Yahoo Finance Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks
Strange but true: seniors fear death less than running out of money in retirement.
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.
Retirement investing approaches of the past don't work today.
For example, 10-year Treasury bonds in the late 1990s offered a yield of around 6.50%, which translated to an income source you could count on. However, today's yield is much lower and probably not a viable return option to fund typical retirements.
That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is more than $1 million.
In addition to the considerable drop in bond yields, today's retirees are nervous about their future Social Security benefits. Because of certain demographic factors, it's been estimated that the funds that pay the Social Security benefits 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
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.
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.
UGI (UGI) is currently shelling out a dividend of $0.38 per share, with a dividend yield of 6.56%. This compares to the Utility - Gas Distribution industry's yield of 3.63% and the S&P 500's yield of 1.59%. The company's annualized dividend growth in the past year was 4.17%. Check UGI dividend history here>>>
Virtus Investment Partners (VRTS) is paying out a dividend of $1.9 per share at the moment, with a dividend yield of 3.45% compared to the Financial - Investment Management industry's yield of 2.35% and the S&P 500's yield. The annualized dividend growth of the company was 15.15% over the past year. Check Virtus Investment Partners dividend history here>>>
Currently paying a dividend of $0.12 per share, Xenia Hotels & Resorts (XHR) has a dividend yield of 3.35%. This is compared to the REIT and Equity Trust - Other industry's yield of 4.61% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 20%. Check Xenia Hotels & Resorts dividend history here>>>
But aren't stocks generally more risky than bonds?
Overall, that is true. But stocks are a broad class, and you can reduce the risks significantly by selecting high-quality dividend stocks that can generate regular, predictable income and can also decrease the volatility of your portfolio compared to the overall stock market.
A silver lining to owning dividend stocks for your retirement portfolio is that many companies, especially blue chip stocks, increase their dividends over time, helping offset the effects 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.
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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UGI Corporation (UGI) : Free Stock Analysis Report
Virtus Investment Partners, Inc. (VRTS) : Free Stock Analysis Report
Xenia Hotels & Resorts, Inc. (XHR) : Free Stock Analysis Report
