How Dividend-Paying Stocks May Help Boost Retirement Income

While no magic bullet, these types of stocks are worth considering, even after retirement.

(Image credit: SusanneB)

When you’re retired, managing your investments can start to get a little tricky.

The urge you have to see your money grow is tempered by your concerns about taking too much risk at this time of your life. In essence, you want your financial cake, but you want to eat it, too — and it’s challenging to find a way to make that happen.

There is at least one option that’s worth considering for those who are determined to stay in the stock market after retirement, yet who also grow nervous whenever the market starts getting a little shaky.

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That option is dividend-paying stocks, which could provide you a little extra income even when the stock market isn’t acting as friendly as you would have hoped. Each quarter, these stocks pay you a certain amount per share that, depending on your personal lifestyle and/or investments, could help you pay the monthly bills or finance that special vacation you’ve been wanting to take.

Of course, that doesn’t mean dividend-paying stocks will always come through for you. In a poor economy, a lot can happen. Maybe the dividend will keep coming at more or less the amount you’ve come to expect. Maybe the amount of the dividend will drop a little — or a lot. Or maybe the company will temporarily stop paying any dividends at all.

And, of course, the overall value of a dividend-paying stock can go up or down, just like any other stock — so don’t think this is some sort of miracle guarantee in the market. It’s not. Far from it.

What it is, though, is one more tool in your investment toolbox that has the potential to reap rewards for you.

So, let’s say you’re intrigued and you want to move forward with this particular retirement investing strategy. Here are a few things to keep in mind as you contemplate building a dividend-paying arm of your portfolio.

Don’t Get Greedy

Right off the bat, you could be tempted to research which stock pays the highest dividend, let dollar signs light up your eyes and declare: “That’s the one.” Well, maybe. But, as counterintuitive as it might seem, going with the highest dividend isn’t necessarily the automatic correct answer.

Companies that offer exceptionally high dividends might be doing so for a reason. They could be a risky investment, and the high dividend is how they convince wary investors to buy their stock. Sure, maybe those high dividends will work out for you, but it’s worth being cautious about the potential downsides — especially when you’re in or near retirement.

Instead, Take a Walk on the Mild Side

OK, set that high-dividend stock aside for the moment, and look in the opposite direction. Maybe you should consider the stock of a company that’s a little more miserly with the value of its dividends but is in better shape when it comes to the corporate bottom line. In this case, you’ll need to settle for less income each quarter (I know, not the ideal), but perhaps you won’t toss and turn as much at night, worried about whether that portion of your portfolio is destined to go into freefall.

Check Out Some ‘Old Faithfuls’

Finally, you could consider companies that some people refer to as the “Old Faithfuls” of the dividend-paying world. They always increase their dividends — seemingly no matter what. A little research should introduce you to a few such companies that have been doing that for decades (for some ideas, try 11 Dividend Stocks With 55 or More Years of Payout Growth), and you can decide if that’s the way you want to go. (But be warned, even Old Faithfuls can change. Just because something has always happened in the past doesn’t mean it will continue to always happen.)

Remember, dividend-paying stocks aren’t a magical investment that carries no risk, but they can be a solid foundation to your future investment strategy.

Ronnie Blair contributed to this article.

New River Financial Group, LLC is a Registered Investment Adviser offering advisory services in the state of Virginia and other jurisdictions where exempted. New River Financial Group, LLC dba Martin Wealth Solutions.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Jim Martin, Registered Financial Consultant
President and Founder, Martin Wealth Solutions

Jim Martin is the president and founder of New River Financial Group with offices across Virginia. A Registered Financial Consultant and Accredited Asset Management Specialist, he has passed the Series 66 and Series 7 exams and is an insurance professional. Martin focuses on comprehensive financial planning to help individuals and business owners take control of their financial future.