Yahoo Finance Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks
Here's an eye-opening statistic: older Americans are more afraid of running out of money than of death itself.
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.
In today's economic environment, traditional income investments are not working.
For many years, bonds or other fixed-income assets could produce the yield needed to provide solid income for retirement needs. However, these yields have dwindled over time: 10-year Treasury bond rates in the late 1990s were around 6.50%, but today, that rate is a thing of the past, with a slim likelihood of rates making a comeback in the foreseeable future.
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.
How can you avoid dipping into your principal when the investments you counted on in retirement aren't producing income? You can only cut your expenses so far, and the only other option is to find a different investment vehicle to generate income.
Invest in Dividend Stocks
Dividend-paying stocks from low-risk, high-quality companies are a smart way to generate steady and reliable attractive income streams to replace low risk, low yielding Treasury and bond options.
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.
Prudential (PRU) is currently shelling out a dividend of $1.3 per share, with a dividend yield of 4.41%. This compares to the Insurance - Multi line industry's yield of 1.83% and the S&P 500's yield of 1.58%. The company's annualized dividend growth in the past year was 4%. Check Prudential (PRU) dividend history here>>>
Molson Coors Brewing (TAP) is paying out a dividend of $0.44 per share at the moment, with a dividend yield of 3.19% compared to the Beverages - Alcohol industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 7.32% over the past year. Check Molson Coors Brewing (TAP) dividend history here>>>
Currently paying a dividend of $1.24 per share, T. Rowe Price (TROW) has a dividend yield of 4.22%. This is compared to the Financial - Investment Management industry's yield of 1.88% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 1.64%. Check T. Rowe Price (TROW) dividend history here>>>
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 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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Prudential Financial, Inc. (PRU) : Free Stock Analysis Report
T. Rowe Price Group, Inc. (TROW) : Free Stock Analysis Report
Molson Coors Beverage Company (TAP) : Free Stock Analysis Report
