Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks

Here's a revealing data point: older Americans are scared more of outliving wealth 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.

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.

The effect of this drop in rates is substantial: over 20 years, the change in yield for a $1 million investment in 10-year Treasuries is over $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

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.

A rule of thumb for finding solid income-producing stocks is to seek those that average 3% dividend yield, and positive yearly dividend growth. These stocks can help combat inflation by boosting dividends over time.

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

Axis Capital (AXS) is currently shelling out a dividend of $0.44 per share, with a dividend yield of 3.26%. This compares to the Insurance - Property and Casualty industry's yield of 0.66% and the S&P 500's yield of 1.78%. The company's annualized dividend growth in the past year was 4.76%. Check Axis Capital (AXS) dividend history here>>>

Goldman Sachs (GS) is paying out a dividend of $2.5 per share at the moment, with a dividend yield of 3.17% compared to the Financial - Investment Bank industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 25% over the past year. Check Goldman Sachs (GS) dividend history here>>>

Currently paying a dividend of $1.15 per share, HSBC (HSBC) has a dividend yield of 4.6%. This is compared to the Banks - Foreign industry's yield of 3.31% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 22.94%. Check HSBC (HSBC) 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.

An advantage of owning dividend stocks for your retirement nest egg is that numerous companies, particularly blue chip stocks, raise their dividends over time, helping alleviate the impact of inflation on your potential retirement income.

Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.

If you're thinking, "I want to invest in a dividend-focused ETF or mutual fund," make sure to do your homework. It's important to know that some mutual funds and specialized ETFs charge high fees, which may diminish your dividend gains or income and thwart the overall objective of this investment strategy. If you do want to invest in fund, research well to identify the best-quality dividend funds with the least charges.

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.

Free Report: Must-See Hydrogen Stocks

Hydrogen fuel cells are already used to provide efficient, ultra-clean energy to buses, ships and even hospitals. This technology is on the verge of a massive breakthrough, one that could make hydrogen a major source of America's power. It could even totally revolutionize the EV industry.

Zacks has released a special report revealing the 4 stocks experts believe will deliver the biggest gains.

Download Cashing In on Cleaner Energy today, absolutely free.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Axis Capital Holdings Limited (AXS) : Free Stock Analysis Report

The Goldman Sachs Group, Inc. (GS) : Free Stock Analysis Report

HSBC Holdings plc (HSBC) : Free Stock Analysis Report

To read this article on Zacks.com click here.

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.

Tags

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.