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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 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.

Retirement investing approaches of the past don't work today.

For many years, bonds or other fixed-income assets could produce the yield needed to provide solid income for retirement needs. However, these yields have dwindled over time: 10-year Treasury bond rates in the late 1990s were around 6.50%, but today, that rate is a thing of the past, with a slim likelihood of rates making a comeback in the foreseeable future.

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

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.

American Assets Trust (AAT) is currently shelling out a dividend of $0.32 per share, with a dividend yield of 4.51%. This compares to the REIT and Equity Trust - Retail industry's yield of 4.12% and the S&P 500's yield of 1.6%. The company's annualized dividend growth in the past year was 6.67%. Check American Assets Trust (AAT) dividend history here>>>

Bar Harbor Bankshares (BHB) is paying out a dividend of $0.26 per share at the moment, with a dividend yield of 3.4% compared to the Banks - Northeast industry's yield of 2.33% 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 $0.26 per share, Brixmor Property (BRX) has a dividend yield of 4.15%. This is compared to the REIT and Equity Trust - Retail industry's yield of 4.12% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 11.63%. Check Brixmor Property (BRX) 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.

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 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.

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

Brixmor Property Group Inc. (BRX) : Free Stock Analysis Report

Bar Harbor Bankshares, Inc. (BHB) : Free Stock Analysis Report

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Zacks Investment Research