Investing

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

Zacks Equity Research

Published: September 18, 2023 10:42 pm

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

Also, retirees who have constructed a nest egg have valid justifications to be concerned, since the traditional ways to plan for retirement may mean income can no longer cover expenses. Some retirees are now tapping their principal to make a decent living, pressed for time between decreasing investment balances and longer life expectancies.

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 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.

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

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 way to identify suitable candidates is to look for stocks with an average dividend yield of 3%, and positive average annual dividend growth. Many stocks increase dividends over time, helping to offset the effects of inflation.

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

Ameren (AEE) is currently shelling out a dividend of $0.63 per share, with a dividend yield of 3.12%. This compares to the Utility – Electric Power industry’s yield of 3.6% and the S&P 500’s yield of 1.7%. The company’s annualized dividend growth in the past year was 6.78%. Check Ameren (AEE) dividend history here>>>

Brookfield Infrastructure Partners (BIP) is paying out a dividend of $0.38 per share at the moment, with a dividend yield of 4.68% compared to the REIT and Equity Trust – Other industry’s yield of 4.59% and the S&P 500’s yield. The annualized dividend growth of the company was 6.25% over the past year. Check Brookfield Infrastructure Partners (BIP) dividend history here>>>

Currently paying a dividend of $0.3 per share, Guess (GES) has a dividend yield of 5.36%. This is compared to the Textile – Apparel industry’s yield of 0% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 33.33%. Check Guess (GES) 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 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

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.
Ameren Corporation (AEE): Free Stock Analysis Report

Brookfield Infrastructure Partners LP (BIP): Free Stock Analysis Report

Guess?, Inc. (GES): Free Stock Analysis Report

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