How to maximize your retirement portfolio with these top-rated dividend stocks

Here’s a telling tidbit: Older Americans fear the wealth experienced more than death itself.

And unfortunately, even retirees who have built a nest egg have good reason to worry—with traditional approaches to retirement planning, income may no longer cover expenses. That means retirees are diving into principal to make ends meet, creating a race against time between shrinking investment balances and longer lives.

Yesterday’s tried-and-true approach to retirement investing doesn’t work today.

Years ago, investors at or near retirement could put money into fixed income assets and count on attractive yields to generate consistent, solid paycheck streams to fund a comfortable retirement. 10-year Treasury yields in the late 1990s hovered around 6.50%, but unfortunately, these days when we could rely solely on Treasury yields to fund retirement income, are finished.

The impact of this drop in interest rates is significant: over 20 years, the difference in returns on a $1 million investment in 10-year Treasury bonds is more than $1 million.

Today’s retirees are being hit hard by falling bond yields — and the picture for Social Security isn’t too rosy, either. Currently and for the foreseeable future, Social Security benefits are still being paid, but it is estimated that Social Security funds will be depleted as soon as 2035.

Unfortunately, it appears that the two traditional sources of retirement income — bonds and Social Security — may not be able to adequately meet the needs of current and future retirees. But what if there was another option that could provide a stable and reliable source of income in retirement?

Invest in dividend stocks

Dividend-paying stocks of low-risk, high-quality companies are a smart way to generate stable and reliable attractive income streams to replace low-risk, low-yielding government bonds and bond options.

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

A rule of thumb for finding solid income-bearing stocks is to look for ones that have an average 3% dividend yield and positive annual dividend growth. These stocks can help fight inflation by increasing dividends over time.

Here are three dividend-paying stocks that retirees should consider for their portfolios.

AES (AES) currently pays a dividend of $0.17 per share, with a dividend yield of 3.47%. That compares with the utility industry’s return of 3.5% and the S&P 500’s return of 1.61%. The company’s annual dividend growth over the past year was 5%. See AES (AES) dividend history here>>>

Brixmor Property (BRX) pays a dividend of $0.27 per share currently, with a dividend yield of 4.44%, compared to the REIT and Equity Trust – Retail industry’s yield of 4.23% and the S&P 500’s yield. The company’s annual dividend growth rate is 8 .33% over the past year. Check the dividend history of Brixmor Property (BRX) here>>>

It currently pays a dividend of $0.14 per share, First Financial Savings (FSFG) has a dividend yield of 3.45%. This compares to the Financial Savings & Loan industry’s yield of 3.02% and the S&P 500’s current yield. The company’s annualized dividend growth over the past year was 7.69%. View the dividend history of First Savings Financial (FSFG) here>>>

But aren’t stocks generally riskier than bonds?

Yes, that’s true. As a broad category, bonds carry less risk than stocks. However, the stocks we’re talking about—dividend-paying stocks from high-quality companies—can generate income over time and also moderate the overall volatility of your portfolio compared to the stock market as a whole.

Benefits of adding dividend stocks to your retirement portfolio: They can help reduce the effects of inflation, as many dividend-paying companies (especially blue-chip stocks) tend to increase their dividends over time.

Thinking about dividend-focused mutual funds or ETFs? Watch out for fees.

If you prefer investing in funds or ETFs over individual stocks, you can still pursue a dividend income strategy. However, it is 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 each fund before investing.

Bottom row

Seeking stable, consistent income through dividends can be a smart option for financial security in retirement, whether you invest in mutual funds, ETFs or dividend-paying stocks.

Want the latest recommendations from Zacks Investment Research? Today you can download 7 best stocks for the next 30 days. Click to get this free report

The AES Corporation (AES) : Free Stock Analysis Report

Brixmor Property Group Inc. (BRX) : Free Stock Analysis Report

First Savings Financial Group, Inc. (FSFG) : Free Stock Analysis Report

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