Investing

3 Top-Ranked Dividend Stocks: A Smarter Way to Boost Your Retirement Income

Zacks Equity Research

Published: September 25, 2023 10:42 pm

Strange but true: seniors fear death less than running out of money in retirement.

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.

The effect of this drop in rates is substantial: over 20 years, the change in yield for a $1 million investment in 10-year Treasuries is over $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

As a replacement for low yielding Treasury bonds (and other bond options), we believe dividend-paying stocks from high quality companies offer low risk and stable, predictable income investors in retirement seek.

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

Going beyond those familiar names, you can find excellent dividend-paying stocks by following a few guidelines. Look for companies that pay a dividend yield of around 3%, with positive annual dividend growth. The growth rate is key to help combat the effects of inflation.

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

Bank of America (BAC) is currently shelling out a dividend of $0.24 per share, with a dividend yield of 3.47%. This compares to the Banks – Major Regional industry’s yield of 4.8% and the S&P 500’s yield of 1.71%. The company’s annualized dividend growth in the past year was 4.76%. Check Bank of America (BAC) dividend history here>>>

Brixmor Property (BRX) is paying out a dividend of $0.26 per share at the moment, with a dividend yield of 4.86% compared to the REIT and Equity Trust – Retail industry’s yield of 4.69% and the S&P 500’s yield. The annualized dividend growth of the company was 8.33% over the past year. Check Brixmor Property (BRX) dividend history here>>>

Currently paying a dividend of $1 per share, Camden (CPT) has a dividend yield of 4.08%. This is compared to the REIT and Equity Trust – Residential industry’s yield of 4.3% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 6.38%. Check Camden (CPT) 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

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.
Bank of America Corporation (BAC): Free Stock Analysis Report

Camden Property Trust (CPT): Free Stock Analysis Report

Brixmor Property Group Inc. (BRX): Free Stock Analysis Report

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