Yahoo Finance 3 Top Dividend Stocks to Maximize Your Retirement Income
Strange but true: seniors fear death less than running out of money in retirement.
And retirees have good reason to be worried about making their assets last. People are living longer, so that money has to cover a longer period. Making matters worse, income generated using tried-and-true retirement planning approaches may not cover expenses these days. That means seniors must dip into principal to meet living expenses.
Your parents' retirement investing plan won't cut it today.
For example, 10-year Treasury bonds in the late 1990s offered a yield of around 6.50%, which translated to an income source you could count on. However, today's yield is much lower and probably not a viable return option to fund typical retirements.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is 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.
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
Dividend-paying stocks from low-risk, high-quality companies are a smart way to generate steady and reliable attractive income streams to replace low risk, low yielding Treasury and bond options.
Look for stocks 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.
AbbVie (ABBV) is currently shelling out a dividend of $1.55 per share, with a dividend yield of 3.84%. This compares to the Large Cap Pharmaceuticals industry's yield of 2.53% and the S&P 500's yield of 1.57%. The company's annualized dividend growth in the past year was 4.73%. Check AbbVie (ABBV) dividend history here>>>
First Bancorp (FBP) is paying out a dividend of $0.16 per share at the moment, with a dividend yield of 3.67% compared to the Banks - Southeast industry's yield of 2.63% and the S&P 500's yield. The annualized dividend growth of the company was 14.29% over the past year. Check First Bancorp (FBP) dividend history here>>>
Currently paying a dividend of $1.31 per share, Federated Hermes (FHI) has a dividend yield of 3.43%. This is compared to the Financial - Investment Management industry's yield of 2.02% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 3.7%. Check Federated Hermes (FHI) 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.
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.
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.
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AbbVie Inc. (ABBV) : Free Stock Analysis Report
First BanCorp. (FBP) : Free Stock Analysis Report
Federated Hermes, Inc. (FHI) : Free Stock Analysis Report
