How to Maximize Your Retirement Portfolio with These Top-Ranked Dividend Stocks

Here's an eye-opening statistic: older Americans are more afraid of running out of money than of death itself.

And unfortunately, even retirees who have built a nest egg have good reason to be concerned - with the traditional approaches to retirement planning, income may no longer cover expenses. That means retirees are dipping into principal to make ends meet, setting up a race against time between dwindling investment balances and longer lifespans.

In today's economic environment, traditional income investments are not working.

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.

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

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.

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.

Acadia Realty Trust (AKR)

is currently shelling out a dividend of $0.2 per share, with a dividend yield of 3.61%. This compares to the REIT and Equity Trust - Retail industry's yield of 4% and the S&P 500's yield of 1.59%. The company's annualized dividend growth in the past year was 5.56%. Check Acadia Realty Trust dividend history here>>>

Barclays (BCS)

is paying out a dividend of $0.28 per share at the moment, with a dividend yield of 3.6% compared to the Banks - Foreign industry's yield of 3.64% and the S&P 500's yield. The annualized dividend growth of the company was 13.52% over the past year. Check Barclays dividend history here>>>

Currently paying a dividend of $0.28 per share,

Cadence (CADE)

has a dividend yield of 3.65%. This is compared to the Banks - Southeast industry's yield of 2.19% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 6.38%. Check Cadence 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 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

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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Acadia Realty Trust (AKR): Free Stock Analysis Report
 
Barclays PLC (BCS): Free Stock Analysis Report
 
Cadence Bank (CADE): Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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