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3 Top Dividend Stocks to Maximize Your Retirement Income

·4 min read

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

And older Americans have legitimate reasons for this worry, even if they have dutifully saved for their golden years. That's because the traditional ways people manage retirement may no longer provide enough income to meet expenses - and with people generally living longer, the principal retirement savings is exhausted far too early in the retirement period.

The tried-and-true retirement investing approach of yesterday doesn'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.

Unfortunately, it looks like the two traditional sources of retirement income - bonds and Social Security - may not be able to adequately meet the needs of present and future retirees. But what if there was another option that could provide a steady, reliable source of income in retirement?

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.

Independence Realty Trust (IRT) is currently shelling out a dividend of $0.14 per share, with a dividend yield of 3%. This compares to the REIT and Equity Trust - Residential industry's yield of 3.08% and the S&P 500's yield of 1.68%. The company's annualized dividend growth in the past year was 16.67%. Check Independence Realty Trust (IRT) dividend history here>>>

Retail Opportunity Investments (ROIC) is paying out a dividend of $0.15 per share at the moment, with a dividend yield of 3.83% compared to the REIT and Equity Trust - Retail industry's yield of 4.38% and the S&P 500's yield. The annualized dividend growth of the company was 18.18% over the past year. Check Retail Opportunity Investments (ROIC) dividend history here>>>

Currently paying a dividend of $0.5 per share, Shell (SHEL) has a dividend yield of 3.77%. This is compared to the Oil and Gas - Integrated - International industry's yield of 3.74% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 44.09%. Check Shell (SHEL) 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.

A silver lining to owning dividend stocks for your retirement portfolio is that many companies, especially blue chip stocks, increase their dividends over time, helping offset the effects 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

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
 
Independence Realty Trust, Inc. (IRT) : Free Stock Analysis Report
 
Retail Opportunity Investments Corp. (ROIC) : Free Stock Analysis Report
 
Shell PLC Unsponsored ADR (SHEL) : Free Stock Analysis Report
 
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