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Tags: Peters | dividend | stocks | IRAs

Morningstar's Peters Recommends Dividend Stocks for IRAs

By    |   Monday, 16 March 2015 06:00 AM EDT

Figuring out how to invest in your IRA can be a tricky business.
You want growth, so that you have enough money in retirement; income to provide cash for spending; and safety, so your retirement kitty doesn't get wiped out.
Josh Peters, director of equity-income strategy at Morningstar, suggests dividend stocks for your IRA.
"The advantage of concentrating your dividend payers in an IRA is that you have the ability to reinvest all of your income, perhaps for decades, before you need to start making withdrawals from the account. And those dividends can be compounded tax-free," he said on Morningstar.com
And what kind of dividend stocks should you seek for your IRA?
"I would say to look at situations that perhaps are going to take a long time to play out, but have a very good chance of playing out effectively and where valuations at the beginning of your investment here would be most attractive," Peters explained.
He cited General Electric, Spectra Energy and Procter & Gamble as possibilities.
  • GE has a dividend yield of 3.6 percent and generated a return of 2.1 percent over the past year, compared to 12.9 percent for the S&P 500 index.
  • Spectra has a 4.3 percent dividend yield and generated a return of negative 3 percent for the last year.
  • P&G has a 3.1 percent dividend yield and generated a return of 6.9 percent.
When choosing dividend stocks in general, you would do well to search for ones that have room to increase their dividends. MarketWatch columnist Philip van Doorn has put together such a list, based on cash flow yield.
Such a yield is calculated by dividing cash flow per share by the share price. "If the resulting figure is higher than the dividend, the company has headroom to increase the dividend," van Doorn writes.
Using free-cash flow estimates for 2015 and actual cash flow from the past 12 months, he created a list of the S&P 500 stocks with the highest dividends that have room to increase those dividends.
The tally includes Windstream Holdings, Mattel, CenturyLink, AT&T, Frontier Communications, Verizon Communications, Plum Creek Timber, GameStop, Seagate Technology and Garmin.
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Reinvested dividends from GE, P&G, and Spectra Energy could boost an IRA over the long term, and the stocks also trade at attractive valuations today, says Morningstar's Josh Peters.
Peters, dividend, stocks, IRAs
Monday, 16 March 2015 06:00 AM
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