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

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

For example, 10-year Treasury bonds in the late 1990s offered a yield of around 6.50%, which translated to an income source you could count on. However, today's yield is much lower and probably not a viable return option to fund typical retirements.

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.

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.

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

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.

Going beyond those familiar names, you can find excellent dividend-paying stocks by following a few guidelines. Look for companies that pay a dividend yield of around 3%, with positive annual dividend growth. The growth rate is key to help combat the effects of inflation.

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

Brookfield Infrastructure Partners (BIP) is currently shelling out a dividend of $0.46 per share, with a dividend yield of 4.62%. This compares to the REIT and Equity Trust - Other industry's yield of 4.1% and the S&P 500's yield of 1.32%. The company's annualized dividend growth in the past year was 6.17%. Check Brookfield Infrastructure Partners dividend history here>>>

Travel + Leisure Co. (TNL) is paying out a dividend of $0.60 per share at the moment, with a dividend yield of 3.29% compared to the Leisure and Recreation Services industry's yield of 0% and the S&P 500's yield. The annualized dividend growth of the company was 12% over the past year. Check Travel + Leisure Co. dividend history here>>>

Currently paying a dividend of $0.48 per share, Unitil (UTL) has a dividend yield of 3.52%. This is compared to the Utility - Electric Power industry's yield of 3.04% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 5.88%. Check Unitil 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.

An advantage of owning dividend stocks for your retirement nest egg is that numerous companies, particularly blue chip stocks, raise their dividends over time, helping alleviate the impact 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

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.

7 Best Stocks for the Next 30 Days

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Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.9% per year. So be sure to give these hand picked 7 your immediate attention. 

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

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