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

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.

Retirement investing approaches of the past don't work today.

For example, 10-year Treasury bonds in the late 1990s offered a yield of around 6.50%, which translated to an income source you could count on. However, today's yield is much lower and probably not a viable return option to fund typical retirements.

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.

So what can retirees do? You could dramatically reduce your expenses, and go out on a limb hoping your Social Security benefits don't diminish. On the other hand, you could opt for an alternative investment that gives a steady, higher-rate income stream to supplant lessening 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.

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.

Apple Hospitality REIT (APLE) is currently shelling out a dividend of $0.08 per share, with a dividend yield of 5.74%. This compares to the REIT and Equity Trust - Other industry's yield of 4.29% and the S&P 500's yield of 1.6%. The company's annualized dividend growth in the past year was 2000%. Check Apple Hospitality REIT (APLE) dividend history here>>>

BP (BP) is paying out a dividend of $0.36 per share at the moment, with a dividend yield of 4.03% compared to the Oil and Gas - Integrated - International industry's yield of 3.15% and the S&P 500's yield. The annualized dividend growth of the company was 10.15% over the past year. Check BP (BP) dividend history here>>>

Currently paying a dividend of $0.22 per share, Cadence (CADE) has a dividend yield of 3.05%. This is compared to the Banks - Southeast industry's yield of 1.94% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 10%. Check Cadence (CADE) 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 advantage of owning dividend stocks for your retirement nest egg is that numerous companies, particularly blue chip stocks, raise their dividends over time, helping alleviate the impact of inflation on your potential retirement income.

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

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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Apple Hospitality REIT, Inc. (APLE) : Free Stock Analysis Report

BP p.l.c. (BP) : Free Stock Analysis Report

Cadence Bank (CADE) : Free Stock Analysis Report

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