3 Top Dividend Stocks to Maximize Your Retirement Income …

The Market Timing Secrets No One Talks About - February 24, 2020

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.

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.

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.

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

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).

For example, AT&T and Coca-Cola are income stocks with attractive dividend yields of 3% or better. Look for stocks like this that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.

A rule of thumb for finding solid income-producing stocks is to seek those that average 3% dividend yield, and positive yearly dividend growth. These stocks can help combat inflation by boosting dividends over time.

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

Costamare (CMRE) is currently shelling out a dividend of $0.1 per share, with a dividend yield of 5.64%. This compares to the Transportation – Shipping industry’s yield of 0% and the S&P 500’s yield of 1.76%. In terms of dividend growth, the company’s current annualized dividend of $0.4 is flat compared to last year.

Edison International (EIX) is paying out a dividend of 0.64 per share at the moment, with a dividend yield of 3.29% compared to the Utility – Electric Power industry’s yield of 2.76% and the S&P 500’s yield. Taking a look at the company’s dividend growth, its current annualized dividend of $2.55 is up 4.08% from last year.

Currently paying a dividend of 0.31 per share, Invesco (IVZ) has a dividend yield of 7.09%. This is compared to the Financial – Investment Management industry’s yield of 2.21% and the S&P 500’s current yield. Looking at dividend growth, the company’s current annualized dividend of $1.24 is up 3.33% from last year.

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.

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’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.

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