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Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks

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Strange but true: seniors fear death less than running out of money in retirement.

And unfortunately, even retirees who have built a nest egg have good reason to be concerned - with the traditional approaches to retirement planning, income may no longer cover expenses. That means retirees are dipping into principal to make ends meet, setting up a race against time between dwindling investment balances and longer lifespans.

Your parents' retirement investing plan won't cut it 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.

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 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

We feel that these dividend-paying equities - as long as they are from high-quality, low-risk issuers - can give retirement investors a smart option to replace low-yielding Treasury bonds (or other bonds).

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.

American Assets Trust (AAT - Free Report) is currently shelling out a dividend of $0.33 per share, with a dividend yield of 5.74%. This compares to the REIT and Equity Trust - Retail industry's yield of 4.25% and the S&P 500's yield of 1.64%. The company's annualized dividend growth in the past year was 3.13%. Check American Assets Trust (AAT - Free Report) dividend history here>>>

Axis Capital (AXS - Free Report) is paying out a dividend of $0.44 per share at the moment, with a dividend yield of 3.25% compared to the Insurance - Property and Casualty industry's yield of 0.17% and the S&P 500's yield. The annualized dividend growth of the company was 2.33% over the past year. Check Axis Capital (AXS - Free Report) dividend history here>>>

Currently paying a dividend of $0.29 per share, COPT Defense (CDP - Free Report) has a dividend yield of 4.47%. This is compared to the REIT and Equity Trust - Other industry's yield of 4.01% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 3.64%. Check COPT Defense (CDP - Free Report) dividend history here>>>

But aren't stocks generally more risky than bonds?

Overall, that is true. But stocks are a broad class, and you can reduce the risks significantly by selecting high-quality dividend stocks that can generate regular, predictable income and can also decrease the volatility of your portfolio compared to the overall 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 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

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.


See More Zacks Research for These Tickers


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Axis Capital Holdings Limited (AXS) - free report >>

American Assets Trust, Inc. (AAT) - free report >>

COPT Defense Properties (CDP) - free report >>

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