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3 Top Dividend Stocks to Maximize Your Retirement Income
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Believe it or not, seniors fear running out of cash more than they fear dying.
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.
The tried-and-true retirement investing approach of yesterday doesn't work today.
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.
While this yield reduction may not seem drastic, it adds up: for a $1 million investment in 10-year Treasuries, the rate drop means a difference in yield of more than $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.
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 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.
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.
Federal Agricultural Mortgage (AGM - Free Report) is currently shelling out a dividend of $1.1 per share, with a dividend yield of 3.02%. This compares to the Financial - Mortgage & Related Services industry's yield of 0% and the S&P 500's yield of 1.78%. The company's annualized dividend growth in the past year was 7.95%. Check Federal Agricultural Mortgage (AGM - Free Report) dividend history here>>>
Dine Brands (DIN - Free Report) is paying out a dividend of $0.51 per share at the moment, with a dividend yield of 3.08% compared to the Retail - Restaurants industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 27.5% over the past year. Check Dine Brands (DIN - Free Report) dividend history here>>>
Currently paying a dividend of $0.29 per share, H&R Block (HRB - Free Report) has a dividend yield of 3.33%. This is compared to the Consumer Services - Miscellaneous 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 H&R Block (HRB - Free Report) dividend history here>>>
But aren't stocks generally more risky than bonds?
Yes, that's true. As a broad category, bonds carry less risk than stocks. However, the stocks we are talking about - dividend -paying stocks from high-quality companies - can generate income over time and also mitigate the overall volatility of your portfolio compared to the stock market as a whole.
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
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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3 Top Dividend Stocks to Maximize Your Retirement Income
Believe it or not, seniors fear running out of cash more than they fear dying.
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.
The tried-and-true retirement investing approach of yesterday doesn't work today.
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.
While this yield reduction may not seem drastic, it adds up: for a $1 million investment in 10-year Treasuries, the rate drop means a difference in yield of more than $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.
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 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.
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.
Federal Agricultural Mortgage (AGM - Free Report) is currently shelling out a dividend of $1.1 per share, with a dividend yield of 3.02%. This compares to the Financial - Mortgage & Related Services industry's yield of 0% and the S&P 500's yield of 1.78%. The company's annualized dividend growth in the past year was 7.95%. Check Federal Agricultural Mortgage (AGM - Free Report) dividend history here>>>
Dine Brands (DIN - Free Report) is paying out a dividend of $0.51 per share at the moment, with a dividend yield of 3.08% compared to the Retail - Restaurants industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 27.5% over the past year. Check Dine Brands (DIN - Free Report) dividend history here>>>
Currently paying a dividend of $0.29 per share, H&R Block (HRB - Free Report) has a dividend yield of 3.33%. This is compared to the Consumer Services - Miscellaneous 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 H&R Block (HRB - Free Report) dividend history here>>>
But aren't stocks generally more risky than bonds?
Yes, that's true. As a broad category, bonds carry less risk than stocks. However, the stocks we are talking about - dividend -paying stocks from high-quality companies - can generate income over time and also mitigate the overall volatility of your portfolio compared to the stock market as a whole.
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
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.