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3 Top Dividend Stocks to Maximize Your Retirement Income
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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.
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
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 low risk, low yielding Treasury and fixed-income alternatives.
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.
Associated Banc-Corp (ASB - Free Report) is currently shelling out a dividend of $0.21 per share, with a dividend yield of 3.64%. This compares to the Banks - Midwest industry's yield of 2.57% and the S&P 500's yield of 1.6%. The company's annualized dividend growth in the past year was 5%. Check Associated Banc-Corp (ASB - Free Report) dividend history here>>>
H&R Block (HRB - Free Report) is paying out a dividend of $0.29 per share at the moment, with a dividend yield of 3.21% compared to the Consumer Services - Miscellaneous industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 7.41% over the past year. Check H&R Block (HRB - Free Report) dividend history here>>>
Currently paying a dividend of $0.21 per share, LCNB (LCNB - Free Report) has a dividend yield of 4.72%. This is compared to the Banks - Northeast industry's yield of 2.5% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5%. Check LCNB (LCNB - Free Report) dividend history here>>>
But aren't stocks generally more risky than bonds?
It is true that stocks, as an asset class, carry more risk than bonds, but high-quality dividend stocks not only have the ability to produce income growth over time but more importantly, can also reduce your overall portfolio volatility relative 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 interested in investing in dividends, but are thinking about mutual funds or ETFs rather than stocks, beware of fees. Mutual funds and specialized ETFs may carry high fees, which could lower the overall gains you earn from dividends, undercutting your dividend income strategy. Be sure to look for funds with low fees if you decide on this approach.
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.
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3 Top Dividend Stocks to Maximize Your Retirement Income
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.
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
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 low risk, low yielding Treasury and fixed-income alternatives.
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.
Associated Banc-Corp (ASB - Free Report) is currently shelling out a dividend of $0.21 per share, with a dividend yield of 3.64%. This compares to the Banks - Midwest industry's yield of 2.57% and the S&P 500's yield of 1.6%. The company's annualized dividend growth in the past year was 5%. Check Associated Banc-Corp (ASB - Free Report) dividend history here>>>
H&R Block (HRB - Free Report) is paying out a dividend of $0.29 per share at the moment, with a dividend yield of 3.21% compared to the Consumer Services - Miscellaneous industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 7.41% over the past year. Check H&R Block (HRB - Free Report) dividend history here>>>
Currently paying a dividend of $0.21 per share, LCNB (LCNB - Free Report) has a dividend yield of 4.72%. This is compared to the Banks - Northeast industry's yield of 2.5% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5%. Check LCNB (LCNB - Free Report) dividend history here>>>
But aren't stocks generally more risky than bonds?
It is true that stocks, as an asset class, carry more risk than bonds, but high-quality dividend stocks not only have the ability to produce income growth over time but more importantly, can also reduce your overall portfolio volatility relative 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 interested in investing in dividends, but are thinking about mutual funds or ETFs rather than stocks, beware of fees. Mutual funds and specialized ETFs may carry high fees, which could lower the overall gains you earn from dividends, undercutting your dividend income strategy. Be sure to look for funds with low fees if you decide on this approach.
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.