How to Maximize Your Retirement Portfolio with These Top-Ranked Dividend Stocks
Here's a revealing data point: older Americans are scared more of outliving wealth than of death itself.
And retirees have good reason to be worried about making their assets last. People are living longer, so that money has to cover a longer period. Making matters worse, income generated using tried-and-true retirement planning approaches may not cover expenses these days. That means seniors must dip into principal to meet living expenses.
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.
Today's retirees are getting hit hard by reduced bond yields - and the Social Security picture isn't too rosy either. Right now and for the near future, Social Security benefits are still being paid, but it has been estimated that the Social Security funds will be depleted as soon as 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.
Bristol Myers Squibb (BMY) is currently shelling out a dividend of $0.57 per share, with a dividend yield of 3.65%. This compares to the Medical - Biomedical and Genetics industry's yield of 0% and the S&P 500's yield of 1.66%. The company's annualized dividend growth in the past year was 5.56%. Check Bristol Myers Squibb (BMY) dividend history here>>>
General Mills (GIS) is paying out a dividend of $0.59 per share at the moment, with a dividend yield of 3.16% compared to the Food - Miscellaneous industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 5.88% over the past year. Check General Mills (GIS) dividend history here>>>
Currently paying a dividend of $0.79 per share, MSC Industrial (MSM) has a dividend yield of 3.26%. This is compared to the Industrial Services industry's yield of 0% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5.33%. Check MSC Industrial (MSM) dividend history here>>>
But aren't stocks generally more risky than bonds?
It is true that stocks, as an asset class, carry more risk than bonds, but high-quality dividend stocks not only have the ability to produce income growth over time but more importantly, can also reduce your overall portfolio volatility relative to the broader stock market.
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.
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Bristol Myers Squibb Company (BMY) : Free Stock Analysis Report
General Mills, Inc. (GIS) : Free Stock Analysis Report
MSC Industrial Direct Company, Inc. (MSM) : Free Stock Analysis Report
