Dividend stocks for retirement income

Lower volatility with higher returns over the long-term. Since 1927 dividend stocks have outperformed non-dividend stocks and their returns were less volatile.

Income, growth and reduced volatility—that's a good fit for many retirees' equity allocations. Of course, these results aren't guaranteed and a bear market will drag down dividend stocks with all the rest. The key—and as an advisor your perspective on this is invaluable—is to prevent clients from getting rattled with short-term gyrations and selling out at the wrong time.

The stock market over time has historically had far more winning months than losing months, says John Buckingham, AFAM's chief investment officer. "The key, as I always say is, to success in stocks is not to get scared out of them. And, so, having a dividend payment and having an income stream from what we would argue are quality companies that are not expensively valued can really help you sleep better at night."

One potential counterargument is that we're likely to see interest rates increase in the near- to midterm: Isn't that bad for stocks? AFAM's research shows that although stocks have generally done better in declining rate environments, if rates are rising because the economy is growing, that's good news for corporate profits and ultimately dividends. 

"If you plot out the growth of corporate profits and the dips that the market has taken, it often coincides with dips in profits," Buckingham notes. "And, so, we want a stronger economy, we want corporate profits to continue to grow and we don't view that as a bad thing even if it comes with higher rates."