Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks

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

And older Americans have legitimate reasons for this worry, even if they have dutifully saved for their golden years. That’s because the traditional ways people manage retirement may no longer provide enough income to meet expenses – and with people generally living longer, the principal retirement savings is exhausted far too early in the retirement period.

Your parents’ retirement investing plan won’t cut it today.

For many years, bonds or other fixed-income assets could produce the yield needed to provide solid income for retirement needs. However, these yields have dwindled over time: 10-year Treasury bond rates in the late 1990s were around 6.50%, but today, that rate is a thing of the past, with a slim likelihood of rates making a comeback in the foreseeable future.

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.

In addition to the considerable drop in bond yields, today’s retirees are nervous about their future Social Security benefits. Because of certain demographic factors, it’s been estimated that the funds that pay the Social Security benefits 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

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.

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.

Alexandria Real Estate Equities (ARE) is currently shelling out a dividend of $1.18 per share, with a dividend yield of 3.07%. This compares to the REIT and Equity Trust – Other industry’s yield of 3.98% and the S&P 500’s yield of 1.65%. The company’s annualized dividend growth in the past year was 5.36%. Check Alexandria Real Estate Equities (ARE) dividend history here>>>

HSBC (HSBC) is paying out a dividend of $0.45 per share at the moment, with a dividend yield of 4.4% compared to the Banks – Foreign industry’s yield of 3.9% and the S&P 500’s yield. The annualized dividend growth of the company was 66.44% over the past year. Check HSBC (HSBC) dividend history here>>>

Currently paying a dividend of $0.29 per share, Interpublic Group (IPG) has a dividend yield of 4.17%. This is compared to the Advertising and Marketing industry’s yield of 0% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 7.41%. Check Interpublic Group (IPG) 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.

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

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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Alexandria Real Estate Equities, Inc. (ARE) : Free Stock Analysis Report
 
Interpublic Group of Companies, Inc. The (IPG) : Free Stock Analysis Report
 
HSBC Holdings plc (HSBC) : Free Stock Analysis Report
 
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