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 retirees have good reason to be worried about making their assets last. People are living longer, so that money has to cover a longer period. Making matters worse, income generated using tried - and - true retirement planning approaches may not cover expenses these days. That means seniors must dip into principal to meet living expenses.

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.

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.

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.

Associated Banc-Corp (ASB) is currently shelling out a dividend of $0.24 per share, with a dividend yield of 3.82%. This compares to the Banks - Midwest industry's yield of 2.58% and the S&P 500's yield of 1.42%. The company's annualized dividend growth in the past year was 4.55%. Check Associated Banc-Corp dividend history here>>>

Canadian Imperial Bank (CM) is paying out a dividend of $0.78 per share at the moment, with a dividend yield of 3.08% compared to the Banks - Foreign industry's yield of 2.61% and the S&P 500's yield. The annualized dividend growth of the company was 7.01% over the past year. Check Canadian Imperial Bank dividend history here>>>

Currently paying a dividend of $0.50 per share, Citizens Financial Services (CZFS) has a dividend yield of 3.25%. This is compared to the Banks - Northeast industry's yield of 2.24% and the S&P 500's current yield. Annualized dividend growth for the company in the past year was 1.02%. Check Citizens Financial Services 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 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

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

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Associated Banc-Corp (ASB): Free Stock Analysis Report

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

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