3 Top-Ranked Dividend Stocks: A Smarter Way to Boost Your Retirement Income

Believe it or not, seniors fear running out of cash more than they fear dying.

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 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.

The impact of this rate decline is sizable: over 20 years, the difference in yield for a $1 million investment in 10-year Treasuries 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.

Eagle Bancorp Montana, Inc. (EBMT) is currently shelling out a dividend of $0.14 per share, with a dividend yield of 4.41%. This compares to the Banks - Midwest industry's yield of 3.3% and the S&P 500's yield of 1.59%. The company's annualized dividend growth in the past year was 1.82%. Check Eagle Bancorp Montana, Inc. (EBMT) dividend history here>>>

Tanger (SKT) is paying out a dividend of $0.28 per share at the moment, with a dividend yield of 3.65% compared to the REIT and Equity Trust - Retail industry's yield of 4.4% and the S&P 500's yield. The annualized dividend growth of the company was 18.18% over the past year. Check Tanger (SKT) dividend history here>>>

Currently paying a dividend of $1.9 per share, Virtus Investment Partners (VRTS) has a dividend yield of 3.26%. This is compared to the Financial - Investment Management industry's yield of 2.04% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 15.15%. Check Virtus Investment Partners (VRTS) 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.

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'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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Eagle Bancorp Montana, Inc. (EBMT) : Free Stock Analysis Report

Tanger Inc. (SKT) : Free Stock Analysis Report

Virtus Investment Partners, Inc. (VRTS) : Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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