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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.

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

Years ago, investors at or close to retirement could put money into fixed-income assets and depend on appealing yields to generate consistent, solid pay streams to fund a comfortable retirement. 10-year Treasury bond rates in the late 1990s floated around 6.50%, but unfortunately, those days of being able to exclusively rely on Treasury yields to fund retirement income are over.

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 a replacement for low yielding Treasury bonds (and other bond options), we believe dividend-paying stocks from high quality companies offer low risk and stable, predictable income investors in retirement seek.

Look for stocks that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.

One approach to recognizing appropriate stocks is to look for companies with an average dividend yield of 3% and positive average annual dividend growth. Numerous stocks hike dividends over time, counterbalancing inflation risks.

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 3.21%. This compares to the Medical - Biomedical and Genetics industry's yield of 0% and the S&P 500's yield of 1.69%. The company's annualized dividend growth in the past year was 9.79%. Check Amgen (AMGN) 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 4.23% compared to the Banks - Northeast industry's yield of 2.92% and the S&P 500's yield. The annualized dividend growth of the company was 7.69% over the past year. Check Bar Harbor Bankshares (BHB) dividend history here>>>

Currently paying a dividend of $0.29 per share, COPT Defense (CDP) has a dividend yield of 4.7%. This is compared to the REIT and Equity Trust - Other industry's yield of 4.62% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 3.64%. Check COPT Defense (CDP) 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

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.

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

Amgen Inc. (AMGN) : Free Stock Analysis Report

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

COPT Defense Properties (CDP) : Free Stock Analysis Report

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Zacks Investment Research

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