Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks
Believe it or not, seniors fear running out of cash more than they fear dying.
And unfortunately, even retirees who have built a nest egg have good reason to be concerned - with the traditional approaches to retirement planning, income may no longer cover expenses. That means retirees are dipping into principal to make ends meet, setting up a race against time between dwindling investment balances and longer lifespans.
The tried-and-true retirement investing approach of yesterday doesn'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.
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.
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.
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
We feel that these dividend-paying equities - as long as they are from high-quality, low-risk issuers - can give retirement investors a smart option to replace low-yielding Treasury bonds (or other bonds).
Look for stocks that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.
One way to identify suitable candidates is to look for stocks with an average dividend yield of 3%, and positive average annual dividend growth. Many stocks increase dividends over time, helping to offset the effects of inflation.
Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.
Autoliv, Inc. (ALV) is currently shelling out a dividend of $0.66 per share, with a dividend yield of 3.02%. This compares to the Automotive - Original Equipment industry's yield of 0% and the S&P 500's yield of 1.72%. The company's annualized dividend growth in the past year was 3.13%. Check Autoliv, Inc. (ALV) dividend history here>>>
Bar Harbor Bankshares (BHB) is paying out a dividend of $0.28 per share at the moment, with a dividend yield of 4.3% compared to the Banks - Northeast industry's yield of 3.09% and the S&P 500's yield. The annualized dividend growth of the company was 8.33% over the past year. Check Bar Harbor Bankshares (BHB) dividend history here>>>
Currently paying a dividend of $1.75 per share, BNP Paribas SA (BNPQY) has a dividend yield of 5.81%. This is compared to the Banks - Foreign industry's yield of 4.49% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 10.36%. Check BNP Paribas SA (BNPQY) dividend history here>>>
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.
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 prefer investing in funds or ETFs compared to individual stocks, you can still pursue a dividend income strategy. However, it's important to know the fees charged by each fund or ETF, which can ultimately reduce your dividend income, working against your strategy. Do your homework and make sure you know the fees charged by any fund before you invest.
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.
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Autoliv, Inc. (ALV) : Free Stock Analysis Report
BNP Paribas SA (BNPQY) : Free Stock Analysis Report
Bar Harbor Bankshares, Inc. (BHB) : Free Stock Analysis Report
