3 Top-Ranked Dividend Stocks: A Smarter Way To Boost Your Retirement Income - March 12, 2020

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

And retirees have good reason to be worried about making their assets last. People are living longer, so that money has to cover a longer period. Making matters worse, income generated using tried - and - true retirement planning approaches may not cover expenses these days. That means seniors must dip into principal to meet living expenses.

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 impact of this rate decline is sizeable: over 20 years, the difference in yield for a $1 million investment in 10-year Treasuries is more than $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.

Unfortunately, it looks like the two traditional sources of retirement income - bonds and Social Security - may not be able to adequately meet the needs of present and future retirees. But what if there was another option that could provide a steady, reliable source of income in retirement?

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 (NYSE:T) and Coca-Cola (NYSE:KO) 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.

Going beyond those familiar names, you can find excellent dividend-paying stocks by following a few guidelines. Look for companies that pay a dividend yield of around 3%, with positive annual dividend growth. The growth rate is key to help combat the effects of inflation.

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

Best Buy (BBY) is currently shelling out a dividend of $0.5 per share, with a dividend yield of 3.06%. This compares to the Retail - Consumer Electronics industry's yield of 0% and the S&P 500's yield of 2.31%. In terms of dividend growth, the company's current annualized dividend of $2 is up 11.11% from last year.

BlackRock (NYSE:BLK) is paying out a dividend of 3.63 per share at the moment, with a dividend yield of 3.37% compared to the Financial - Investment Management industry's yield of 3.06% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $14.52 is up 5.43% from last year.

Currently paying a dividend of 0.51 per share, Citigroup (C) has a dividend yield of 4.02%. This is compared to the Banks - Major Regional industry's yield of 3.61% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $2.04 is up 13.33% from 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 prefer investing in funds or ETFs compared to individual stocks, you can still pursue a dividend income strategy. However, it's important to know the fees charged by each fund or ETF, which can ultimately reduce your dividend income, working against your strategy. Do your homework and make sure you know the fees charged by any fund before you invest.

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.

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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Best Buy Co., Inc. (NYSE:BBY): Free Stock Analysis Report

Citigroup Inc. (NYSE:C): Free Stock Analysis Report

BlackRock, Inc. (BLK): Free Stock Analysis Report

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