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

Strange but true: seniors fear death less than running out of money in retirement.

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.

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.

In addition to the considerable drop in bond yields, today's retirees are nervous about their future Social Security benefits. Because of certain demographic factors, it's been estimated that the funds that pay the Social Security benefits 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 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.

Civista Bancshares (CIVB)

is currently shelling out a dividend of $0.17 per share, with a dividend yield of 3.04%. This compares to the Banks - Midwest industry's yield of 2.74% and the S&P 500's yield of 1.62%. The company's annualized dividend growth in the past year was 6.25%. Check Civista Bancshares dividend history here>>>

ConnectOne Bancorp (CNOB)

is paying out a dividend of $0.18 per share at the moment, with a dividend yield of 3.16% compared to the Banks - Northeast industry's yield of 2.6% and the S&P 500's yield. The annualized dividend growth of the company was 5.88% over the past year. Check ConnectOne Bancorp dividend history here>>>

Currently paying a dividend of $0.27 per share,

Central Pacific Financial (CPF)

has a dividend yield of 4.13%. This is compared to the Banks - West industry's yield of 2.89% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 3.85%. Check Central Pacific 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 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.

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

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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Civista Bancshares, Inc. (CIVB): Free Stock Analysis Report
 
CPB Inc. (CPF): Free Stock Analysis Report
 
ConnectOne Bancorp, Inc. (CNOB): Free Stock Analysis Report

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

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