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How to Maximize Your Retirement Portfolio with These Top-Ranked Dividend Stocks - June 17, 2020

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Here's an eye-opening statistic: older Americans are more afraid of running out of money 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.

In today's economic environment, traditional income investments are not working.

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 at the time of this article, the current rate is under 2% and looks to stay low thanks to an accommodative Fed.

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.

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 current low risk, low yielding Treasury and bond options.

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.

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.

CNO Financial (CNO - Free Report) is currently shelling out a dividend of $0.12 per share, with a dividend yield of 3.15%. This compares to the Insurance - Multi line industry's yield of 2.74% and the S&P 500's yield of 1.92%. In terms of dividend growth, the company's current annualized dividend of $0.48 is up 10% from last year.

H&R Block (HRB - Free Report) is paying out a dividend of 0.26 per share at the moment, with a dividend yield of 5.77% compared to the Consumer Services - Miscellaneous industry's yield of 0% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $1.04 is up 4% from last year.

Currently paying a dividend of 0.19 per share, Spartan Stores (SPTN - Free Report) has a dividend yield of 3.92%. This is compared to the Food - Natural Foods Products industry's yield of 0% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $0.77 is up 1.32% from last year.

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.

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

Regardless of whether you select high-quality, low-fee funds or stocks, looking for a steady stream of income from dividend-paying equities can potentially lead you to a solid and more peaceful 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


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CNO Financial Group, Inc. (CNO) - free report >>

HR Block, Inc. (HRB) - free report >>

SpartanNash Company (SPTN) - free report >>

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