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3 Top-Ranked Dividend Stocks: A Smarter Way to Boost Your Retirement Income

Here's a revealing data point: older Americans are scared more of outliving wealth than of death itself.

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.

Your parents' retirement investing plan won't cut it today.

Years ago, investors at or close to retirement could put money into fixed-income assets and depend on appealing yields to generate consistent, solid pay streams to fund a comfortable retirement. 10-year Treasury bond rates in the late 1990s floated around 6.50%, but unfortunately, those days of being able to exclusively rely on Treasury yields to fund retirement income are over.

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.

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's a retiree to do? You could cut your expenses to the bone, and take the risk that your Social Security checks don't shrink. Or you could find an alternative investment that provides a steady, higher-rate income stream to replace dwindling bond yields.

Invest in Dividend Stocks

As a replacement for low yielding Treasury bonds (and other bond options), we believe dividend-paying stocks from high quality companies offer low risk and stable, predictable income investors in retirement seek.

Look for stocks 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.

Cathay General (CATY) is currently shelling out a dividend of $0.34 per share, with a dividend yield of 3.26%. This compares to the Banks - West industry's yield of 2.54% and the S&P 500's yield of 1.65%. The company's annualized dividend growth in the past year was 9.68%. Check Cathay General (CATY) dividend history here>>>

Midland States Bancorp (MSBI) is paying out a dividend of $0.29 per share at the moment, with a dividend yield of 4.6% compared to the Banks - Northeast industry's yield of 2.11% and the S&P 500's yield. The annualized dividend growth of the company was 3.57% over the past year. Check Midland States Bancorp (MSBI) dividend history here>>>

Currently paying a dividend of $0.15 per share, PCB Bancorp (PCB) has a dividend yield of 3.2%. This is compared to the Banks - Southwest industry's yield of 1.05% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 50%. Check PCB Bancorp (PCB) 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 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'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

Whether you select high-quality, low-fee funds or stocks, seeking the steady income of dividend-paying equities can potentially offer you a path to a better and more stress-free retirement.


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Cathay General Bancorp (CATY) : Free Stock Analysis Report
 
Midland States Bancorp, Inc. (MSBI) : Free Stock Analysis Report
 
PCB Bancorp (PCB) : Free Stock Analysis Report
 
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