How to Maximize Your Retirement Portfolio With These Top-Ranked Dividend Stocks

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

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.

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

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

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.

Look for stocks that have paid steady, increasing dividends for years (or decades), and have not cut their dividends even during recessions.

A rule of thumb for finding solid income-producing stocks is to seek those that average 3% dividend yield, and positive yearly dividend growth. These stocks can help combat inflation by boosting dividends over time.

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

Axis Capital (AXS) is currently shelling out a dividend of $0.44 per share, with a dividend yield of 3.23%. This compares to the Insurance – Property and Casualty industry’s yield of 0.1% and the S&P 500’s yield of 1.75%. The company’s annualized dividend growth in the past year was 2.33%. Check Axis Capital (AXS) dividend history here>>>

OFG Bancorp (OFG) is paying out a dividend of $0.22 per share at the moment, with a dividend yield of 3.01% compared to the Banks – Northeast industry’s yield of 3.23% and the S&P 500’s yield. The annualized dividend growth of the company was 10% over the past year. Check OFG Bancorp (OFG) dividend history here>>>

Currently paying a dividend of $0.55 per share, Preferred Bank (PFBC) has a dividend yield of 3.61%. This is compared to the Banks – West industry’s yield of 3.44% and the S&P 500’s current yield. Annualized dividend growth for the company in the past year was 27.91%. Check Preferred Bank (PFBC) dividend history here>>>

But aren’t stocks generally more risky than bonds?

The fact is that stocks, as an asset class, carry more risk than bonds. To counterbalance this, invest in superior quality dividend stocks that not only can grow over time but more significantly, can also decrease your overall portfolio volatility with respect to the broader 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

Whether you select high-quality, low-fee funds or stocks, seeking the steady income of dividend-paying equities can potentially offer you a path to a better and more stress-free retirement.
Axis Capital Holdings Limited (AXS): Free Stock Analysis Report

Preferred Bank (PFBC): Free Stock Analysis Report

OFG Bancorp (OFG): Free Stock Analysis Report

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Zacks Investment Research

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