Yahoo Finance 3 Top Dividend Stocks to Maximize Your Retirement Income
Strange but true: seniors fear death less than running out of money in retirement.
And unfortunately, even retirees who have built a nest egg have good reason to be concerned - with the traditional approaches to retirement planning, income may no longer cover expenses. That means retirees are dipping into principal to make ends meet, setting up a race against time between dwindling investment balances and longer lifespans.
Retirement investing approaches of the past don't work today.
Years ago, investors at or close to retirement could put money into fixed-income assets and depend on appealing yields to generate consistent, solid pay streams to fund a comfortable retirement. 10-year Treasury bond rates in the late 1990s floated around 6.50%, but unfortunately, those days of being able to exclusively rely on Treasury yields to fund retirement income are over.
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.
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.
So what's a retiree to do? You could cut your expenses to the bone, and take the risk that your Social Security checks don't shrink. Or you could find an alternative investment that provides a steady, higher-rate income stream to replace dwindling bond yields.
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.
HSBC (HSBC) is currently shelling out a dividend of $0.5 per share, with a dividend yield of 5.46%. This compares to the Banks - Foreign industry's yield of 4.48% and the S&P 500's yield of 1.73%. The company's annualized dividend growth in the past year was 28.23%. Check HSBC (HSBC) dividend history here>>>
Independence Realty Trust (IRT) is paying out a dividend of $0.16 per share at the moment, with a dividend yield of 3.03% compared to the REIT and Equity Trust - Residential industry's yield of 3.67% and the S&P 500's yield. The annualized dividend growth of the company was 16.67% over the past year. Check Independence Realty Trust (IRT) dividend history here>>>
Currently paying a dividend of $0.52 per share, MetLife (MET) has a dividend yield of 3.9%. This is compared to the Insurance - Multi line industry's yield of 1.85% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 4.17%. Check MetLife (MET) 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.
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.
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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HSBC Holdings plc (HSBC) : Free Stock Analysis Report
MetLife, Inc. (MET) : Free Stock Analysis Report
Independence Realty Trust, Inc. (IRT) : Free Stock Analysis Report
