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.
For many years, bonds or other fixed-income assets could produce the yield needed to provide solid income for retirement needs. However, these yields have dwindled over time: 10-year Treasury bond rates in the late 1990s were around 6.50%, but today, that rate is a thing of the past, with a slim likelihood of rates making a comeback in the foreseeable future.
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.
And lower bond yields aren’t the only potential problem seniors are facing. Today’s retirees aren’t feeling as secure as they once did about Social Security, either. Benefit checks will still be coming for the foreseeable future, but based on current estimates, Social Security funds 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 we see it, dividend-paying stocks from generally low-risk, top notch companies are a brilliant way to create steady and solid income streams to supplant low risk, low yielding Treasury and fixed-income alternatives.
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.
Acadia Realty Trust (AKR) is currently shelling out a dividend of $0.18 per share, with a dividend yield of 5.02%. This compares to the REIT and Equity Trust – Retail industry’s yield of 4.34% and the S&P 500’s yield of 1.68%. The company’s annualized dividend growth in the past year was 20%. Check Acadia Realty Trust (AKR) dividend history here>>>
Popular (BPOP) is paying out a dividend of $0.55 per share at the moment, with a dividend yield of 3.32% compared to the Banks – Southeast industry’s yield of 2.09% and the S&P 500’s yield. The annualized dividend growth of the company was 22.22% over the past year. Check Popular (BPOP) dividend history here>>>
Currently paying a dividend of $0.22 per share, Cadence (CADE) has a dividend yield of 3.57%. This is compared to the Banks – Southeast industry’s yield of 2.09% 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?
Yes, that’s true. As a broad category, bonds carry less risk than stocks. However, the stocks we are talking about – dividend -paying stocks from high-quality companies – can generate income over time and also mitigate the overall volatility of your portfolio compared to the stock market as a whole.
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’re interested in investing in dividends, but are thinking about mutual funds or ETFs rather than stocks, beware of fees. Mutual funds and specialized ETFs may carry high fees, which could lower the overall gains you earn from dividends, undercutting your dividend income strategy. Be sure to look for funds with low fees if you decide on this approach.
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.
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Acadia Realty Trust (AKR) : Free Stock Analysis Report
Popular, Inc. (BPOP) : Free Stock Analysis Report
Cadence Bank (CADE) : Free Stock Analysis Report
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