3 Top-Ranked Dividend Stocks: A Smarter Way to Boost Your Retirement Income
Strange but true: seniors fear death less than running out of money in retirement.
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.
Retirement investing approaches of the past don'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.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is 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 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.
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.
American Assets Trust (AAT) is currently shelling out a dividend of $0.32 per share, with a dividend yield of 4.57%. This compares to the REIT and Equity Trust - Retail industry's yield of 4.33% and the S&P 500's yield of 1.7%. The company's annualized dividend growth in the past year was 6.67%. Check American Assets Trust (AAT) dividend history here>>>
Global Partners LP (GLP) is paying out a dividend of $0.63 per share at the moment, with a dividend yield of 8.34% compared to the Oil and Gas - Refining and Marketing - Master Limited Partnerships industry's yield of 6.33% and the S&P 500's yield. The annualized dividend growth of the company was 5.22% over the past year. Check Global Partners LP (GLP) dividend history here>>>
Currently paying a dividend of $0.16 per share, Huntington Bancshares (HBAN) has a dividend yield of 4%. This is compared to the Banks - Midwest industry's yield of 2.31% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 3.33%. Check Huntington Bancshares (HBAN) dividend history here>>>
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'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.
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
American Assets Trust, Inc. (AAT) : Free Stock Analysis Report
Huntington Bancshares Incorporated (HBAN) : Free Stock Analysis Report
Global Partners LP (GLP) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
