3 Top-Ranked Dividend Stocks: A Smarter Way to Boost Your Retirement Income - October 07, 2020
Here's an eye-opening statistic: Older Americans are more afraid of running out of money than death itself.
Unfortunately, retirees who have built a nest egg have good reason to worry - with traditional approaches to retirement planning, income may no longer cover expenses. That means retirees are diving into capital politics to make ends meet, and starting a race against time between dwindling investment balances and longer lifespans.
Precautionary investment approaches of the past no longer work today.
Historically, retiring investors have been able to invest in bonds and count on attractive returns to generate stable and dependable streams of income to fund a predictable retirement. Interest rates on 10-year government bonds were 6.50% in the late 1990s, while the current rate at the time of this writing is below 2% and appears to remain low thanks to an accommodating Fed.
That means if you had $ 1 million in 10-year Treasury bonds, the yield differential between 1999 and now is more than $ 1 million.
Today's retirees are hit hard by reduced bond yields - and the social security picture isn't all that bright either. Social security benefits are still paid now and for the near future, but it has been estimated that social security funds will be depleted by 2035.
Unfortunately, the two traditional sources of retirement income - bonds and social security - may not appear to be able to adequately meet the needs of current and future retirees. But what if there was another option that could provide a stable and reliable source of income in retirement?
Invest in dividend stocks
Dividend-paying stocks of low-risk, high-quality companies are a smart way to generate stable, reliable, attractive streams of income to replace the current low-risk, low-return 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 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.
The First of Long Island (FLIC) currently pays a dividend of $ 0.18 per share with a dividend yield of 4.46%. This is comparable to the Banks - Northeast Industries return of 2.96% and the S&P 500 return of 1.65%. In terms of dividend growth, the company's current annualized dividend is up 5.88% from $ 0.72 year over year.
Kellogg (K) currently pays a dividend of 0.57 per share, with a dividend yield of 3.5% compared to the food industry's yield of 0% and the yield of the S&P 500. Looking at the company's dividend growth, so the current annualized dividend of $ 2.28 is unchanged from last year.
Merck (MRK) currently pays a dividend of 0.61 per share and has a dividend yield of 3.06%. This is compared to the Large Cap Pharmaceuticals industry's return of 2.31% and the current return of the S&P 500. Looking at dividend growth, the company's current annualized dividend is up 10.91% from $ 2.44 year over year.
But aren't stocks generally riskier than bonds?
Overall that's true. Stocks are a broad class, however, and you can greatly reduce the risks by choosing quality dividend stocks that can produce regular, predictable returns and can also reduce the volatility of your portfolio relative to the overall stock market.
Combating the effects of inflation is a benefit of owning these dividend-paying stocks. Here's why: Many of these stable, high-quality companies increase their dividends over time, which translates into increasing dividend income that offsets the effects of inflation.
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.
Pursuing a dividend investment strategy can help protect your retirement portfolio. Whether you invest in stocks or through mutual funds or low-fee ETFs, this approach can potentially help you achieve a safer, more convenient retirement.
Income generation is only one aspect of planning a comfortable retirement.
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Long Island Corporation (FLIC) First: Free Stock Analysis Report
Merck Co., Inc. (MRK): Free Stock Analysis Report
Kellogg Company (K): Free Stock Research Report
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