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 unfortunately, even retirees who have built a nest egg have good reason to be concerned - with the traditional approaches to retirement planning, income may no longer cover expenses. That means retirees are dipping into principal to make ends meet, setting up a race against time between dwindling investment balances and longer lifespans.
The tried-and-true retirement investing approach of yesterday doesn't work today.
In the past, investors going into retirement could invest in bonds and count on attractive yields to produce steady, reliable income streams to fund a predictable retirement. 10-year Treasury bond rates in the late 1990s hovered around 6.50%, whereas the current rate is much lower.
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.
And lower bond yields aren't the only potential problem seniors are facing. Today's retirees aren't feeling as secure as they once did about Social Security, either. Benefit checks will still be coming for the foreseeable future, but based on current estimates, Social Security funds will run out of money in 2035.
How can you avoid dipping into your principal when the investments you counted on in retirement aren't producing income? You can only cut your expenses so far, and the only other option is to find a different investment vehicle to generate income.
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.
One way to identify suitable candidates is to look for stocks with an average dividend yield of 3%, and positive average annual dividend growth. Many stocks increase dividends over time, helping to offset the effects of inflation.
Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.
First Financial Northwest (FFNW) is currently shelling out a dividend of $0.12 per share, with a dividend yield of 3.34%. This compares to the Banks - West industry's yield of 2.36% and the S&P 500's yield of 1.64%. The company's annualized dividend growth in the past year was 9.09%. Check First Financial Northwest (FFNW) dividend history here>>>
Kimco Realty (KIM) is paying out a dividend of $0.23 per share at the moment, with a dividend yield of 4.19% compared to the REIT and Equity Trust - Retail industry's yield of 4.19% and the S&P 500's yield. The annualized dividend growth of the company was 29.41% over the past year. Check Kimco Realty (KIM) dividend history here>>>
Currently paying a dividend of $0.21 per share, LCNB (LCNB) has a dividend yield of 4.91%. This is compared to the Banks - Northeast industry's yield of 2.4% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5.26%. Check LCNB (LCNB) 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 prefer investing in funds or ETFs compared to individual stocks, you can still pursue a dividend income strategy. However, it's important to know the fees charged by each fund or ETF, which can ultimately reduce your dividend income, working against your strategy. Do your homework and make sure you know the fees charged by any fund before you invest.
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.
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
First Financial Northwest, Inc. (FFNW) : Free Stock Analysis Report
Kimco Realty Corporation (KIM) : Free Stock Analysis Report
LCNB Corporation (LCNB) : Free Stock Analysis Report
