At 84, Victor Sims faces the same concerns as any retiree. Healthcare costs, property taxes and gasoline prices continue to rise, and the income from his pensions and Social Security isn't keeping pace.

But Sims has remained a step ahead. How? He has stock in his former employer, Air Products and Chemicals Inc., and in Public Service Enterprise Group, which pay him about $800 a month in dividend income.

"Dividends really help an awful lot," said Sims, of Dover Township, N.J.

Experts say the strategy makes sense. Investing in companies with dividends is relatively low risk and can provide a steady return, even if stock prices rise only slowly. And that's becoming more important as aging Americans grow concerned about their financial security.

Dividends typically are paid by mature companies with fewer growth prospects. Instead of using their profits on expanding, they return a portion to their shareholders in the form of dividends.

"The income and cash flow from dividends provides stability in good markets and bad markets," said Don Schreiber Jr., president and chief executive of Wealth Builders Inc., a financial consulting firm in Little Silver.

Schreiber and co-worker Gary E. Stroik have written a book called "All About Dividend Investing." Their thesis: The stock market is in the early stages of a long cycle in which it will underperform. And alternatives such as bank CDs and bonds are unappealing because of low interest rates.

For retirees and baby boomers to stay ahead of inflation, the authors say, they should invest in companies that offer dividends. As more people gravitate to those companies, the companies' stock prices will rise. And that will give shareholders the benefit of both dividends and higher stock prices.

As an added incentive, the federal government in 2003 lowered the tax on dividends from the ordinary income-tax rate to 5 percent or 15 percent, depending on the investor's income level.

Dividends historically have been an integral component to investing. The rule of thumb — the stock market returns on average 10 percent a year — comes from a combination of price appreciation and dividend income, Schreiber and Stroik note.

Investing in old-line companies, however, seemed to get lost in the 1990s, when investors focused on upstart technology companies whose stock prices were skyrocketing. But after investors lost trillions of dollars when the stock market collapsed after 2000, dividend investing has made a comeback, experts say.

Source: Charles Schwab & Co.