3 Top Dividend Stocks to Maximize Your Retirement Income - December 11, 2019

Zacks Equity Research

Here's an eye-opening statistic: older Americans are more afraid of running out of money than of death itself.

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 at the time of this article, the current rate is under 2% and looks to stay low thanks to an accommodative Fed.

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

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

Dividend-paying stocks from low-risk, high-quality companies are a smart way to generate steady and reliable attractive income streams to replace current low risk, low yielding Treasury and bond options.

For example, AT&T and Coca-Cola are income stocks with attractive dividend yields of 3% or better. Look for stocks like this 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.

Broadcom Inc. (AVGO) is currently shelling out a dividend of $2.65 per share, with a dividend yield of 3.36%. This compares to the Electronics - Semiconductors industry's yield of 0% and the S&P 500's yield of 1.81%. In terms of dividend growth, the company's current annualized dividend of $10.6 is up 51.43% from last year.

General Mills (GIS) is paying out a dividend of 0.49 per share at the moment, with a dividend yield of 3.68% compared to the Food - Miscellaneous industry's yield of 0.25% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $1.96 is flat compared to last year.

Currently paying a dividend of 0.52 per share, H&R Block (HRB) has a dividend yield of 4.49%. This is compared to the Consumer Services - Miscellaneous industry's yield of 0% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $1.04 is up 4% from last year.

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 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.

Generating income is just one aspect of planning for a comfortable retirement.

To learn more ways to maximize your assets - and avoid pitfalls that could jeopardize your financial security - download our free report:

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Get Your FREE Guide Now Broadcom Inc. (AVGO) : Free Stock Analysis Report General Mills, Inc. (GIS) : Free Stock Analysis Report H&R Block, Inc. (HRB) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research