Improve Your Retirement Income With These 3 Top-Ranked Dividend Stocks - March 19, 2020

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

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.

Your parents' retirement investing plan won't cut it today.

In the past, investors going into retirement could invest in bonds and count on attractive yields to produce steady, reliable income streams to fund a predictable retirement. 10-year Treasury bond rates in the late 1990s hovered around 6.50%, whereas at the time of this article, the current rate is under 2% and looks to stay low thanks to an accommodative Fed.

That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is more than $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 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

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.

AAR (AIR) is currently shelling out a dividend of $0.08 per share, with a dividend yield of 3.18%. This compares to the Aerospace - Defense Equipment industry's yield of 0% and the S&P 500's yield of 2.66%. In terms of dividend growth, the company's current annualized dividend of $0.3 is flat compared to last year.

Citigroup (C) is paying out a dividend of 0.51 per share at the moment, with a dividend yield of 5.6% compared to the Banks - Major Regional industry's yield of 4% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $2.04 is up 13.33% from last year.

Currently paying a dividend of 0.48 per share, Cardinal Health (NYSE:CAH) has a dividend yield of 4.21%. This is compared to the Medical - Dental Supplies industry's yield of 0% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $1.92 is up 1.01% from last year.

But aren't stocks generally more risky than bonds?

It is true that stocks, as an asset class, carry more risk than bonds, but high-quality dividend stocks not only have the ability to produce income growth over time but more importantly, can also reduce your overall portfolio volatility relative 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.

You may be thinking, "I like this dividend strategy, but instead of investing in individual stocks, I'm going to find a dividend-focused mutual fund or ETF." This approach can make sense, but be aware that some mutual funds and specialized ETFs carry high fees, which may reduce your dividend gains or income, and defeat the goal of this dividend investment approach. If you do wish to invest in a fund, do your research to find the best-quality dividend funds with the lowest fees.

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:

Will You Retire a Multi-Millionaire? 7 Things You Can Do Now

This helpful guide offers our viewpoints about strategic retirement investment planning, based on decades of experience helping our clients prepare for financial security during their golden years. Get Your FREE Guide Now

AAR Corp. (AIR): Free Stock Analysis Report

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

Cardinal Health, Inc. (CAH): Free Stock Analysis Report

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