enjoyable retirement.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Kite Realty Group Trust (KRG) : Free Stock Analysis Report
Perrigo Company plc (PRGO) : Free Stock Analysis Report
NewJersey Resources Corporation (NJR) : Free Stock Analysis Report
