How to Maximize Your Retirement Portfolio with These Top-Ranked Dividend Stocks - August 04, 2020

Believe it or not, seniors fear running out of cash more than they fear dying.

And older Americans have legitimate reasons for this worry, even if they have dutifully saved for their golden years. That's because the traditional ways people manage retirement may no longer provide enough income to meet expenses - and with people generally living longer, the principal retirement savings is exhausted far too early in the retirement period.

The tried - and - true retirement investing approach of yesterday doesn't work 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 effect of this drop in rates is substantial: over 20 years, the change in yield for a $1 million investment in 10-year Treasuries is over $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.

Going beyond those familiar names, you can find excellent dividend-paying stocks by following a few guidelines. Look for companies that pay a dividend yield of around 3%, with positive annual dividend growth. The growth rate is key to help combat the effects of inflation.

Here are three dividend-paying stocks retirees should consider for their nest egg portfolio.

Cisco Systems (CSCO) is currently shelling out a dividend of $0.36 per share, with a dividend yield of 3.05%. This compares to the Computer - Networking industry's yield of 0% and the S&P 500's yield of 1.77%. In terms of dividend growth, the company's current annualized dividend of $1.44 is up 2.86% from last year.

Corporate Office Properties (OFC) is paying out a dividend of 0.28 per share at the moment, with a dividend yield of 4.13% compared to the REIT and Equity Trust - Other industry's yield of 4.24% and the S&P 500's yield. Taking a look at the company's dividend growth, its current annualized dividend of $1.1 is flat compared to last year.

Currently paying a dividend of 0.49 per share, PSEG (PEG) has a dividend yield of 3.6%. This is compared to the Utility - Electric Power industry's yield of 3.48% and the S&P 500's current yield. Looking at dividend growth, the company's current annualized dividend of $1.96 is up 4.26% 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.

Combating the impact of inflation is one advantage of owning these dividend-paying stocks. Here's why: many of these stable, high-quality companies increase their dividends over time, which translates to rising dividend income that offsets the effects of inflation.

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.

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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Cisco Systems, Inc. (CSCO) : Free Stock Analysis Report
 
Public Service Enterprise Group Incorporated (PEG) : Free Stock Analysis Report
 
Corporate Office Properties Trust (OFC) : Free Stock Analysis Report
 
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