Yahoo Finance Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks
Strange but true: seniors fear death less than running out of money in retirement.
And retirees have good reason to be worried about making their assets last. People are living longer, so that money has to cover a longer period. Making matters worse, income generated using tried-and-true retirement planning approaches may not cover expenses these days. That means seniors must dip into principal to meet living expenses.
Retirement investing approaches of the past don't work today.
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.
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.
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
We feel that these dividend-paying equities - as long as they are from high-quality, low-risk issuers - can give retirement investors a smart option to replace low-yielding Treasury bonds (or other bonds).
Look for stocks that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.
Going beyond those familiar names, you can find excellent dividend-paying stocks by following a few guidelines. Look for companies that pay a dividend yield of around 3%, with positive annual dividend growth. The growth rate is key to help combat the effects of inflation.
Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.
COPT Defense (CDP) is currently shelling out a dividend of $0.3 per share, with a dividend yield of 4.78%. This compares to the REIT and Equity Trust - Other industry's yield of 4.57% and the S&P 500's yield of 1.57%. The company's annualized dividend growth in the past year was 3.51%. Check COPT Defense (CDP) dividend history here>>>
First Bancorp (FBP) is paying out a dividend of $0.16 per share at the moment, with a dividend yield of 3.61% compared to the Banks - Southeast industry's yield of 2.57% and the S&P 500's yield. The annualized dividend growth of the company was 14.29% over the past year. Check First Bancorp (FBP) dividend history here>>>
Currently paying a dividend of $1.24 per share, Johnson & Johnson (JNJ) has a dividend yield of 3.38%. This is compared to the Large Cap Pharmaceuticals industry's yield of 2.46% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5.31%. Check Johnson & Johnson (JNJ) 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 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.
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
Regardless of whether you select high-quality, low-fee funds or stocks, looking for a steady stream of income from dividend-paying equities can potentially lead you to a solid and more peaceful retirement.
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COPT Defense Properties (CDP) : Free Stock Analysis Report
Johnson & Johnson (JNJ) : Free Stock Analysis Report
First BanCorp. (FBP) : Free Stock Analysis Report
