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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 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.
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.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is more than $1 million.
And lower bond yields aren't the only potential problem seniors are facing. Today's retirees aren't feeling as secure as they once did about Social Security, either. Benefit checks will still be coming for the foreseeable future, but based on current estimates, Social Security funds 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 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.
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.
is currently shelling out a dividend of $0.13 per share, with a dividend yield of 3.59%. This compares to the Broadcast Radio and Television industry's yield of 0% and the S&P 500's yield of 1.59%. The company's annualized dividend growth in the past year was 31.58%. Check TEGNA Inc. dividend history here>>>
is paying out a dividend of $0.35 per share at the moment, with a dividend yield of 3.33% compared to the Retail - Apparel and Shoes industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 16.67% over the past year. Check Tapestry dividend history here>>>
has a dividend yield of 4.73%. This is compared to the Financial - Investment Management industry's yield of 2.56% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 1.64%. Check T. Rowe Price dividend history here>>>
But aren't stocks generally more risky than bonds?
The fact is that stocks, as an asset class, carry more risk than bonds. To counterbalance this, invest in superior quality dividend stocks that not only can grow over time but more significantly, can also decrease your overall portfolio volatility with respect to the broader stock market.
A silver lining to owning dividend stocks for your retirement portfolio is that many companies, especially blue chip stocks, increase their dividends over time, helping offset the effects of inflation on your potential retirement income.
Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.
You may be thinking, "I like this dividend strategy, but instead of investing in individual stocks, I'm going to find a dividend-focused mutual fund or ETF." This approach can make sense, but be aware that some mutual funds and specialized ETFs carry high fees, which may reduce your dividend gains or income, and defeat the goal of this dividend investment approach. If you do wish to invest in a fund, do your research to find the best-quality dividend funds with the lowest fees.
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.
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Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks
Strange but true: seniors fear death less than running out of money in retirement.
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.
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.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is more than $1 million.
And lower bond yields aren't the only potential problem seniors are facing. Today's retirees aren't feeling as secure as they once did about Social Security, either. Benefit checks will still be coming for the foreseeable future, but based on current estimates, Social Security funds 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 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.
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.
TEGNA Inc. (TGNA - Free Report)
is currently shelling out a dividend of $0.13 per share, with a dividend yield of 3.59%. This compares to the Broadcast Radio and Television industry's yield of 0% and the S&P 500's yield of 1.59%. The company's annualized dividend growth in the past year was 31.58%. Check TEGNA Inc. dividend history here>>>Tapestry (TPR - Free Report)
is paying out a dividend of $0.35 per share at the moment, with a dividend yield of 3.33% compared to the Retail - Apparel and Shoes industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 16.67% over the past year. Check Tapestry dividend history here>>>Currently paying a dividend of $1.24 per share,
T. Rowe Price (TROW - Free Report)
has a dividend yield of 4.73%. This is compared to the Financial - Investment Management industry's yield of 2.56% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 1.64%. Check T. Rowe Price dividend history here>>>But aren't stocks generally more risky than bonds?
The fact is that stocks, as an asset class, carry more risk than bonds. To counterbalance this, invest in superior quality dividend stocks that not only can grow over time but more significantly, can also decrease your overall portfolio volatility with respect to the broader stock market.
A silver lining to owning dividend stocks for your retirement portfolio is that many companies, especially blue chip stocks, increase their dividends over time, helping offset the effects of inflation on your potential retirement income.
Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.
You may be thinking, "I like this dividend strategy, but instead of investing in individual stocks, I'm going to find a dividend-focused mutual fund or ETF." This approach can make sense, but be aware that some mutual funds and specialized ETFs carry high fees, which may reduce your dividend gains or income, and defeat the goal of this dividend investment approach. If you do wish to invest in a fund, do your research to find the best-quality dividend funds with the lowest fees.
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.