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3 Top-Ranked Dividend Stocks: A Smarter Way to Boost Your Retirement Income
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Here's an eye-opening statistic: older Americans are more afraid of running out of money than of death itself.
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.
The tried-and-true retirement investing approach of yesterday doesn'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.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is 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.
Unfortunately, it looks like the two traditional sources of retirement income - bonds and Social Security - may not be able to adequately meet the needs of present and future retirees. But what if there was another option that could provide a steady, reliable source of income in retirement?
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.
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.
Brixmor Property (BRX - Free Report) is currently shelling out a dividend of $0.27 per share, with a dividend yield of 4.81%. This compares to the REIT and Equity Trust - Retail industry's yield of 4.44% and the S&P 500's yield of 1.61%. The company's annualized dividend growth in the past year was 8.33%. Check Brixmor Property (BRX - Free Report) dividend history here>>>
Gilead Sciences (GILD - Free Report) is paying out a dividend of $0.77 per share at the moment, with a dividend yield of 4.08% compared to the Medical - Biomedical and Genetics industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 2.74% over the past year. Check Gilead Sciences (GILD - Free Report) dividend history here>>>
Currently paying a dividend of $1.3 per share, Prudential (PRU - Free Report) has a dividend yield of 4.75%. This is compared to the Insurance - Multi line industry's yield of 1.79% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 4.17%. Check Prudential (PRU - 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.
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 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 an eye-opening statistic: older Americans are more afraid of running out of money than of death itself.
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.
The tried-and-true retirement investing approach of yesterday doesn'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.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is 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.
Unfortunately, it looks like the two traditional sources of retirement income - bonds and Social Security - may not be able to adequately meet the needs of present and future retirees. But what if there was another option that could provide a steady, reliable source of income in retirement?
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.
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.
Brixmor Property (BRX - Free Report) is currently shelling out a dividend of $0.27 per share, with a dividend yield of 4.81%. This compares to the REIT and Equity Trust - Retail industry's yield of 4.44% and the S&P 500's yield of 1.61%. The company's annualized dividend growth in the past year was 8.33%. Check Brixmor Property (BRX - Free Report) dividend history here>>>
Gilead Sciences (GILD - Free Report) is paying out a dividend of $0.77 per share at the moment, with a dividend yield of 4.08% compared to the Medical - Biomedical and Genetics industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 2.74% over the past year. Check Gilead Sciences (GILD - Free Report) dividend history here>>>
Currently paying a dividend of $1.3 per share, Prudential (PRU - Free Report) has a dividend yield of 4.75%. This is compared to the Insurance - Multi line industry's yield of 1.79% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 4.17%. Check Prudential (PRU - 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.
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 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.