Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks
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.
Your parents' retirement investing plan won't cut it 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.
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.
So what can retirees do? You could dramatically reduce your expenses, and go out on a limb hoping your Social Security benefits don't diminish. On the other hand, you could opt for an alternative investment that gives a steady, higher-rate income stream to supplant lessening bond yields.
Invest in Dividend Stocks
Dividend-paying stocks from low-risk, high-quality companies are a smart way to generate steady and reliable attractive income streams to replace low risk, low yielding Treasury and bond options.
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.
OFG Bancorp (OFG) is currently shelling out a dividend of $0.22 per share, with a dividend yield of 3.23%. This compares to the Banks - Northeast industry's yield of 3.18% and the S&P 500's yield of 1.64%. The company's annualized dividend growth in the past year was 46.67%. Check OFG Bancorp (OFG) dividend history here>>>
Park Hotels & Resorts (PK) is paying out a dividend of $0.15 per share at the moment, with a dividend yield of 4.38% compared to the REIT and Equity Trust - Other industry's yield of 4.44% and the S&P 500's yield. The annualized dividend growth of the company was 1400% over the past year. Check Park Hotels & Resorts (PK) dividend history here>>>
Currently paying a dividend of $0.19 per share, TIM S.A. Sponsored ADR (TIMB) has a dividend yield of 4.34%. This is compared to the Wireless Non-US industry's yield of 0.93% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 90.24%. Check TIM S.A. Sponsored ADR (TIMB) 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.
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.
You may be thinking, "I like this dividend strategy, but instead of investing in individual stocks, I'm going to find a dividend-focused mutual fund or ETF." This approach can make sense, but be aware that some mutual funds and specialized ETFs carry high fees, which may reduce your dividend gains or income, and defeat the goal of this dividend investment approach. If you do wish to invest in a fund, do your research to find the best-quality dividend funds with the lowest fees.
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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OFG Bancorp (OFG) : Free Stock Analysis Report
Park Hotels & Resorts Inc. (PK) : Free Stock Analysis Report
TIM S.A. Sponsored ADR (TIMB) : Free Stock Analysis Report
