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Improve Your Retirement Income With These 3 Top-Ranked Dividend Stocks

Zacks Equity Research

Published: August 17, 2023 10:42 pm

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.

In today’s economic environment, traditional income investments are not working.

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 and probably not a viable return option to fund typical retirements.

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 low risk, low yielding Treasury and bond options.

Look for stocks that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.

One approach to recognizing appropriate stocks is to look for companies with an average dividend yield of 3% and positive average annual dividend growth. Numerous stocks hike dividends over time, counterbalancing inflation risks.

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

Ford Motor Company (F) is currently shelling out a dividend of $0.15 per share, with a dividend yield of 5.08%. This compares to the Automotive – Domestic industry’s yield of 0% and the S&P 500’s yield of 1.65%. The company’s annualized dividend growth in the past year was 50%. Check Ford Motor Company (F) dividend history here>>>

HSBC (HSBC) is paying out a dividend of $0.5 per share at the moment, with a dividend yield of 5.21% compared to the Banks – Foreign industry’s yield of 4.47% and the S&P 500’s yield. The annualized dividend growth of the company was 68.15% over the past year. Check HSBC (HSBC) dividend history here>>>

Currently paying a dividend of $0.31 per share, Interpublic Group (IPG) has a dividend yield of 3.84%. This is compared to the Advertising and Marketing industry’s yield of 0% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 6.9%. Check Interpublic Group (IPG) dividend history here>>>

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 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.
Ford Motor Company (F): Free Stock Analysis Report

Interpublic Group of Companies, Inc. (The) (IPG): Free Stock Analysis Report

HSBC Holdings plc (HSBC): Free Stock Analysis Report

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