Yahoo Finance 3 Top Dividend Stocks to Maximize Your Retirement Income
Believe it or not, seniors fear running out of cash more than they fear dying.
And unfortunately, even retirees who have built a nest egg have good reason to be concerned - with the traditional approaches to retirement planning, income may no longer cover expenses. That means retirees are dipping into principal to make ends meet, setting up a race against time between dwindling investment balances and longer lifespans.
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.
The impact of this rate decline is sizable: over 20 years, the difference in yield for a $1 million investment in 10-year Treasuries 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 we see it, dividend-paying stocks from generally low-risk, top notch companies are a brilliant way to create steady and solid income streams to supplant low risk, low yielding Treasury and fixed-income alternatives.
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.
Independence Realty Trust (IRT) is currently shelling out a dividend of $0.16 per share, with a dividend yield of 3.28%. This compares to the REIT and Equity Trust - Residential industry's yield of 3.8% and the S&P 500's yield of 1.79%. The company's annualized dividend growth in the past year was 16.67%. Check Independence Realty Trust (IRT) dividend history here>>>
Kite Realty Group (KRG) is paying out a dividend of $0.24 per share at the moment, with a dividend yield of 4.73% compared to the REIT and Equity Trust - Retail industry's yield of 4.77% and the S&P 500's yield. The annualized dividend growth of the company was 26.32% over the past year. Check Kite Realty Group (KRG) dividend history here>>>
Currently paying a dividend of $0.27 per share, Manulife Financial (MFC) has a dividend yield of 5.7%. This is compared to the Insurance - Life Insurance industry's yield of 0.05% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5.62%. Check Manulife Financial (MFC) 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.
You may be thinking, "I like this dividend strategy, but instead of investing in individual stocks, I'm going to find a dividend-focused mutual fund or ETF." This approach can make sense, but be aware that some mutual funds and specialized ETFs carry high fees, which may reduce your dividend gains or income, and defeat the goal of this dividend investment approach. If you do wish to invest in a fund, do your research to find the best-quality dividend funds with the lowest fees.
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.
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Independence Realty Trust, Inc. (IRT) : Free Stock Analysis Report
Manulife Financial Corp (MFC) : Free Stock Analysis Report
Kite Realty Group Trust (KRG) : Free Stock Analysis Report
