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

Here's a revealing data point: older Americans are scared more of outliving wealth than of death itself.

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.

The tried-and-true retirement investing approach of yesterday doesn'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.

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.

So what can retirees do? You could dramatically reduce your expenses, and go out on a limb hoping your Social Security benefits don't diminish. On the other hand, you could opt for an alternative investment that gives a steady, higher-rate income stream to supplant lessening bond yields.

Invest in Dividend Stocks

Dividend-paying stocks from low-risk, high-quality companies are a smart way to generate steady and reliable attractive income streams to replace low risk, low yielding Treasury and bond options.

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.

Cummins (CMI) is currently shelling out a dividend of $1.68 per share, with a dividend yield of 3%. This compares to the Automotive - Internal Combustion Engines industry's yield of 0% and the S&P 500's yield of 1.71%. The company's annualized dividend growth in the past year was 7.01%. Check Cummins (CMI) dividend history here>>>

Magna (MGA) is paying out a dividend of $0.46 per share at the moment, with a dividend yield of 3.42% compared to the Automotive - Original Equipment industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 2.22% over the past year. Check Magna (MGA) dividend history here>>>

Currently paying a dividend of $0.47 per share, NextEra Energy (NEE) has a dividend yield of 3.22%. This is compared to the Utility - Electric Power industry's yield of 3.59% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 10%. Check NextEra Energy (NEE) dividend history here>>>

But aren't stocks generally more risky than bonds?

The fact is that stocks, as an asset class, carry more risk than bonds. To counterbalance this, invest in superior quality dividend stocks that not only can grow over time but more significantly, can also decrease your overall portfolio volatility with respect 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.

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

Cummins Inc. (CMI) : Free Stock Analysis Report

NextEra Energy, Inc. (NEE) : Free Stock Analysis Report

Magna International Inc. (MGA) : Free Stock Analysis Report

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Zacks Investment Research