Improve Your Retirement Income with These 3 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 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.

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

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

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.

Going beyond those familiar names, you can find excellent dividend-paying stocks by following a few guidelines. Look for companies that pay a dividend yield of around 3%, with positive annual dividend growth. The growth rate is key to help combat the effects of inflation.

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

Civista Bancshares (CIVB)

is currently shelling out a dividend of $0.17 per share, with a dividend yield of 3.26%. This compares to the Banks - Midwest industry's yield of 2.78% and the S&P 500's yield of 1.66%. The company's annualized dividend growth in the past year was 6.25%. Check Civista Bancshares dividend history here>>>

Central Pacific Financial (CPF)

is paying out a dividend of $0.27 per share at the moment, with a dividend yield of 4.19% compared to the Banks - West industry's yield of 2.89% and the S&P 500's yield. The annualized dividend growth of the company was 3.85% over the past year. Check Central Pacific Financial dividend history here>>>

Currently paying a dividend of $0.24 per share,

Heritage Financial (HFWA)

has a dividend yield of 4.18%. This is compared to the Financial - Savings and Loan industry's yield of 2.63% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 4.35%. Check Heritage Financial dividend history here>>>

But aren't stocks generally more risky than bonds?

It is true that stocks, as an asset class, carry more risk than bonds, but high-quality dividend stocks not only have the ability to produce income growth over time but more importantly, can also reduce your overall portfolio volatility relative to the broader stock market.

An advantage of owning dividend stocks for your retirement nest egg is that numerous companies, particularly blue chip stocks, raise their dividends over time, helping alleviate the impact of inflation on your potential retirement income.

Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.

If you're interested in investing in dividends, but are thinking about mutual funds or ETFs rather than stocks, beware of fees. Mutual funds and specialized ETFs may carry high fees, which could lower the overall gains you earn from dividends, undercutting your dividend income strategy. Be sure to look for funds with low fees if you decide on this approach.

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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Civista Bancshares, Inc. (CIVB): Free Stock Analysis Report
 
CPB Inc. (CPF): Free Stock Analysis Report
 
Heritage Financial Corporation (HFWA): Free Stock Analysis Report

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

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