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3 Top Dividend Stocks to Maximize Your Retirement Income - February 06, 2020

Zacks Equity Research

Believe it or not, seniors fear running out of cash more than they fear dying.

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.

Your parents' retirement investing plan won't cut it 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 - currently under 2% and probably not a viable return option to fund typical retirements.

That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is 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 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.

One approach to recognizing appropriate stocks is to look for companies with an average dividend yield of 3% and positive average annual dividend growth. Numerous stocks hike dividends over time, counterbalancing inflation risks.

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

Brinker International (EAT) is currently shelling out a dividend of $0.38 per share, with a dividend yield of 3.63%. This compares to the Retail - Restaurants industry's yield of 0% and the S&P 500's yield of 1.75%. In terms of dividend growth, the company's current annualized dividend of $1.52 is flat compared to last year.

LCNB (LCNB) is paying out a dividend of 0.18 per share at the moment, with a dividend yield of 4.13% compared to the Banks - Northeast industry's yield of 1.83% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $0.72 is up 5.88% from last year.

Currently paying a dividend of 0.53 per share, Marathon Petroleum (MPC) has a dividend yield of 3.82%. This is compared to the Oil and Gas - Refining and Marketing industry's yield of 2.85% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $2.12 is up 15.22% from last year.

But aren't stocks generally more risky than bonds?

The fact is that stocks, as an asset class, carry more risk than bonds. To counterbalance this, invest in superior quality dividend stocks that not only can grow over time but more significantly, can also decrease your overall portfolio volatility with respect to the broader 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 thinking, "I want to invest in a dividend-focused ETF or mutual fund," make sure to do your homework. It's important to know that some mutual funds and specialized ETFs charge high fees, which may diminish your dividend gains or income and thwart the overall objective of this investment strategy. If you do want to invest in fund, research well to identify the best-quality dividend funds with the least charges.

Bottom Line

Regardless of whether you select high-quality, low-fee funds or stocks, looking for a steady stream of income from dividend-paying equities can potentially lead you to a solid and more peaceful retirement.

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

Get Your FREE Guide Now Brinker International, Inc. (EAT) : Free Stock Analysis Report LCNB Corporation (LCNB) : Free Stock Analysis Report Marathon Petroleum Corporation (MPC) : Free Stock Analysis Report To read this article on Zacks.com click here.