How to Maximize Your Retirement Portfolio with These Top-Ranked Dividend Stocks

Strange but true: seniors fear death less than running out of money in retirement.

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 example, 10-year Treasury bonds in the late 1990s offered a yield of around 6.50%, which translated to an income source you could count on. However, today's yield is much lower and probably not a viable return option to fund typical retirements.

The effect of this drop in rates is substantial: over 20 years, the change in yield for a $1 million investment in 10-year Treasuries is over $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

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.

One way to identify suitable candidates is to look for stocks with an average dividend yield of 3%, and positive average annual dividend growth. Many stocks increase dividends over time, helping to offset the effects of inflation.

Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.

Canadian Natural Resources (CNQ) is currently shelling out a dividend of $0.62 per share, with a dividend yield of 3.67%. This compares to the Oil and Gas - Exploration and Production - Canadian industry's yield of 0% and the S&P 500's yield of 1.62%. The company's annualized dividend growth in the past year was 53.34%. Check Canadian Natural Resources (CNQ) dividend history here>>>

Kimco Realty (KIM) is paying out a dividend of $0.23 per share at the moment, with a dividend yield of 3.98% compared to the REIT and Equity Trust - Retail industry's yield of 4.16% and the S&P 500's yield. The annualized dividend growth of the company was 29.41% over the past year. Check Kimco Realty (KIM) dividend history here>>>

Currently paying a dividend of $0.42 per share, NexPoint Residential Trust Inc. (NXRT) has a dividend yield of 3.18%. This is compared to the REIT and Equity Trust - Residential industry's yield of 3.28% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 11.36%. Check NexPoint Residential Trust Inc. (NXRT) 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.

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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Canadian Natural Resources Limited (CNQ) : Free Stock Analysis Report
 
Kimco Realty Corporation (KIM) : Free Stock Analysis Report
 
NexPoint Residential Trust, Inc. (NXRT) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research