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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.

In today's economic environment, traditional income investments are not working.

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.

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 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.

Axis Capital (AXS) is currently shelling out a dividend of $0.43 per share, with a dividend yield of 3.31%. This compares to the Insurance - Property and Casualty industry's yield of 0.98% and the S&P 500's yield of 1.73%. The company's annualized dividend growth in the past year was 2.38%. Check Axis Capital (AXS) dividend history here>>>

Farmers & Merchants Bancorp Inc. (FMAO) is paying out a dividend of $0.21 per share at the moment, with a dividend yield of 3.05% compared to the Banks - Northeast industry's yield of 2.27% and the S&P 500's yield. The annualized dividend growth of the company was 16.67% over the past year. Check Farmers & Merchants Bancorp Inc. (FMAO) dividend history here>>>

Currently paying a dividend of $0.14 per share, Independence Realty Trust (IRT) has a dividend yield of 3.19%. This is compared to the REIT and Equity Trust - Residential 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 16.67%. Check Independence Realty Trust (IRT) 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 interested in investing in dividends, but are thinking about mutual funds or ETFs rather than stocks, beware of fees. Mutual funds and specialized ETFs may carry high fees, which could lower the overall gains you earn from dividends, undercutting your dividend income strategy. Be sure to look for funds with low fees if you decide on this approach.

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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Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report
 
Independence Realty Trust, Inc. (IRT) : Free Stock Analysis Report
 
Farmers & Merchants Bancorp Inc. (FMAO) : Free Stock Analysis Report
 
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Zacks Investment Research