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Improve Your Retirement Income With These 3 Top-Ranked Dividend Stocks – March 17, 2020

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

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 example, 10-year Treasury bonds in the late 1990s offered a yield of around 6.50%, which translated to an income source you could count on. However, today’s yield is much lower – currently under 2% and probably not a viable return option to fund typical retirements.

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.

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

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).

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.

A rule of thumb for finding solid income-producing stocks is to seek those that average 3% dividend yield, and positive yearly dividend growth. These stocks can help combat inflation by boosting dividends over time.

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

American Assets Trust (AAT) is currently shelling out a dividend of $0.3 per share, with a dividend yield of 4.88%. This compares to the REIT and Equity Trust – Retail industry’s yield of 6.35% and the S&P 500‘s yield of 2.63%. In terms of dividend growth, the company’s current annualized dividend of $1.2 is up 7.14% from last year.

Allegiant Travel (ALGT) is paying out a dividend of 0.7 per share at the moment, with a dividend yield of 3.18% compared to the Transportation – Airline industry’s yield of 0% and the S&P 500’s yield. Taking a look at the company’s dividend growth, its current annualized dividend of $2.8 is flat compared to last year.

Currently paying a dividend of 0.45 per share, Bristol-Myers Squibb (BMY) has a dividend yield of 3.52%. This is compared to the Large Cap Pharmaceuticals industry’s yield of 3.23% and the S&P 500’s current yield. Looking at dividend growth, the company’s current annualized dividend of $1.8 is up 2.5% from last year.

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.

Combating the impact of inflation is one advantage of owning these dividend-paying stocks. Here’s why: many of these stable, high-quality companies increase their dividends over time, which translates to rising dividend income that offsets the effects of inflation.

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:

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

American Assets Trust, Inc. (AAT): Free Stock Analysis Report

Bristol-Myers Squibb Company (NYSE:BMY): Free Stock Analysis Report

Allegiant Travel Company (ALGT): Free Stock Analysis Report

Original post

Zacks Investment Research

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