3 Top-Ranked Dividend Stocks: A Smarter Way to Boost Your Retirement Income

Strange but true: seniors fear death less than running out of money in retirement.

And unfortunately, even retirees who have built a nest egg have good reason to be concerned-with the traditional approaches to retirement planning, income may no longer cover expenses. That means retirees are dipping into principal to make ends meet, setting up a race against time between dwindling investment balances and longer lifespans.

In today's economic environment, traditional income investments are not working.

In the past, investors going into retirement could invest in bonds and count on attractive yields to produce steady, reliable income streams to fund a predictable retirement. 10-year Treasury bond rates in the late 1990s hovered around 6.50%, whereas the current rate is much lower.

That means if you had $1 million in 10-year Treasuries, the difference in yield between 1999 and today is more than $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 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

Dividend-paying stocks from low-risk, high-quality companies are a smart way to generate steady and reliable attractive income streams to replace low risk, low yielding Treasury and bond options.

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.

LXP Industrial (LXP) is currently shelling out a dividend of $0.70 per share, with a dividend yield of 5.88%. This compares to the REIT and Equity Trust - Residential industry's yield of 4.51% and the S&P 500's yield of 1.47%. The company's annualized dividend growth in the past year was 3.85%. Check LXP Industrial dividend history here>>>

Norwood Financial Corp. (NWFL) is paying out a dividend of $0.32 per share at the moment, with a dividend yield of 4.18% compared to the Banks - Northeast industry's yield of 2.21% and the S&P 500's yield. The annualized dividend growth of the company was 3.33% over the past year. Check Norwood Financial Corp. dividend history here>>>

Currently paying a dividend of $0.61 per share, NatWest Group (NWG) has a dividend yield of 7.91%. This is compared to the Banks - Foreign industry's yield of 2.64% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 35.61%. Check NatWest Group dividend history here>>>

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.

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This article originally published on Zacks Investment Research (zacks.com).

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