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

Here's a revealing data point: older Americans are scared more of outliving wealth than of death itself.

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.


The impact of this rate decline is sizable: over 20 years, the difference in yield for a $1 million investment in 10-year Treasuries 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 can retirees do? You could dramatically reduce your expenses, and go out on a limb hoping your Social Security benefits don't diminish. On the other hand, you could opt for an alternative investment that gives a steady, higher-rate income stream to supplant lessening 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.

One approach to recognizing appropriate stocks is to look for companies with an average dividend yield of 3% and positive average annual dividend growth. Numerous stocks hike dividends over time, counterbalancing inflation risks.

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

H&R Block (HRB) is currently shelling out a dividend of $0.29 per share, with a dividend yield of 3.27%. This compares to the Consumer Services - Miscellaneous industry's yield of 0% and the S&P 500's yield of 1.71%. The company's annualized dividend growth in the past year was 7.41%. Check H&R Block (HRB) dividend history here>>>

Mid-America Apartment Communities (MAA) is paying out a dividend of $1.4 per share at the moment, with a dividend yield of 3.74% compared to the REIT and Equity Trust - Residential industry's yield of 3.85% and the S&P 500's yield. The annualized dividend growth of the company was 28.74% over the past year. Check Mid-America Apartment Communities (MAA) dividend history here>>>

Currently paying a dividend of $0.23 per share, Plymouth Industrial (PLYM) has a dividend yield of 4.26%. This is compared to the REIT and Equity Trust - Other industry's yield of 4.7% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 2.27%. Check Plymouth Industrial (PLYM) 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.

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.

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

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.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

H&R Block, Inc. (HRB) : Free Stock Analysis Report

Mid-America Apartment Communities, Inc. (MAA) : Free Stock Analysis Report

Plymouth Industrial REIT (PLYM) : Free Stock Analysis Report

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Zacks Investment Research