Investing

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

Zacks Equity Research

Published: October 2, 2023 10:38 pm

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

And older Americans have legitimate reasons for this worry, even if they have dutifully saved for their golden years. That’s because the traditional ways people manage retirement may no longer provide enough income to meet expenses – and with people generally living longer, the principal retirement savings is exhausted far too early in the retirement period.

The tried-and-true retirement investing approach of yesterday doesn’t work today.

Years ago, investors at or close to retirement could put money into fixed-income assets and depend on appealing yields to generate consistent, solid pay streams to fund a comfortable retirement. 10-year Treasury bond rates in the late 1990s floated around 6.50%, but unfortunately, those days of being able to exclusively rely on Treasury yields to fund retirement income are over.

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.

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

As we see it, dividend-paying stocks from generally low-risk, top notch companies are a brilliant way to create steady and solid income streams to supplant low risk, low yielding Treasury and fixed-income alternatives.

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.

Banco Bilbao (BBVA) is currently shelling out a dividend of $0.14 per share, with a dividend yield of 6.82%. This compares to the Banks – Foreign industry’s yield of 4.73% and the S&P 500’s yield of 1.71%. The company’s annualized dividend growth in the past year was 35.84%. Check Banco Bilbao (BBVA) dividend history here>>>

Brixmor Property (BRX) is paying out a dividend of $0.26 per share at the moment, with a dividend yield of 5% compared to the REIT and Equity Trust – Retail industry’s yield of 4.85% 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 $0.29 per share, COPT Defense (CDP) has a dividend yield of 4.78%. This is compared to the REIT and Equity Trust – Other industry’s yield of 4.91% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 3.64%. Check COPT Defense (CDP) 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.

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.
Banco Bilbao Viscaya Argentaria S.A. (BBVA): Free Stock Analysis Report

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

COPT Defense Properties (CDP): Free Stock Analysis Report

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