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Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks
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Believe it or not, seniors fear running out of cash more than they fear dying.
Also, retirees who have constructed a nest egg have valid justifications to be concerned, since the traditional ways to plan for retirement may mean income can no longer cover expenses. Some retirees are now tapping their principal to make a decent living, pressed for time between decreasing investment balances and longer life expectancies.
In today's economic environment, traditional income investments are not working.
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.
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.
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's a retiree to do? You could cut your expenses to the bone, and take the risk that your Social Security checks don't shrink. Or you could find an alternative investment that provides a steady, higher-rate income stream to replace dwindling 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.
Federal Agricultural Mortgage (AGM - Free Report) is currently shelling out a dividend of $1.1 per share, with a dividend yield of 3.56%. This compares to the Financial - Mortgage & Related Services industry's yield of 0% and the S&P 500's yield of 1.75%. The company's annualized dividend growth in the past year was 15.79%. Check Federal Agricultural Mortgage (AGM - Free Report) dividend history here>>>
Evolution Petroleum (EPM - Free Report) is paying out a dividend of $0.12 per share at the moment, with a dividend yield of 6.76% compared to the Oil and Gas - Exploration and Production - United States industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 20% over the past year. Check Evolution Petroleum (EPM - Free Report) dividend history here>>>
Currently paying a dividend of $0.07 per share, TIM S.A. Sponsored ADR (TIMB - Free Report) has a dividend yield of 4.38%. This is compared to the Wireless Non-US industry's yield of 0.29% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 23.45%. Check TIM S.A. Sponsored ADR (TIMB - 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.
Combating the impact of inflation is one advantage of owning these dividend-paying stocks. Here's why: many of these stable, high-quality companies increase their dividends over time, which translates to rising dividend income that offsets the effects of inflation.
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
Whether you select high-quality, low-fee funds or stocks, seeking the steady income of dividend-paying equities can potentially offer you a path to a better and more stress-free retirement.
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Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks
Believe it or not, seniors fear running out of cash more than they fear dying.
Also, retirees who have constructed a nest egg have valid justifications to be concerned, since the traditional ways to plan for retirement may mean income can no longer cover expenses. Some retirees are now tapping their principal to make a decent living, pressed for time between decreasing investment balances and longer life expectancies.
In today's economic environment, traditional income investments are not working.
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.
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.
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's a retiree to do? You could cut your expenses to the bone, and take the risk that your Social Security checks don't shrink. Or you could find an alternative investment that provides a steady, higher-rate income stream to replace dwindling 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.
Federal Agricultural Mortgage (AGM - Free Report) is currently shelling out a dividend of $1.1 per share, with a dividend yield of 3.56%. This compares to the Financial - Mortgage & Related Services industry's yield of 0% and the S&P 500's yield of 1.75%. The company's annualized dividend growth in the past year was 15.79%. Check Federal Agricultural Mortgage (AGM - Free Report) dividend history here>>>
Evolution Petroleum (EPM - Free Report) is paying out a dividend of $0.12 per share at the moment, with a dividend yield of 6.76% compared to the Oil and Gas - Exploration and Production - United States industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 20% over the past year. Check Evolution Petroleum (EPM - Free Report) dividend history here>>>
Currently paying a dividend of $0.07 per share, TIM S.A. Sponsored ADR (TIMB - Free Report) has a dividend yield of 4.38%. This is compared to the Wireless Non-US industry's yield of 0.29% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 23.45%. Check TIM S.A. Sponsored ADR (TIMB - 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.
Combating the impact of inflation is one advantage of owning these dividend-paying stocks. Here's why: many of these stable, high-quality companies increase their dividends over time, which translates to rising dividend income that offsets the effects of inflation.
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
Whether you select high-quality, low-fee funds or stocks, seeking the steady income of dividend-paying equities can potentially offer you a path to a better and more stress-free retirement.