Menu Close

3 Top Dividend Stocks to Maximize Your Retirement Income

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.

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 effect of this drop in rates is substantial: over 20 years, the change in yield for a $1 million investment in 10-year Treasuries is over $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.

One approach to recognizing appropriate stocks is to look for companies with an average dividend yield of 3% and positive average annual dividend growth. Numerous stocks hike dividends over time, counterbalancing inflation risks.

Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.

American Assets Trust (AAT) is currently shelling out a dividend of $0.32 per share, with a dividend yield of 4.56%. This compares to the REIT and Equity Trust – Retail industry’s yield of 4.17% and the S&P 500’s yield of 1.64%. The company’s annualized dividend growth in the past year was 14.29%. Check American Assets Trust (AAT) dividend history here>>>

Brookfield Infrastructure Partners (BIP) is paying out a dividend of $0.36 per share at the moment, with a dividend yield of 3.41% compared to the REIT and Equity Trust – Other industry’s yield of 3.79% and the S&P 500’s yield. The annualized dividend growth of the company was 5.88% over the past year. Check Brookfield Infrastructure Partners (BIP) dividend history here>>>

Currently paying a dividend of $0.57 per share, Canadian Natural Resources (CNQ) has a dividend yield of 4.3%. This is compared to the Oil and Gas – Exploration and Production – Canadian industry’s yield of 0% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 52.26%. Check Canadian Natural Resources (CNQ) 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 prefer investing in funds or ETFs compared to individual stocks, you can still pursue a dividend income strategy. However, it’s important to know the fees charged by each fund or ETF, which can ultimately reduce your dividend income, working against your strategy. Do your homework and make sure you know the fees charged by any fund before you invest.

Bottom Line

Whether you select high-quality, low-fee funds or stocks, seeking the steady income of dividend-paying equities can potentially offer you a path to a better and more stress-free 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
 
American Assets Trust, Inc. (AAT) : Free Stock Analysis Report
 
Brookfield Infrastructure Partners LP (BIP) : Free Stock Analysis Report
 
Canadian Natural Resources Limited (CNQ) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research