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

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

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

Years ago, investors at or close to retirement could put money into fixed-income assets and depend on appealing yields to generate consistent, solid pay streams to fund a comfortable retirement. 10-year Treasury bond rates in the late 1990s floated around 6.50%, but unfortunately, those days of being able to exclusively rely on Treasury yields to fund retirement income are over.

The effect of this drop in rates is substantial: over 20 years, the change in yield for a $1 million investment in 10-year Treasuries is over $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.

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.

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.

Community Trust Bancorp (CTBI)

is currently shelling out a dividend of $0.47 per share, with a dividend yield of 3.71%. This compares to the Banks - Southeast industry's yield of 2.24% and the S&P 500's yield of 1.56%. The company's annualized dividend growth in the past year was 2.17%. Check Community Trust Bancorp dividend history here>>>

First Financial Bancorp (FFBC)

is paying out a dividend of $0.24 per share at the moment, with a dividend yield of 4.06% compared to the Banks - Midwest industry's yield of 2.86% and the S&P 500's yield. The annualized dividend growth of the company was 4.35% over the past year. Check First Financial Bancorp dividend history here>>>

Currently paying a dividend of $0.35 per share,

Horace Mann (HMN)

has a dividend yield of 3.2%. This is compared to the Insurance - Multi line industry's yield of 1.6% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 2.94%. Check Horace Mann 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.

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

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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Community Trust Bancorp, Inc. (CTBI): Free Stock Analysis Report
 
First Financial Bancorp. (FFBC): Free Stock Analysis Report
 
Horace Mann Educators Corporation (HMN): Free Stock Analysis Report

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

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