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How to Maximize Your Retirement Portfolio with These Top-Ranked Dividend Stocks - December 23, 2019

Zacks Equity Research

Believe it or not, seniors fear running out of cash more than they fear dying.

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.

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.

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 can retirees do? You could dramatically reduce your expenses, and go out on a limb hoping your Social Security benefits don't diminish. On the other hand, you could opt for an alternative investment that gives a steady, higher-rate income stream to supplant lessening 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.

For example, AT&T and Coca-Cola are income stocks with attractive dividend yields of 3% or better. Look for stocks like this 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.

Cheesecake Factory (CAKE) is currently shelling out a dividend of $0.36 per share, with a dividend yield of 3.63%. This compares to the Retail - Restaurants industry's yield of 0% and the S&P 500's yield of 1.79%. In terms of dividend growth, the company's current annualized dividend of $1.44 is up 9.09% from last year.

CyrusOne (CONE) is paying out a dividend of 0.5 per share at the moment, with a dividend yield of 3.08% compared to the REIT and Equity Trust - Other industry's yield of 4.19% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $2 is up 8.7% from last year.

Currently paying a dividend of 0.13 per share, DiamondRock Hospitality (DRH) has a dividend yield of 4.43%. This is compared to the REIT and Equity Trust - Other industry's yield of 4.19% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $0.5 is flat compared to last year.

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're thinking, "I want to invest in a dividend-focused ETF or mutual fund," make sure to do your homework. It's important to know that some mutual funds and specialized ETFs charge high fees, which may diminish your dividend gains or income and thwart the overall objective of this investment strategy. If you do want to invest in fund, research well to identify the best-quality dividend funds with the least charges.

Bottom Line

Seeking steady, consistent income through dividends can be a smart option for financial security in retirement, whether you invest in mutual funds, ETFs, or in dividend-paying stocks.

Generating income is just one aspect of planning for a comfortable retirement.

To learn more ways to maximize your assets - and avoid pitfalls that could jeopardize your financial security - download our free report:

Will You Retire a Multi-Millionaire? 7 Things You Can Do Now


This helpful guide offers our viewpoints about strategic retirement investment planning, based on decades of experience helping our clients prepare for financial security during their golden years. Get Your FREE Guide Now
 
The Cheesecake Factory Incorporated (CAKE) : Free Stock Analysis Report
 
Diamondrock Hospitality Company (DRH) : Free Stock Analysis Report
 
CyrusOne Inc (CONE) : Free Stock Analysis Report
 
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Zacks Investment Research