3 Top Dividend Stocks to Maximize Your Retirement Income

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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.

Your parents’ retirement investing plan won’t cut it today.

For many years, bonds or other fixed-income assets could produce the yield needed to provide solid income for retirement needs. However, these yields have dwindled over time: 10-year Treasury bond rates in the late 1990s were around 6.50%, but today, that rate is a thing of the past, with a slim likelihood of rates making a comeback in the foreseeable future.

That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today 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.

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

We feel that these dividend-paying equities – as long as they are from high-quality, low-risk issuers – can give retirement investors a smart option to replace low-yielding Treasury bonds (or other bonds).

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.

First Financial Northwest (FFNW) is currently shelling out a dividend of $0.12 per share, with a dividend yield of 3.19%. This compares to the Banks – West industry’s yield of 2.36% and the S&P 500’s yield of 1.69%. The company’s annualized dividend growth in the past year was 9.09%. Check First Financial Northwest (FFNW) dividend history here>>>

First Merchants (FRME) is paying out a dividend of $0.32 per share at the moment, with a dividend yield of 3.21% compared to the Banks – Midwest industry’s yield of 2.68% and the S&P 500’s yield. The annualized dividend growth of the company was 10.34% over the past year. Check First Merchants (FRME) dividend history here>>>

Currently paying a dividend of $0.16 per share, Huntington Bancshares (HBAN) has a dividend yield of 4.63%. This is compared to the Banks – Midwest industry’s yield of 2.68% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 3.33%. Check Huntington Bancshares (HBAN) 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.

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 prefer investing in funds or ETFs compared to individual stocks, you can still pursue a dividend income strategy. However, it’s important to know the fees charged by each fund or ETF, which can ultimately reduce your dividend income, working against your strategy. Do your homework and make sure you know the fees charged by any fund before you invest.

Bottom Line

Pursuing a dividend investing strategy can help protect your retirement portfolio. Whether you choose to invest in stocks or through low-fee mutual funds or ETFs, this approach can potentially help you achieve a more secure and enjoyable retirement.

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First Financial Northwest, Inc. (FFNW) : Free Stock Analysis Report
 
Huntington Bancshares Incorporated (HBAN) : Free Stock Analysis Report
 
First Merchants Corporation (FRME) : Free Stock Analysis Report
 
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