Yahoo Finance Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks
Here's a revealing data point: older Americans are scared more of outliving wealth 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.
The tried-and-true retirement investing approach of yesterday doesn't work today.
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.
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 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.
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.
Amgen (AMGN) is currently shelling out a dividend of $2.13 per share, with a dividend yield of 3.66%. This compares to the Medical - Biomedical and Genetics industry's yield of 0% and the S&P 500's yield of 1.77%. The company's annualized dividend growth in the past year was 9.79%. Check Amgen (AMGN) dividend history here>>>
Brookfield Infrastructure Partners (BIP) is paying out a dividend of $0.38 per share at the moment, with a dividend yield of 4.27% compared to the REIT and Equity Trust - Other industry's yield of 4.51% and the S&P 500's yield. The annualized dividend growth of the company was 6.25% over the past year. Check Brookfield Infrastructure Partners (BIP) dividend history here>>>
Currently paying a dividend of $0.42 per share, Citizens Financial Group (CFG) has a dividend yield of 6.77%. This is compared to the Financial - Savings and Loan industry's yield of 3.23% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 7.69%. Check Citizens Financial Group (CFG) dividend history here>>>
But aren't stocks generally more risky than bonds?
Yes, that's true. As a broad category, bonds carry less risk than stocks. However, the stocks we are talking about - dividend -paying stocks from high-quality companies - can generate income over time and also mitigate the overall volatility of your portfolio compared to the stock market as a whole.
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 prefer investing in funds or ETFs compared to individual stocks, you can still pursue a dividend income strategy. However, it's important to know the fees charged by each fund or ETF, which can ultimately reduce your dividend income, working against your strategy. Do your homework and make sure you know the fees charged by any fund before you invest.
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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Amgen Inc. (AMGN) : Free Stock Analysis Report
Brookfield Infrastructure Partners LP (BIP) : Free Stock Analysis Report
Citizens Financial Group, Inc. (CFG) : Free Stock Analysis Report
