Yahoo Finance Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks
Believe it or not, seniors fear running out of cash more than they fear dying.
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.
Your parents' retirement investing plan won't cut it 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.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today 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.
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 a replacement for low yielding Treasury bonds (and other bond options), we believe dividend-paying stocks from high quality companies offer low risk and stable, predictable income investors in retirement seek.
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.
DCP Midstream Partners, LP (DCP) is currently shelling out a dividend of $0.43 per share, with a dividend yield of 4.09%. This compares to the Oil and Gas - Production and Pipelines industry's yield of 4.75% and the S&P 500's yield of 1.63%. The company's annualized dividend growth in the past year was 10.26%. Check DCP Midstream Partners, LP (DCP) dividend history here>>>
First Commonwealth Financial (FCF) is paying out a dividend of $0.12 per share at the moment, with a dividend yield of 3.72% compared to the Banks - Northeast industry's yield of 2.47% and the S&P 500's yield. The annualized dividend growth of the company was 4.35% over the past year. Check First Commonwealth Financial (FCF) dividend history here>>>
Currently paying a dividend of $0.21 per share, KeyCorp (KEY) has a dividend yield of 4.47%. This is compared to the Banks - Major Regional industry's yield of 3.18% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5.13%. Check KeyCorp (KEY) 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 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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DCP Midstream Partners, LP (DCP) : Free Stock Analysis Report
KeyCorp (KEY) : Free Stock Analysis Report
First Commonwealth Financial Corporation (FCF) : Free Stock Analysis Report
