Investing

3 Top Dividend Stocks to Maximize Your Retirement Income

Zacks Equity Research

Published: July 17, 2023 10:55 am

Last Updated: July 17, 2023 11:39 am

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.

The tried-and-true retirement investing approach of yesterday doesn’t work today.

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.

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

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

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.

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.

Bristol Myers Squibb (BMY) is currently shelling out a dividend of $0.57 per share, with a dividend yield of 3.68%. This compares to the Medical – Biomedical and Genetics industry’s yield of 0% and the S&P 500’s yield of 1.66%. The company’s annualized dividend growth in the past year was 5.56%. Check Bristol Myers Squibb (BMY) dividend history here>>>

General Mills (GIS) is paying out a dividend of $0.59 per share at the moment, with a dividend yield of 3.15% compared to the Food – Miscellaneous industry’s yield of 0% and the S&P 500’s yield. The annualized dividend growth of the company was 5.88% over the past year. Check General Mills (GIS) dividend history here>>>

Currently paying a dividend of $0.25 per share, Tanger Factory Outlet (SKT) has a dividend yield of 4.26%. This is compared to the REIT and Equity Trust – Retail industry’s yield of 4.31% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 22.5%. Check Tanger Factory Outlet (SKT) dividend history here>>>

But aren’t stocks generally more risky than bonds?

Overall, that is true. But stocks are a broad class, and you can reduce the risks significantly by selecting high-quality dividend stocks that can generate regular, predictable income and can also decrease the volatility of your portfolio compared to the overall 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 thinking, “I want to invest in a dividend-focused ETF or mutual fund,” make sure to do your homework. It’s important to know that some mutual funds and specialized ETFs charge high fees, which may diminish your dividend gains or income and thwart the overall objective of this investment strategy. If you do want to invest in fund, research well to identify the best-quality dividend funds with the least charges.

Bottom Line

Whether you select high-quality, low-fee funds or stocks, seeking the steady income of dividend-paying equities can potentially offer you a path to a better and more stress-free retirement.

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

General Mills, Inc. (GIS): Free Stock Analysis Report

Tanger Factory Outlet Centers, Inc. (SKT): Free Stock Analysis Report

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