Investing

How to Maximize Your Retirement Portfolio With These Top-Ranked Dividend Stocks

Zacks Equity Research

Published: September 13, 2023 10:43 pm

Here’s an eye-opening statistic: older Americans are more afraid of running out of money 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.

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

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 the current rate is much lower.

The impact of this rate decline is sizable: over 20 years, the difference in yield for a $1 million investment in 10-year Treasuries 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’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

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.

Manulife Financial (MFC) is currently shelling out a dividend of $0.28 per share, with a dividend yield of 5.86%. This compares to the Insurance – Life Insurance industry’s yield of 0.04% and the S&P 500’s yield of 1.65%. The company’s annualized dividend growth in the past year was 4.98%. Check Manulife Financial (MFC) dividend history here>>>

New Jersey Resources (NJR) is paying out a dividend of $0.42 per share at the moment, with a dividend yield of 3.65% compared to the Utility – Gas Distribution industry’s yield of 3.65% and the S&P 500’s yield. The annualized dividend growth of the company was 7.59% over the past year. Check New Jersey Resources (NJR) dividend history here>>>

Currently paying a dividend of $0.27 per share, Perrigo (PRGO) has a dividend yield of 3.22%. This is compared to the Medical – Products industry’s yield of 0% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 5%. Check Perrigo (PRGO) 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.

An upside to adding dividend stocks to your retirement portfolio: they can help lessen the effects of inflation, since many dividend-paying companies (especially blue chip stocks) generally increase their dividends over time.

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

Pursuing a dividend investing strategy can help protect your retirement portfolio. Whether you choose to invest in stocks or through low-fee mutual funds or ETFs, this approach can potentially help you achieve a more secure and enjoyable retirement.
Manulife Financial Corp (MFC): Free Stock Analysis Report

Perrigo Company plc (PRGO): Free Stock Analysis Report

NewJersey Resources Corporation (NJR): Free Stock Analysis Report

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