Yahoo Finance How to Maximize Your Retirement Portfolio with These 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.
In the past, investors going into retirement could invest in bonds and count on attractive yields to produce steady, reliable income streams to fund a predictable retirement. 10-year Treasury bond rates in the late 1990s hovered around 6.50%, whereas the current rate is much lower.
While this yield reduction may not seem drastic, it adds up: for a $1 million investment in 10-year Treasuries, the rate drop means a difference in yield of 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.
Unfortunately, it looks like the two traditional sources of retirement income - bonds and Social Security - may not be able to adequately meet the needs of present and future retirees. But what if there was another option that could provide a steady, reliable source of income in retirement?
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.
Cisco Systems (CSCO) is currently shelling out a dividend of $0.38 per share, with a dividend yield of 3.21%. This compares to the Computer - Networking 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 2.7%. Check Cisco Systems (CSCO) 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 4.22% compared to the REIT and Equity Trust - Retail industry's yield of 4.39% and the S&P 500's yield. The annualized dividend growth of the company was 16.67% over the past year. Check Kite Realty Group (KRG) dividend history here>>>
Currently paying a dividend of $0.48 per share, National Fuel Gas (NFG) has a dividend yield of 3%. This is compared to the Utility - Gas Distribution industry's yield of 3% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 4.4%. Check National Fuel Gas (NFG) 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.
Combating the impact of inflation is one advantage of owning these dividend-paying stocks. Here's why: many of these stable, high-quality companies increase their dividends over time, which translates to rising dividend income that offsets the effects of inflation.
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
Pursuing a dividend investing strategy can help protect your retirement portfolio. Whether you choose to invest in stocks or through low-fee mutual funds or ETFs, this approach can potentially help you achieve a more secure and enjoyable retirement.
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Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report
National Fuel Gas Company (NFG) : Free Stock Analysis Report
Kite Realty Group Trust (KRG) : Free Stock Analysis Report
