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Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks - May 18, 2020
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Believe it or not, seniors fear running out of cash more than they fear dying.
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.
Retirement investing approaches of the past don'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.
Today's retirees are getting hit hard by reduced bond yields - and the Social Security picture isn't too rosy either. Right now and for the near future, Social Security benefits are still being paid, but it has been estimated that the Social Security funds will be depleted as soon as 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
Dividend-paying stocks from low-risk, high-quality companies are a smart way to generate steady and reliable attractive income streams to replace current low risk, low yielding 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 this that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.
One way to identify suitable candidates is to look for stocks with an average dividend yield of 3%, and positive average annual dividend growth. Many stocks increase dividends over time, helping to offset the effects of inflation.
Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.
AES (AES - Free Report) is currently shelling out a dividend of $0.14 per share, with a dividend yield of 4.88%. This compares to the Utility - Electric Power industry's yield of 3.54% and the S&P 500's yield of 2.21%. In terms of dividend growth, the company's current annualized dividend of $0.57 is up 4.98% from last year.
Douglas Emmett (DEI - Free Report) is paying out a dividend of 0.28 per share at the moment, with a dividend yield of 4.42% compared to the REIT and Equity Trust - Other industry's yield of 4.61% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $1.12 is up 7.69% from last year.
Currently paying a dividend of 0.06 per share, Gain Capital has a dividend yield of 3.64%. This is compared to the Financial - Investment Bank industry's yield of 0.28% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $0.24 is flat compared to last year.
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.
A silver lining to owning dividend stocks for your retirement portfolio is that many companies, especially blue chip stocks, increase their dividends over time, helping offset the effects of inflation on your potential retirement income.
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.
Generating income is just one aspect of planning for a comfortable retirement.
To learn more ways to maximize your assets - and avoid pitfalls that could jeopardize your financial security - download our free report:
Image: Bigstock
Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks - May 18, 2020
Believe it or not, seniors fear running out of cash more than they fear dying.
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.
Retirement investing approaches of the past don'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.
Today's retirees are getting hit hard by reduced bond yields - and the Social Security picture isn't too rosy either. Right now and for the near future, Social Security benefits are still being paid, but it has been estimated that the Social Security funds will be depleted as soon as 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
Dividend-paying stocks from low-risk, high-quality companies are a smart way to generate steady and reliable attractive income streams to replace current low risk, low yielding 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 this that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.
One way to identify suitable candidates is to look for stocks with an average dividend yield of 3%, and positive average annual dividend growth. Many stocks increase dividends over time, helping to offset the effects of inflation.
Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.
AES (AES - Free Report) is currently shelling out a dividend of $0.14 per share, with a dividend yield of 4.88%. This compares to the Utility - Electric Power industry's yield of 3.54% and the S&P 500's yield of 2.21%. In terms of dividend growth, the company's current annualized dividend of $0.57 is up 4.98% from last year.
Douglas Emmett (DEI - Free Report) is paying out a dividend of 0.28 per share at the moment, with a dividend yield of 4.42% compared to the REIT and Equity Trust - Other industry's yield of 4.61% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $1.12 is up 7.69% from last year.
Currently paying a dividend of 0.06 per share, Gain Capital has a dividend yield of 3.64%. This is compared to the Financial - Investment Bank industry's yield of 0.28% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $0.24 is flat compared to last year.
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.
A silver lining to owning dividend stocks for your retirement portfolio is that many companies, especially blue chip stocks, increase their dividends over time, helping offset the effects of inflation on your potential retirement income.
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.
Generating income is just one aspect of planning for a comfortable retirement.
To learn more ways to maximize your assets - and avoid pitfalls that could jeopardize your financial security - download our free report:
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