Alternative Investment

3 Top Dividend Stocks to Maximize Your Retirement Income – January 25, 2023

Believe it or not, seniors fear running out of cash more than they fear dying.

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.

Retirement investing approaches of the past don’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.

That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is more than $1 million.

Today’s retirees are getting hit hard by reduced bond yields – and the Social Security picture isn’t too rosy either. Right now and for the near future, Social Security benefits are still being paid, but it has been estimated that the Social Security funds will be depleted as soon as 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 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.

Acadia Realty Trust (AKR Free Report) is currently shelling out a dividend of $0.18 per share, with a dividend yield of 4.75%. This compares to the REIT and Equity Trust – Retail industry’s yield of 4.32% and the S&P 500’s yield of 1.63%. The company’s annualized dividend growth in the past year was 20%. Check Acadia Realty Trust (AKR Free Report) dividend history here>>>

Cambridge (CATC Free Report) is paying out a dividend of $0.67 per share at the moment, with a dividend yield of 3.29% compared to the Banks – Northeast industry’s yield of 2.47% and the S&P 500’s yield. The annualized dividend growth of the company was 4.92% over the past year. Check Cambridge (CATC Free Report) dividend history here>>>

Currently paying a dividend of $0.21 per share, LCNB (LCNB Free Report) has a dividend yield of 4.73%. This is compared to the Banks – Northeast industry’s yield of 2.47% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 5%. Check LCNB (LCNB Free Report) dividend history here>>>

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.

Combating the impact of inflation is one advantage of owning these dividend-paying stocks. Here’s why: many of these stable, high-quality companies increase their dividends over time, which translates to rising dividend income that offsets the effects of inflation.

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

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.

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