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.

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.

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

Dividend-paying stocks from low-risk, high-quality companies are a smart way to generate steady and reliable attractive income streams to replace low risk, low yielding Treasury and bond options.

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.

Cal-Maine Foods (CALM)

is currently shelling out a dividend of $3.46 per share, with a dividend yield of 6.17%. This compares to the Agriculture - Products industry's yield of 0% and the S&P 500's yield of 1.66%. The company's annualized dividend growth in the past year was 1183.62%. Check Cal-Maine Foods dividend history here>>>

Lakeland Financial (LKFN)

is paying out a dividend of $0.5 per share at the moment, with a dividend yield of 3.84% compared to the Banks - Midwest industry's yield of 2.96% and the S&P 500's yield. The annualized dividend growth of the company was 4.17% over the past year. Check Lakeland Financial dividend history here>>>

Currently paying a dividend of $0.33 per share,

Murphy Oil (MUR)

has a dividend yield of 6.46%. This is compared to the Oil and Gas - Exploration and Production - United States industry's yield of 0% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 8.33%. Check Murphy Oil dividend history here>>>

But aren't stocks generally more risky than bonds?

Yes, that's true. As a broad category, bonds carry less risk than stocks. However, the stocks we are talking about - dividend -paying stocks from high-quality companies - can generate income over time and also mitigate the overall volatility of your portfolio compared to the stock market as a whole.

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.

You may be thinking, "I like this dividend strategy, but instead of investing in individual stocks, I'm going to find a dividend-focused mutual fund or ETF." This approach can make sense, but be aware that some mutual funds and specialized ETFs carry high fees, which may reduce your dividend gains or income, and defeat the goal of this dividend investment approach. If you do wish to invest in a fund, do your research to find the best-quality dividend funds with the lowest fees.

Bottom Line

Whether you select high-quality, low-fee funds or stocks, seeking the steady income of dividend-paying equities can potentially offer you a path to a better and more stress-free retirement.

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Cal-Maine Foods, Inc. (CALM): Free Stock Analysis Report
 
Murphy Oil Corporation (MUR): Free Stock Analysis Report
 
Lakeland Financial Corporation (LKFN): Free Stock Analysis Report

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

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