Investing

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

Zacks Equity Research

Published: September 26, 2023 10:32 pm

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

Retirement investing approaches of the past don’t work 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.

While this yield reduction may not seem drastic, it adds up: for a $1 million investment in 10-year Treasuries, the rate drop means a difference in yield of more than $1 million.

And lower bond yields aren’t the only potential problem seniors are facing. Today’s retirees aren’t feeling as secure as they once did about Social Security, either. Benefit checks will still be coming for the foreseeable future, but based on current estimates, Social Security funds will run out of money in 2035.

How can you avoid dipping into your principal when the investments you counted on in retirement aren’t producing income? You can only cut your expenses so far, and the only other option is to find a different investment vehicle to generate income.

Invest in Dividend Stocks

We feel that these dividend-paying equities – as long as they are from high-quality, low-risk issuers – can give retirement investors a smart option to replace low-yielding Treasury bonds (or other bonds).

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.

Heartland BancCorp. (HLAN) is currently shelling out a dividend of $0.76 per share, with a dividend yield of 3.5%. This compares to the Banks – Midwest industry’s yield of 3.66% and the S&P 500’s yield of 1.68%. The company’s annualized dividend growth in the past year was 10%. Check Heartland BancCorp. (HLAN) dividend history here>>>

Kite Realty Group (KRG) is paying out a dividend of $0.24 per share at the moment, with a dividend yield of 4.46% compared to the REIT and Equity Trust – Retail industry’s yield of 4.72% and the S&P 500’s yield. The annualized dividend growth of the company was 20% over the past year. Check Kite Realty Group (KRG) dividend history here>>>

Currently paying a dividend of $1.3 per share, M&T Bank Corporation (MTB) has a dividend yield of 4.14%. This is compared to the Banks – Major Regional industry’s yield of 4.74% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 8.33%. Check M&T Bank Corporation (MTB) 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 advantage of owning dividend stocks for your retirement nest egg is that numerous companies, particularly blue chip stocks, raise their dividends over time, helping alleviate the impact 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

Regardless of whether you select high-quality, low-fee funds or stocks, looking for a steady stream of income from dividend-paying equities can potentially lead you to a solid and more peaceful retirement.
Heartland BancCorp. (HLAN): Free Stock Analysis Report

M&T Bank Corporation (MTB): Free Stock Analysis Report

Kite Realty Group Trust (KRG): Free Stock Analysis Report

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