Investing

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

Zacks Equity Research

Published: September 20, 2023 10:35 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.

Your parents’ retirement investing plan won’t cut it today.

For many years, bonds or other fixed-income assets could produce the yield needed to provide solid income for retirement needs. However, these yields have dwindled over time: 10-year Treasury bond rates in the late 1990s were around 6.50%, but today, that rate is a thing of the past, with a slim likelihood of rates making a comeback in the foreseeable future.

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.

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 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.

M&T Bank Corporation (MTB) is currently shelling out a dividend of $1.3 per share, with a dividend yield of 4.11%. This compares to the Banks – Major Regional industry’s yield of 4.58% and the S&P 500’s yield of 1.7%. The company’s annualized dividend growth in the past year was 8.33%. Check M&T Bank Corporation (MTB) 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 3.97% compared to the Utility – Gas Distribution industry’s yield of 3.69% 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 $0.22 per share, OFG Bancorp (OFG) has a dividend yield of 3.03%. This is compared to the Banks – Northeast industry’s yield of 3.17% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 46.67%. Check OFG Bancorp (OFG) dividend history here>>>

But aren’t stocks generally more risky than bonds?

It is true that stocks, as an asset class, carry more risk than bonds, but high-quality dividend stocks not only have the ability to produce income growth over time but more importantly, can also reduce your overall portfolio volatility relative to the broader 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.

If you’re interested in investing in dividends, but are thinking about mutual funds or ETFs rather than stocks, beware of fees. Mutual funds and specialized ETFs may carry high fees, which could lower the overall gains you earn from dividends, undercutting your dividend income strategy. Be sure to look for funds with low fees if you decide on this approach.

Bottom Line

Seeking steady, consistent income through dividends can be a smart option for financial security in retirement, whether you invest in mutual funds, ETFs, or in dividend-paying stocks.
M&T Bank Corporation (MTB): Free Stock Analysis Report

NewJersey Resources Corporation (NJR): Free Stock Analysis Report

OFG Bancorp (OFG): Free Stock Analysis Report

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