3 Stocks for an Income Investor's Roth IRA

The Roth IRA contribution deadline is looming. With less than two weeks left, it's time to fund your account if you haven't already done so. Let's quickly review why a Roth IRA is so critically important in saving for your retirement. Then we'll look at three great stocks for a dividend investor's Roth.

Best bang for your buck
Your most powerful way to save for retirement is a Roth IRA. It allows after-tax contributions in exchange for tax-free income in retirement. If you haven't made your contribution for 2012, you have until the tax-filing deadline to do so. If you're under age 50, you can fork over $5,000 into a Roth. If you are age 50 or older, you can contribute an additional $1,000.

If you're flush with cash, strongly consider getting a jump on your 2013 contribution. The limits are more generous -- $5,500 if you're under age 50. If you're 50 or older, you can still contribute that additional $1,000.

But keep in mind that some individuals are excluded from contributing to a Roth. If you're a high-wage earner, familiarize yourself with Roth eligibility requirements before contributing.

Stock ideas for the dividend investor
For income-desiring investors, there are many solid dividend-paying stocks trading at good buys in today's market. I've found three companies with competitive positions whose stocks boast strong dividend yields and attractive valuations. They each have forward price-to-earnings ratios less than the S&P 500's current P/E of 18. And while the average dividend yield of S&P 500 companies is 1.9%, these companies pay yields greater than the market.

Illinois Tool Works (NYSE: ITW  )
This Illinois-based manufacturer will likely benefit as spending ramps up in transportation and construction, two industries that make up a healthy portion of the company's revenue. Illinois Tool Works holds nearly 20,000 patents, indicating a successful history of innovation. The century-old company boasts a forward price-to-earnings ratio of 13 and a 2.5% dividend yield. 

US Bancorp (NYSE: USB  )
A top holding of Warren Buffett's Berkshire Hathaway, it's what US Bancorp has avoided that makes it appealing for investors: The bank didn't aggressively lend to the extent of its too-big-to-fail counterparts. The conservative nature of this regional bank has helped it return healthy shareholder value during the past several decades. The stock pays a 2.3% dividend yield and boasts a forward P/E ratio of 10. 

Coca-Cola (NYSE: KO  )
Another Berkshire Hathaway favorite, Coca-Cola dominates Interbrand's "Best Global Brand" list, having secured its top-spot status every year since the list's inception. With its beloved and blockbuster brand, the company enjoys fantastic margins and robust sales growth despite global economic headwinds. As a tasty bonus for shareholders, Coca-Cola pays a 2.8% dividend yield, which it's increased for 50 consecutive years.

Foolish bottom line
The Roth IRA contribution deadline is fast approaching. So, don't miss your opportunity to fund a retirement account and secure your financial future. Consider these three great dividend-paying stocks for your contribution dollars today.

Coca-Cola has long been a favorite stock of dividend investors. The cola giant's wide moat has helped provide its shareholders with superior gains in the past, but the company faces some new threats to its continued market dominance. The Motley Fool recently compiled a premium research report containing everything you need to know about Coca-Cola. If you own or are considering owning shares in the company, you'll want to click here now and get started!


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  • Report this Comment On April 08, 2013, at 10:04 PM, TempoAllegro wrote:

    What about New York Community Bank (NYCB)? It is yielding 7.4%. And while USB is certainly well-known as a Buffett-Munger pick, what about Wells-Fargo (WFC), which is yielding 2.7%? Its PE is lower than USB, although is is a different kind of bank - much larger.

    I know Coca-cola (KO) would be good to own, if you can get in at a good price, but what about considering Pepsi (PEP), which yields 2.7% right now? That is just slightly less than KO, and PEP has a PE that is also slightly lower. While I like KO's main soft drink better, personally, PEP has a huge snack division - making Doritos and such - and I think it makes it the third-largest food company in the world after Nestle and what-used-to-be-Kraft. Perhaps after the Kraft split-up, Pepsi has moved up to number two, not sure. But they have great employee relations and a good female CEO, which is admirable.

    For ITW, I just get worried about the apparent forthcoming assault from such companies as SSYS and DDD, so while I know it is a great company, I would hesitate on adding it to a retirement portfolio.

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