These Top 3 Dividend Stocks Will Increase Your Retirement Income

Surprisingly, seniors are more fearful of running out of money than they are of dying.

Furthermore, retirees who have built up a nest egg have good reason to be concerned because traditional retirement planning methods may result in income that is enough to cover expenses. Due to decreasing financial balances and increasing life expectancies, some retirees are now using their capital to create a decent living.

Traditional income investments aren’t working in today’s economic environment.

In the past, investors who were nearing retirement could invest in fixed-income assets and rely on high returns to produce steady, reliable income streams that would support a comfortable retirement. Unfortunately, the days of being able to support retirement income solely with Treasury yields are long gone. In the late 1990s, 10-year Treasury bond rates ranged around 6.50%.

Even though this yield reduction could not appear significant, it adds up: the rate drop results in a yield differential of more than $1 million for a $1 million investment in 10-year Treasuries.

In addition to significantly lower bond yields, today’s retirees are also concerned about their future Social Security benefits. Due to certain demographic factors, it is estimated that the funds to pay Social Security benefits will be exhausted in 2035.

So what can retirees do? Maximize your spending cuts and risk not getting your Social Security check reduced. Alternatively, you can find alternative investments that provide a stable, high-yield income stream to replace declining bond yields.

Investing in Dividend Stocks

As an alternative to low-yielding U.S. Treasuries (and other fixed-income options), dividend stocks from blue-chip companies offer the low-risk, stable, and predictable income that investors seek in retirement.

Look for stocks that have consistently increased their dividends for years (or decades) and have not cut their dividends even during a recession.

A good rule of thumb for finding stocks with solid earnings is to look for stocks with an average dividend yield of 3% and a positive annual dividend growth rate. These stocks help fight inflation by increasing their dividends over time.

He recommends three dividend stocks that retirees should consider for their nest egg portfolios.

Federal Agricultural Mortgage (AGM) currently pays a dividend of $1.4 per share, which corresponds to a dividend yield of 3.03%. By comparison, the Financial Mortgage and Related Services industry returned 0% and the S&P 500 returned 1.6%. The company’s annual dividend growth rate was 15.79% last year.

State Street Corporation (STT) currently pays a dividend of $0.69 per share, giving it a dividend yield of 3.84%. By comparison, the Banks – Major Regions industry yields 3.84% and the S&P 500 yields at the same level. The company’s annual dividend growth rate was 9.52% over the past year.

Virtus Investment Partners (VRTS) has a dividend yield of 3.25% and is now paying a dividend of $1.9 per share. This is contrasted with the 2.1% yield of the Financial – Investment Management sector and the current yield of the S&P 500. The company’s annualized dividend growth for the previous year was 15.15 %.

However, don’t equities typically carry greater risk than bonds?

That is true overall. However, since stocks are a large asset class, you can drastically lower the risks by choosing premium dividend stocks that can both lower the volatility of your portfolio relative to the stock market as a whole and produce consistent, predictable income.

One benefit of owning these dividend-paying companies is that they can help offset the effects of inflation. The reason for this is that a large number of these dependable, excellent businesses gradually raise their dividends, translating into growing dividend income that counteracts the effects of inflation.

dividend-oriented ETFs or mutual funds? Be aware of fees

You can still follow a dividend income strategy if you would rather invest in funds or exchange-traded funds (ETFs) than individual companies. It’s crucial to understand the fees levied by each fund or ETF, though, as they may eventually cut into your dividend income and weaken your plan. Before you invest, make sure you have done your research and are aware of any fees levied by the fund.

In summary

Seeking the consistent income of dividend-paying stocks or high-quality, low-fee funds may provide you with a route to a better and stress-free retirement.