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How to Maximize Your Retirement Portfolio with These Top-Ranked Dividend Stocks - February 19, 2020
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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.
The tried - and - true retirement investing approach of yesterday doesn't work 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.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today 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.
How can you avoid dipping into your principal when the investments you counted on in retirement aren't producing income? You can only cut your expenses so far, and the only other option is to find a different investment vehicle to generate income.
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 current low risk, low yielding Treasury and fixed-income alternatives.
For example, AT&T and Coca-Cola are income stocks with attractive dividend yields of 3% or better. Look for stocks like this 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.
Bank of Montreal (BMO - Free Report) is currently shelling out a dividend of $0.8 per share, with a dividend yield of 4.19%. This compares to the Banks - Foreign industry's yield of 3.51% and the S&P 500's yield of 1.78%. In terms of dividend growth, the company's current annualized dividend of $3.2 is up 7.23% from last year.
Cardinal Health (CAH - Free Report) is paying out a dividend of 0.48 per share at the moment, with a dividend yield of 3.26% compared to the Medical - Dental Supplies industry's yield of 0% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $1.92 is up 1.01% from last year.
Currently paying a dividend of 0.38 per share, Brinker International (EAT - Free Report) has a dividend yield of 3.76%. This is compared to the Retail - Restaurants industry's yield of 0% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $1.52 is flat compared to last year.
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.
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 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
Seeking steady, consistent income through dividends can be a smart option for financial security in retirement, whether you invest in mutual funds, ETFs, or in dividend-paying stocks.
Generating income is just one aspect of planning for a comfortable retirement.
To learn more ways to maximize your assets - and avoid pitfalls that could jeopardize your financial security - download our free report:
Image: Bigstock
How to Maximize Your Retirement Portfolio with These Top-Ranked Dividend Stocks - February 19, 2020
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.
The tried - and - true retirement investing approach of yesterday doesn't work 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.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today 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.
How can you avoid dipping into your principal when the investments you counted on in retirement aren't producing income? You can only cut your expenses so far, and the only other option is to find a different investment vehicle to generate income.
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 current low risk, low yielding Treasury and fixed-income alternatives.
For example, AT&T and Coca-Cola are income stocks with attractive dividend yields of 3% or better. Look for stocks like this 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.
Bank of Montreal (BMO - Free Report) is currently shelling out a dividend of $0.8 per share, with a dividend yield of 4.19%. This compares to the Banks - Foreign industry's yield of 3.51% and the S&P 500's yield of 1.78%. In terms of dividend growth, the company's current annualized dividend of $3.2 is up 7.23% from last year.
Cardinal Health (CAH - Free Report) is paying out a dividend of 0.48 per share at the moment, with a dividend yield of 3.26% compared to the Medical - Dental Supplies industry's yield of 0% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $1.92 is up 1.01% from last year.
Currently paying a dividend of 0.38 per share, Brinker International (EAT - Free Report) has a dividend yield of 3.76%. This is compared to the Retail - Restaurants industry's yield of 0% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $1.52 is flat compared to last year.
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.
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 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
Seeking steady, consistent income through dividends can be a smart option for financial security in retirement, whether you invest in mutual funds, ETFs, or in dividend-paying stocks.
Generating income is just one aspect of planning for a comfortable retirement.
To learn more ways to maximize your assets - and avoid pitfalls that could jeopardize your financial security - download our free report:
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