3 Top Dividend Stocks to Maximize Your Retirement Income - October 07, 2020
Strange but true: seniors fear death less than money in retirement.
Retirees who have built a nest egg have legitimate reasons to worry, as traditional methods of planning retirement can result in incomes no longer able to cover expenses. Some retirees are now tapping their headmasters for a decent living, somewhere between falling investment balances and longer life expectancy.
Precautionary investment approaches of the past no longer work today.
Over many years, bonds or other fixed income assets could generate the rate of return needed to generate a solid income for retirement. However, those yields have shrunk over time: 10-year government bond rates were around 6.50% in the late 1990s, but today that rate is a thing of the past, and the likelihood that rates will make a comeback in the foreseeable future experience is low.
That means if you had $ 1 million in 10-year Treasury bonds, the yield differential between 1999 and now is more than $ 1 million.
In addition to the significant decline in bond yields, today's retirees are nervous about their future social security benefits. Due to certain demographic factors, it is estimated that the funds that pay the social security benefits will run out of money in 2035.
How can you avoid diving into your capital when the investments you expected in retirement are not generating income? All you can do so far is to cut your spending and the only other option is to find another investment vehicle to generate income.
Invest in dividend stocks
As a substitute for low-yield government bonds (and other bond options), we believe that dividend-paying stocks of high quality companies provide the low-risk, stable, predictable income that retired investors seek.
For example, AT&T and Coca-Cola are income stocks with attractive dividend yields of 3% or better. Look for stocks like these that have been paying steadily rising dividends for years (or decades) and haven't cut their dividends even during recessions.
One approach to identifying suitable stocks is to look for companies with an average dividend yield of 3% and positive average annual dividend growth. Numerous stocks increase dividends over time, offsetting the risk of inflation.
Here are three dividend stocks retirees should consider for their nest egg portfolio.
AES (AES) currently pays a dividend of $ 0.14 per share with a dividend yield of 3.07%. That compares to a 3.39% return for the utility industry and a 1.65% return for the S&P 500. In terms of dividend growth, the company's current annualized dividend is $ 0.57 year over year increased by 4.98%.
Highwoods Properties (HIW) currently pays a dividend of 0.48 per share, with a dividend yield of 5.41% compared to REIT and Equity Trust - other industries yield of 3.83% and S&P 500 yield. Viewed Given the company's dividend growth, the current annualized dividend of $ 1.92 is 1.05% year-over-year.
MDU Resources (MDU) currently pays a dividend of 0.21 per share and has a dividend yield of 3.6%. This is compared to the utility gas distribution return of 3.56% and the current return on the S&P 500. Looking at dividend growth, the company's current annualized dividend is up 2.47% from $ 0.83 year over year.
But aren't stocks generally riskier than bonds?
The fact is, stocks are more risky as an asset class than bonds. To make up for this, invest in the highest quality dividend stocks that not only grow but can grow significantly over time, but can also reduce the volatility of your entire portfolio in view of the broader stock market.
One silver lining for owning dividend stocks for your retirement portfolio is that many companies, especially blue chip stocks, increase their dividends over time, helping to offset the impact of inflation on your potential retirement income.
Are you considering dividend-oriented mutual funds or ETFs? Watch out for fees.
You might be thinking, "I like this dividend strategy, but instead of investing in individual stocks, I'll find a dividend-based mutual fund or ETF." This approach can be useful. Be aware, however, that some mutual funds and specialized ETFs charge high fees that can reduce your dividend profits or income and miss the goal of this dividend investing approach. When looking to invest in a fund, do your research to find the best dividend funds with the lowest fees.
Whether you choose high quality, inexpensive funds or stocks, the pursuit of a constant income from dividend stocks can potentially provide you with a path to a better, less stressful retirement.
Income generation is only one aspect of planning a comfortable retirement.
Download our free report to learn more about how to maximize your wealth and avoid pitfalls that could compromise your financial security:
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The AES Corporation (AES): Report on Free Stock Analysis
Highwoods Properties, Inc. (HIW): Free Stock Research Report
MDU Resources Group, Inc. (MDU): Free Stock Research Report
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