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

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

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 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.

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.

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

As we see it, dividend-paying stocks from generally low-risk, top notch companies are a brilliant way to create steady and solid income streams to supplant low risk, low yielding Treasury and fixed-income alternatives.

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.

Ahold NV (ADRNY)

is currently shelling out a dividend of $0.61 per share, with a dividend yield of 3.08%. This compares to the Consumer Products - Staples industry's yield of 0% and the S&P 500's yield of 1.69%. The company's annualized dividend growth in the past year was 5.29%. Check Ahold NV dividend history here>>>

Community Financial System (CBU)

is paying out a dividend of $0.46 per share at the moment, with a dividend yield of 3.45% compared to the Financial - Miscellaneous Services industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 2.22% over the past year. Check Community Financial System dividend history here>>>

Currently paying a dividend of $0.17 per share,

Civista Bancshares (CIVB)

has a dividend yield of 3.42%. This is compared to the Banks - Midwest industry's yield of 2.92% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 6.25%. Check Civista Bancshares 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.

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.

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

Pursuing a dividend investing strategy can help protect your retirement portfolio. Whether you choose to invest in stocks or through low-fee mutual funds or ETFs, this approach can potentially help you achieve a more secure and enjoyable retirement.

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Ahold NV (ADRNY): Free Stock Analysis Report
 
Community Financial System, Inc. (CBU): Free Stock Analysis Report
 
Civista Bancshares, Inc. (CIVB): Free Stock Analysis Report

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

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