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3 Top-Ranked Dividend Stocks: A Smarter Way to Boost 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.
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.
Retirement investing approaches of the past don'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.
The impact of this rate decline is sizable: over 20 years, the difference in yield for a $1 million investment in 10-year Treasuries 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
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 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.
AES (AES - Free Report) is currently shelling out a dividend of $0.17 per share, with a dividend yield of 4.8%. This compares to the Utility - Electric Power industry's yield of 3.92% and the S&P 500's yield of 1.76%. The company's annualized dividend growth in the past year was 5%. Check AES (AES - Free Report) dividend history here>>>
Invitation Home (INVH - Free Report) is paying out a dividend of $0.26 per share at the moment, with a dividend yield of 3.33% compared to the REIT and Equity Trust - Residential industry's yield of 4.61% and the S&P 500's yield. The annualized dividend growth of the company was 18.18% over the past year. Check Invitation Home (INVH - Free Report) dividend history here>>>
Currently paying a dividend of $0.37 per share, PNM Resources (PNM - Free Report) has a dividend yield of 3.29%. This is compared to the Utility - Electric Power industry's yield of 3.92% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5.76%. Check PNM Resources (PNM - 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 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
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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3 Top-Ranked Dividend Stocks: A Smarter Way to Boost Your Retirement Income
Here's a revealing data point: older Americans are scared more of outliving wealth than of death itself.
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.
Retirement investing approaches of the past don'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.
The impact of this rate decline is sizable: over 20 years, the difference in yield for a $1 million investment in 10-year Treasuries 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
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 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.
AES (AES - Free Report) is currently shelling out a dividend of $0.17 per share, with a dividend yield of 4.8%. This compares to the Utility - Electric Power industry's yield of 3.92% and the S&P 500's yield of 1.76%. The company's annualized dividend growth in the past year was 5%. Check AES (AES - Free Report) dividend history here>>>
Invitation Home (INVH - Free Report) is paying out a dividend of $0.26 per share at the moment, with a dividend yield of 3.33% compared to the REIT and Equity Trust - Residential industry's yield of 4.61% and the S&P 500's yield. The annualized dividend growth of the company was 18.18% over the past year. Check Invitation Home (INVH - Free Report) dividend history here>>>
Currently paying a dividend of $0.37 per share, PNM Resources (PNM - Free Report) has a dividend yield of 3.29%. This is compared to the Utility - Electric Power industry's yield of 3.92% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5.76%. Check PNM Resources (PNM - 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 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
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.