Back to top

Image: Bigstock

3 Top Dividend Stocks to Maximize Your Retirement Income - December 17, 2019

Read MoreHide Full Article

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.

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.

While this yield reduction may not seem drastic, it adds up: for a $1 million investment in 10-year Treasuries, the rate drop means a difference in yield of 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.

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

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).

For example, AT&T and Coca-Cola are income stocks with attractive dividend yields of 3% or better. Look for stocks like this that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.

Going beyond those familiar names, you can find excellent dividend-paying stocks by following a few guidelines. Look for companies that pay a dividend yield of around 3%, with positive annual dividend growth. The growth rate is key to help combat the effects of inflation.

Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.

Brinker International (EAT - Free Report) is currently shelling out a dividend of $0.38 per share, with a dividend yield of 3.59%. This compares to the Retail - Restaurants industry's yield of 0% and the S&P 500's yield of 1.81%. In terms of dividend growth, the company's current annualized dividend of $1.52 is flat compared to last year.

Exelon (EXC) is paying out a dividend of 0.36 per share at the moment, with a dividend yield of 3.24% compared to the Utility - Electric Power industry's yield of 2.96% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $1.45 is up 5.07% from last year.

Currently paying a dividend of 0.27 per share, Federated Investors (FII) has a dividend yield of 3.24%. This is compared to the Financial - Investment Management industry's yield of 2.31% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $1.08 is flat compared to last year.

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.

An upside to adding dividend stocks to your retirement portfolio: they can help lessen the effects of inflation, since many dividend-paying companies (especially blue chip stocks) generally increase their dividends over time.

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

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.

Generating income is just one aspect of planning for a comfortable retirement.

To learn more ways to maximize your assets - and avoid pitfalls that could jeopardize your financial security - download our free report:

Will You Retire a Multi-Millionaire? 7 Things You Can Do Now


In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Brinker International, Inc. (EAT) - free report >>

Published in