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Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks
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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.
In today's economic environment, traditional income investments are not working.
In the past, investors going into retirement could invest in bonds and count on attractive yields to produce steady, reliable income streams to fund a predictable retirement. 10-year Treasury bond rates in the late 1990s hovered around 6.50%, whereas the current rate is much lower.
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.
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.
Acadia Realty Trust (AKR - Free Report) is currently shelling out a dividend of $0.18 per share, with a dividend yield of 4.8%. This compares to the REIT and Equity Trust - Retail industry's yield of 4.25% and the S&P 500's yield of 1.58%. The company's annualized dividend growth in the past year was 20%. Check Acadia Realty Trust (AKR - Free Report) dividend history here>>>
Alliance Resource Partners, L.P. (ARLP - Free Report) is paying out a dividend of $0.7 per share at the moment, with a dividend yield of 13.02% compared to the Coal industry's yield of 0.31% and the S&P 500's yield. The annualized dividend growth of the company was 150% over the past year. Check Alliance Resource Partners, L.P. (ARLP - Free Report) dividend history here>>>
Currently paying a dividend of $0.42 per share, Citizens Financial Group (CFG - Free Report) has a dividend yield of 3.9%. This is compared to the Financial - Savings and Loan industry's yield of 2.62% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 7.69%. Check Citizens Financial Group (CFG - Free Report) 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.
An upside to adding dividend stocks to your retirement portfolio: they can help lessen the effects of inflation, since many dividend-paying companies (especially blue chip stocks) generally increase their dividends over time.
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
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.
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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.
In today's economic environment, traditional income investments are not working.
In the past, investors going into retirement could invest in bonds and count on attractive yields to produce steady, reliable income streams to fund a predictable retirement. 10-year Treasury bond rates in the late 1990s hovered around 6.50%, whereas the current rate is much lower.
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.
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.
Acadia Realty Trust (AKR - Free Report) is currently shelling out a dividend of $0.18 per share, with a dividend yield of 4.8%. This compares to the REIT and Equity Trust - Retail industry's yield of 4.25% and the S&P 500's yield of 1.58%. The company's annualized dividend growth in the past year was 20%. Check Acadia Realty Trust (AKR - Free Report) dividend history here>>>
Alliance Resource Partners, L.P. (ARLP - Free Report) is paying out a dividend of $0.7 per share at the moment, with a dividend yield of 13.02% compared to the Coal industry's yield of 0.31% and the S&P 500's yield. The annualized dividend growth of the company was 150% over the past year. Check Alliance Resource Partners, L.P. (ARLP - Free Report) dividend history here>>>
Currently paying a dividend of $0.42 per share, Citizens Financial Group (CFG - Free Report) has a dividend yield of 3.9%. This is compared to the Financial - Savings and Loan industry's yield of 2.62% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 7.69%. Check Citizens Financial Group (CFG - Free Report) 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.
An upside to adding dividend stocks to your retirement portfolio: they can help lessen the effects of inflation, since many dividend-paying companies (especially blue chip stocks) generally increase their dividends over time.
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
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.