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Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks

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

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.

In today's economic environment, traditional income investments are not working.

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.

The effect of this drop in rates is substantial: over 20 years, the change in yield for a $1 million investment in 10-year Treasuries is over $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.

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.

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.

Ingredion (INGR) is currently shelling out a dividend of $0.71 per share, with a dividend yield of 3.14%. This compares to the Food - Miscellaneous industry's yield of 0% and the S&P 500's yield of 1.81%. The company's annualized dividend growth in the past year was 1.56%. Check Ingredion (INGR) dividend history here>>>

Kilroy Realty (KRC) is paying out a dividend of $0.54 per share at the moment, with a dividend yield of 4.79% compared to the REIT and Equity Trust - Other industry's yield of 4.48% and the S&P 500's yield. The annualized dividend growth of the company was 4% over the past year. Check Kilroy Realty (KRC) dividend history here>>>

Currently paying a dividend of $1.25 per share, Mid-America Apartment Communities (MAA) has a dividend yield of 3.21%. This is compared to the REIT and Equity Trust - Residential industry's yield of 3.3% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 6.1%. Check Mid-America Apartment Communities (MAA) 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.

Combating the impact of inflation is one advantage of owning these dividend-paying stocks. Here's why: many of these stable, high-quality companies increase their dividends over time, which translates to rising dividend income that offsets the effects of inflation.

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
 
Ingredion Incorporated (INGR) : Free Stock Analysis Report
 
MidAmerica Apartment Communities, Inc. (MAA) : Free Stock Analysis Report
 
Kilroy Realty Corporation (KRC) : Free Stock Analysis Report
 
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