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

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

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.

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.

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.

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 way to identify suitable candidates is to look for stocks with an average dividend yield of 3%, and positive average annual dividend growth. Many stocks increase dividends over time, helping to offset the effects of inflation.

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

United Community Banks (UCB)

is currently shelling out a dividend of $0.24 per share, with a dividend yield of 3.45%. This compares to the Banks - Southeast industry's yield of 2.28% and the S&P 500's yield of 1.59%. The company's annualized dividend growth in the past year was 4.35%. Check United Community Banks dividend history here>>>

Urban Edge Properties (UE)

is paying out a dividend of $0.19 per share at the moment, with a dividend yield of 4.07% compared to the REIT and Equity Trust - Retail industry's yield of 4.12% and the S&P 500's yield. The annualized dividend growth of the company was 11.76% over the past year. Check Urban Edge Properties dividend history here>>>

Currently paying a dividend of $0.39 per share,

Upbound Group (UPBD)

has a dividend yield of 6.43%. This is compared to the Financial - Leasing Companies industry's yield of 4.06% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5.41%. Check Upbound Group dividend history here>>>

But aren't stocks generally more risky than bonds?

Overall, that is true. But stocks are a broad class, and you can reduce the risks significantly by selecting high-quality dividend stocks that can generate regular, predictable income and can also decrease the volatility of your portfolio compared to the overall stock market.

Combating the impact of inflation is one advantage of owning these dividend-paying stocks. Here's why: many of these stable, high-quality companies increase their dividends over time, which translates to rising dividend income that offsets the effects of inflation.

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

Regardless of whether you select high-quality, low-fee funds or stocks, looking for a steady stream of income from dividend-paying equities can potentially lead you to a solid and more peaceful retirement.

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United Community Banks, Inc. (UCB): Free Stock Analysis Report
 
Urban Edge Properties (UE): Free Stock Analysis Report
 
Upbound Group, Inc. (UPBD): Free Stock Analysis Report

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

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