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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.

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.

That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is 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'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

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.

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.

Bank of Marin (BMRC) is currently shelling out a dividend of $0.25 per share, with a dividend yield of 3.23%. This compares to the Banks - West industry's yield of 2.35% and the S&P 500's yield of 1.63%. The company's annualized dividend growth in the past year was 4.17%. Check Bank of Marin (BMRC) dividend history here>>>

Citizens Financial Group (CFG) is paying out a dividend of $0.42 per share at the moment, with a dividend yield of 3.96% compared to the Financial - Savings and Loan industry's yield of 2.68% and the S&P 500's yield. The annualized dividend growth of the company was 7.69% over the past year. Check Citizens Financial Group (CFG) dividend history here>>>

Currently paying a dividend of $0.38 per share, NRG Energy (NRG) has a dividend yield of 4.32%. This is compared to the Utility - Electric Power industry's yield of 3.06% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 7.69%. Check NRG Energy (NRG) 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

Pursuing a dividend investing strategy can help protect your retirement portfolio. Whether you choose to invest in stocks or through low-fee mutual funds or ETFs, this approach can potentially help you achieve a more secure and enjoyable 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

Bank of Marin Bancorp (BMRC) : Free Stock Analysis Report

NRG Energy, Inc. (NRG) : Free Stock Analysis Report

Citizens Financial Group, Inc. (CFG) : Free Stock Analysis Report

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Zacks Investment Research