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3 Top Dividend Stocks to Maximize Your Retirement Income

Here's an eye-opening statistic: older Americans are more afraid of running out of money than of death itself.

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.

Retirement investing approaches of the past don'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.

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

In addition to the considerable drop in bond yields, today's retirees are nervous about their future Social Security benefits. Because of certain demographic factors, it's been estimated that the funds that pay the Social Security benefits 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

We feel that these dividend-paying equities - as long as they are from high-quality, low-risk issuers - can give retirement investors a smart option to replace low-yielding Treasury bonds (or other bonds).

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

One way to identify suitable candidates is to look for stocks with an average dividend yield of 3%, and positive average annual dividend growth. Many stocks increase dividends over time, helping to offset the effects of inflation.

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

Canadian Natural Resources (CNQ) is currently shelling out a dividend of $0.57 per share, with a dividend yield of 5.1%. This compares to the Oil and Gas - Exploration and Production - Canadian industry's yield of 0% and the S&P 500's yield of 1.85%. The company's annualized dividend growth in the past year was 52.26%. Check Canadian Natural Resources (CNQ) dividend history here>>>

Evolution Petroleum (EPM) is paying out a dividend of $0.12 per share at the moment, with a dividend yield of 7.49% compared to the Oil and Gas - Exploration and Production - United States industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 100% over the past year. Check Evolution Petroleum (EPM) dividend history here>>>

Currently paying a dividend of $0.16 per share, First Guaranty Bancshares (FGBI) has a dividend yield of 3.01%. This is compared to the Banks - Southeast industry's yield of 2% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 10%. Check First Guaranty Bancshares (FGBI) 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 thinking, "I want to invest in a dividend-focused ETF or mutual fund," make sure to do your homework. It's important to know that some mutual funds and specialized ETFs charge high fees, which may diminish your dividend gains or income and thwart the overall objective of this investment strategy. If you do want to invest in fund, research well to identify the best-quality dividend funds with the least charges.

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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Canadian Natural Resources Limited (CNQ): Free Stock Analysis Report
 
Evolution Petroleum Corporation, Inc. (EPM): Free Stock Analysis Report
 
First Guaranty Bancshares, Inc. (FGBI): Free Stock Analysis Report
 
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