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3 Top Dividend Stocks to Maximize Your Retirement Income - May 07, 2020

Strange but true: seniors fear death less than running out of money in retirement.

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.

Your parents' retirement investing plan won't cut it 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 at the time of this article, the current rate is under 2% and looks to stay low thanks to an accommodative Fed.

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.

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 current low risk, low yielding Treasury and fixed-income alternatives.

For example, AT&T and Coca-Cola are income stocks with attractive dividend yields of 3% or better. Look for stocks like this that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.

A rule of thumb for finding solid income-producing stocks is to seek those that average 3% dividend yield, and positive yearly dividend growth. These stocks can help combat inflation by boosting dividends over time.

Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.

Horace Mann (HMN) is currently shelling out a dividend of $0.3 per share, with a dividend yield of 3.7%. This compares to the Insurance - Multi line industry's yield of 3.02% and the S&P 500's yield of 2.2%. In terms of dividend growth, the company's current annualized dividend of $1.2 is up 4.35% from last year.

Kilroy Realty (KRC) is paying out a dividend of 0.49 per share at the moment, with a dividend yield of 3.32% compared to the REIT and Equity Trust - Other industry's yield of 5.25% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $1.94 is up 6.59% from last year.

Currently paying a dividend of 0.21 per share, Piedmont Office (PDM) has a dividend yield of 5.27%. This is compared to the REIT and Equity Trust - Other industry's yield of 5.25% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $0.84 is flat compared to last year.

But aren't stocks generally more risky than bonds?

It is true that stocks, as an asset class, carry more risk than bonds, but high-quality dividend stocks not only have the ability to produce income growth over time but more importantly, can also reduce your overall portfolio volatility relative to the broader stock market.

An upside to adding dividend stocks to your retirement portfolio: they can help lessen the effects of inflation, since many dividend-paying companies (especially blue chip stocks) generally increase their dividends over time.

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.

Generating income is just one aspect of planning for a comfortable retirement.

To learn more ways to maximize your assets - and avoid pitfalls that could jeopardize your financial security - download our free report:

Will You Retire a Multi-Millionaire? 7 Things You Can Do Now


This helpful guide offers our viewpoints about strategic retirement investment planning, based on decades of experience helping our clients prepare for financial security during their golden years. Get Your FREE Guide Now
 
Horace Mann Educators Corporation (HMN) : Free Stock Analysis Report
 
Piedmont Office Realty Trust Inc (PDM) : Free Stock Analysis Report
 
Kilroy Realty Corporation (KRC) : Free Stock Analysis Report
 
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