3 Steps I’d Take Today To Boost Your Retirement Savings Through Dividend Stocks

Following these three ideas could boost your dividend returns and improve your retirement outlook.

Senior Man Sitting On Sofa At Home With Pet Labrador Dog

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

While building a nest egg for retirement may seem to be a challenging task, buying dividend stocks could make it easier. Dividends have the potential to boost total returns over a long-term time period, and could signal that a stock offers a sound financial outlook.

By focusing on areas such as dividend cover, a track record of dividend growth and the reinvestment of stockholder payouts, it may be possible to improve your retirement prospects in the long run.

Dividend cover

While high yields may hold appeal to investors due to the income return they offer, buying stocks which have dividends that are well covered could be a better idea. After all, a high yield is of limited use if it eventually becomes unaffordable.

One measure that investors can use to determine the safety of a dividend, and the chances of it being paid, is the dividend coverage ratio. This simply divides net profit by dividends to arrive at a decimal figure. Anything above 1 indicates that dividends are affordable, while any figure below 1 should cause an investor to become cautious about the prospects of dividends continuing to be paid at their current level.

Clearly, a higher dividend coverage ratio suggests that there is more scope to increase stockholder payouts at a faster pace than profit growth. As such, buying companies in such a situation could boost the long-term dividend growth rate within an investor’s portfolio.

Track record

Although past performance is not necessarily a guide to the future, companies with reliable track records of dividend growth could be more appealing than those with a mixed history of stockholder payouts. They may eventually attract premium valuations, since investors may deem them to be lower risk than some of their index peers. Meanwhile, consistent dividend growth may indicate that the company enjoys a competitive advantage over its peers which enables it to post solid earnings growth in future.

Buying stocks with solid track records of income returns could help to provide an investor’s portfolio with a more reliable income stream. Over the long run, this could be more appealing than a relatively volatile dividend profile.


Although it is tempting to spend dividends that are received, reinvesting them for the future enables compounding to have an influence over returns. While in the short run, reinvesting dividends may not produce stunning returns, over the long run various studies have shown that the compounding of dividends can have a major influence on total returns.

Since the prospects for the world economy continue to be uncertain, capital growth may be more limited over the next few years than it has been in the recent past. As such, the returns from dividends may become increasingly important, and could have an even greater impact on an individual’s retirement prospects than would normally be the case.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Target. Stand out from the crowd
Energy Stocks

3 Oversold TSX Stocks I’d Buy in Bulk

Recession fears impact oil prices, although three oversold stocks should remain resilient and generate substantial free funds flow throughout 2022.

Read more »

Stocks for Beginners

New Investors: 3 Top Dividend Stocks to Start a Simple Portfolio

These quality dividend stocks are worthy for new investors to consider for a simple passive-income portfolio.

Read more »

Dollar symbol and Canadian flag on keyboard
Tech Stocks

3 Top Canadian Growth Stocks to Buy in July

Here are three growth stocks you might want to add to your buy list in July.

Read more »

edit Four girl friends withdrawing money from credit card at ATM
Bank Stocks

CIBC Stock Could Be a Top TFSA Buy for a Rocky 2nd Half of 2022

CIBC (TSX:CM)(NYSE:CM) stock is a great dividend top pick to stash in a TFSA after the first-half market correction.

Read more »

exchange-traded funds
Dividend Stocks

2 Dividend ETFs With Significant Exposure to the TSX’s Top 2 Sectors

Two dividend ETFs offer ideal diversification because of their exposure to the TSX’s two strongest sectors.

Read more »

sale discount best price

RRSP Investors: Top Stock Pick on Sale After the Stock Market Correction

Quebecor (TSX:QBR.B) looks like a terrific dividend stock for RRSP investors to buy, as recession risks rise amid a market…

Read more »

edit Colleagues chat over ketchup chips

The Alternative Way to Look at Any Recession

Market down? Instead of losses, look for potential gains. This alternative way to look at any recession exposes a market…

Read more »

Arrow descending on a graph
Energy Stocks

Why Did Oil Stocks Crash so Suddenly?

Oil stocks like Cenovus Energy (TSX:CVE)(NYSE:CVE) crashed dramatically last week. Here's why.

Read more »