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.
Your parents' retirement investing plan won't cut it 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.
The impact of this rate decline is sizable: over 20 years, the difference in yield for a $1 million investment in 10-year Treasuries is more than $1 million.
Today's retirees are getting hit hard by reduced bond yields - and the Social Security picture isn't too rosy either. Right now and for the near future, Social Security benefits are still being paid, but it has been estimated that the Social Security funds will be depleted as soon as 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.
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.
IdaCorp (IDA) is currently shelling out a dividend of $0.83 per share, with a dividend yield of 3.42%. This compares to the Utility - Electric Power industry's yield of 3.65% and the S&P 500's yield of 1.71%. The company's annualized dividend growth in the past year was 5.33%. Check IdaCorp (IDA) dividend history here>>>
Park Hotels & Resorts (PK) is paying out a dividend of $0.77 per share at the moment, with a dividend yield of 4.16% compared to the REIT and Equity Trust - Other industry's yield of 4.71% and the S&P 500's yield. The annualized dividend growth of the company was 1400% over the past year. Check Park Hotels & Resorts (PK) dividend history here>>>
Currently paying a dividend of $1.06 per share, Smucker (SJM) has a dividend yield of 3.74%. This is compared to the Food - Miscellaneous industry's yield of 0% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 3.92%. Check Smucker (SJM) 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.
A silver lining to owning dividend stocks for your retirement portfolio is that many companies, especially blue chip stocks, increase their dividends over time, helping offset the effects of inflation on your potential retirement income.
Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.
You may be thinking, "I like this dividend strategy, but instead of investing in individual stocks, I'm going to find a dividend-focused mutual fund or ETF." This approach can make sense, but be aware that some mutual funds and specialized ETFs carry high fees, which may reduce your dividend gains or income, and defeat the goal of this dividend investment approach. If you do wish to invest in a fund, do your research to find the best-quality dividend funds with the lowest fees.
Bottom Line
Seeking steady, consistent income through dividends can be a smart option for financial security in retirement, whether you invest in mutual funds, ETFs, or in dividend-paying stocks.
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IDACORP, Inc. (IDA) : Free Stock Analysis Report
The J. M. Smucker Company (SJM) : Free Stock Analysis Report
Park Hotels & Resorts Inc. (PK) : Free Stock Analysis Report