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

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.

Retirement investing approaches of the past don't work today.

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.

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

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.

One approach to recognizing appropriate stocks is to look for companies with an average dividend yield of 3% and positive average annual dividend growth. Numerous stocks hike dividends over time, counterbalancing inflation risks.

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

Bar Harbor Bankshares (BHB) is currently shelling out a dividend of $0.34 per share, with a dividend yield of 3.56%. This compares to the Banks - Northeast industry's yield of 2.01% and the S&P 500's yield of 1.34%. The company's annualized dividend growth in the past year was 6.67%. Check Bar Harbor Bankshares dividend history here>>>

Independent Bank (IBCP) is paying out a dividend of $0.28 per share at the moment, with a dividend yield of 3.11% compared to the Banks - Midwest industry's yield of 2.33% and the S&P 500's yield. The annualized dividend growth of the company was 8.33% over the past year. Check Independent Bank dividend history here>>>

Currently paying a dividend of $0.11 per share, Phillips Edison & Company, Inc. (PECO) has a dividend yield of 3.00%. This is compared to the REIT and Equity Trust - Retail industry's yield of 3.65% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5.13%. Check Phillips Edison & Company, Inc. 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.

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'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

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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