3 Top-Ranked Dividend Stocks: A Smarter Way to Boost Your Retirement Income

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.

The tried-and-true retirement investing approach of yesterday doesn't work today.

In the past, investors going into retirement could invest in bonds and count on attractive yields to produce steady, reliable income streams to fund a predictable retirement. 10-year Treasury bond rates in the late 1990s hovered around 6.50%, whereas the current rate is much lower.

While this yield reduction may not seem drastic, it adds up: for a $1 million investment in 10-year Treasuries, the rate drop means a difference in yield of 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.

How can you avoid dipping into your principal when the investments you counted on in retirement aren't producing income? You can only cut your expenses so far, and the only other option is to find a different investment vehicle to generate income.

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 way to identify suitable candidates is to look for stocks with an average dividend yield of 3%, and positive average annual dividend growth. Many stocks increase dividends over time, helping to offset the effects of inflation.

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

First Busey (BUSE)

is currently shelling out a dividend of $0.25 per share, with a dividend yield of 5.02%. This compares to the Banks - Midwest industry's yield of 2.96% and the S&P 500's yield of 1.66%. The company's annualized dividend growth in the past year was 4.17%. Check First Busey dividend history here>>>

HSBC (HSBC)

is paying out a dividend of $1.8 per share at the moment, with a dividend yield of 13.76% compared to the Banks - Foreign industry's yield of 3.83% and the S&P 500's yield. The annualized dividend growth of the company was 16.18% over the past year. Check HSBC dividend history here>>>

Currently paying a dividend of $0.93 per share,

Morgan Stanley (MS)

has a dividend yield of 3.35%. This is compared to the Financial - Investment Bank industry's yield of 0.58% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 8.82%. Check Morgan Stanley 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.

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 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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First Busey Corporation (BUSE): Free Stock Analysis Report
 
Morgan Stanley (MS): Free Stock Analysis Report
 
HSBC Holdings plc (HSBC): Free Stock Analysis Report

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

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