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How to Maximize Your Retirement Portfolio with These Top-Ranked Dividend Stocks

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Strange but true: seniors fear death less than running out of money in retirement.

And older Americans have legitimate reasons for this worry, even if they have dutifully saved for their golden years. That's because the traditional ways people manage retirement may no longer provide enough income to meet expenses - and with people generally living longer, the principal retirement savings is exhausted far too early in the retirement period.

In today's economic environment, traditional income investments are not working.

Years ago, investors at or close to retirement could put money into fixed-income assets and depend on appealing yields to generate consistent, solid pay streams to fund a comfortable retirement. 10-year Treasury bond rates in the late 1990s floated around 6.50%, but unfortunately, those days of being able to exclusively rely on Treasury yields to fund retirement income are over.

While this yield reduction may not seem drastic, it adds up: for a $1 million investment in 10-year Treasuries, the rate drop means a difference in yield of 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 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

We feel that these dividend-paying equities - as long as they are from high-quality, low-risk issuers - can give retirement investors a smart option to replace low-yielding Treasury bonds (or other bonds).

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.

ADT (ADT - Free Report)

is currently shelling out a dividend of $0.06 per share, with a dividend yield of 3%. This compares to the Security and Safety Services industry's yield of 0% and the S&P 500's yield of 1.49%. The company's annualized dividend growth in the past year was 57.14%. Check ADT dividend history here>>>

DTE Energy (DTE - Free Report)

is paying out a dividend of $1.09 per share at the moment, with a dividend yield of 3.35% compared to the Utility - Electric Power industry's yield of 3.31% and the S&P 500's yield. The annualized dividend growth of the company was 7.09% over the past year. Check DTE Energy dividend history here>>>

Currently paying a dividend of $0.52 per share,

National Fuel Gas (NFG - Free Report)

has a dividend yield of 3.35%. This is compared to the Oil and Gas - Integrated - United States industry's yield of 1.62% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 4.04%. Check National Fuel Gas dividend history here>>>

But aren't stocks generally more risky than bonds?

Yes, that's true. As a broad category, bonds carry less risk than stocks. However, the stocks we are talking about - dividend -paying stocks from high-quality companies - can generate income over time and also mitigate the overall volatility of your portfolio compared to the stock market as a whole.

An upside to adding dividend stocks to your retirement portfolio: they can help lessen the effects of inflation, since many dividend-paying companies (especially blue chip stocks) generally increase their dividends over time.

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

Seeking steady, consistent income through dividends can be a smart option for financial security in retirement, whether you invest in mutual funds, ETFs, or in dividend-paying stocks.


See More Zacks Research for These Tickers


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DTE Energy Company (DTE) - free report >>

National Fuel Gas Company (NFG) - free report >>

ADT Inc. (ADT) - free report >>

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