Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks
Here's an eye-opening statistic: older Americans are more afraid of running out of money 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.
Retirement investing approaches of the past don't work 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.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is 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 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.
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.
Amgen (AMGN) is currently shelling out a dividend of $2.13 per share, with a dividend yield of 3.81%. This compares to the Medical - Biomedical and Genetics industry's yield of 0% and the S&P 500's yield of 1.75%. The company's annualized dividend growth in the past year was 9.79%. Check Amgen (AMGN) dividend history here>>>
Brookfield Infrastructure Partners (BIP) is paying out a dividend of $0.38 per share at the moment, with a dividend yield of 4.13% compared to the REIT and Equity Trust - Other industry's yield of 4.45% and the S&P 500's yield. The annualized dividend growth of the company was 6.25% over the past year. Check Brookfield Infrastructure Partners (BIP) dividend history here>>>
Currently paying a dividend of $0.79 per share, Eastman Chemical (EMN) has a dividend yield of 3.83%. This is compared to the Chemical - Diversified industry's yield of 1.7% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 3.95%. Check Eastman Chemical (EMN) dividend history here>>>
But aren't stocks generally more risky than bonds?
Yes, that's true. As a broad category, bonds carry less risk than stocks. However, the stocks we are talking about - dividend -paying stocks from high-quality companies - can generate income over time and also mitigate the overall volatility of your portfolio compared to the stock market as a whole.
An advantage of owning dividend stocks for your retirement nest egg is that numerous companies, particularly blue chip stocks, raise their dividends over time, helping alleviate the impact of inflation on your potential retirement income.
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
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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Amgen Inc. (AMGN) : Free Stock Analysis Report
Brookfield Infrastructure Partners LP (BIP) : Free Stock Analysis Report
Eastman Chemical Company (EMN) : Free Stock Analysis Report
