Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks

Believe it or not, seniors fear running out of cash more than they fear dying.

And older Americans have legitimate reasons for this worry, even if they have dutifully saved for their golden years. That\s because the traditional ways people manage retirement may no longer provide enough income to meet expenses- and with people generally living longer, the principal retirement savings is exhausted far too early in the retirement period.

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

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.

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.

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's a retiree to do? You could cut your expenses to the bone, and take the risk that your Social Security checks don't shrink. Or you could find an alternative investment that provides a steady, higher-rate income stream to replace dwindling 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.

Keurig Dr Pepper, Inc (KDP) is currently shelling out a dividend of $0.23 per share, with a dividend yield of 3.05%. This compares to the Beverages - Soft drinks industry's yield of 0% and the S&P 500's yield of 1.37%. The company's annualized dividend growth in the past year was 6.98%. Check Keurig Dr Pepper, Inc dividend history here>>>

Manulife Financial (MFC) is paying out a dividend of $0.35 per share at the moment, with a dividend yield of 3.99% compared to the Insurance - Life Insurance industry's yield of 1.02% and the S&P 500's yield. The annualized dividend growth of the company was 9.9% over the past year. Check Manulife Financial dividend history here>>>

Currently paying a dividend of $0.29 per share, Perrigo (PRGO) has a dividend yield of 8.05%. This is compared to the Medical - Products industry's yield of 0% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5.07%. Check Perrigo 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.

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

Seeking steady, consistent income through dividends can be a smart option for financial security in retirement, whether you invest in mutual funds, ETFs, or in dividend-paying stocks.

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

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