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Improve Your Retirement Income with These 3 Top-Ranked Dividend Stocks - December 13, 2019

Zacks Equity Research

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.

The impact of this rate decline is sizeable: over 20 years, the difference in yield for a $1 million investment in 10-year Treasuries 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.

So what's a retiree to do? You could cut your expenses to the bone, and take the risk that your Social Security checks don't shrink. Or you could find an alternative investment that provides a steady, higher-rate income stream to replace dwindling bond yields.

Invest in Dividend Stocks

As a replacement for low yielding Treasury bonds (and other bond options), we believe dividend-paying stocks from high quality companies offer low risk and stable, predictable income investors in retirement seek.

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.

Plains All American Pipeline (PAA) is currently shelling out a dividend of $0.36 per share, with a dividend yield of 8.16%. This compares to the Oil and Gas - Production Pipeline - MLB industry's yield of 8.48% and the S&P 500's yield of 1.81%. In terms of dividend growth, the company's current annualized dividend of $1.44 is up 20% from last year.

Regions Financial (RF) is paying out a dividend of 0.16 per share at the moment, with a dividend yield of 3.56% compared to the Banks - Southeast industry's yield of 1.8% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $0.62 is up 10.71% from last year.

Currently paying a dividend of 0.3 per share, Sandy Spring Bancorp (SASR) has a dividend yield of 3.3%. This is compared to the Banks - Northeast industry's yield of 1.76% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $1.2 is up 7.14% from last year.

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.

A silver lining to owning dividend stocks for your retirement portfolio is that many companies, especially blue chip stocks, increase their dividends over time, helping offset the effects 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

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.

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:

Will You Retire a Multi-Millionaire? 7 Things You Can Do Now

Get Your FREE Guide Now Plains All American Pipeline, L.P. (PAA) : Free Stock Analysis Report Sandy Spring Bancorp, Inc. (SASR) : Free Stock Analysis Report Regions Financial Corporation (RF) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research