You Could Earn 6.5% Annually in Your IRA With These 5 Stocks

Five high-yield dividend ideas for income-seekers looking to beef up their individual retirement accounts.

Apr 6, 2014 at 3:05PM

Although tax day is just nine short days away, that still leaves plenty of time for investors to make a qualifying investment in their individual retirement account.

For those of you who have a Traditional IRA, if you've yet to hit your contribution limit of $5,500 in 2013 then you have until April 15 to do so. Best of all, Traditional IRAs allow for an upfront tax deduction based on the amount of your contribution (based on adjusted gross income), which could help lower your 2013 tax liability. For the remainder of you with Roth IRAs, your contribution, while not tax-deductible upfront, will be allowed to grow tax-free over a lifetime, which may ultimately offer many investors a much larger benefit than an upfront tax deduction.


Source: Zack McCarthy, Flickr.

Last week we glimpsed at a myriad of last-minute IRA selections, pointing out how these companies could grow over time for both risk-averse and risk-willing old and young investors. Today, we're going to stick with the concept of last-minute IRA ideas, but with a twist. Instead of focusing on the combination of growth and dividend yield, I'm focused solely on delivering a high sustainable yield for income-seeking investors.

The criteria I looked for were pretty straightforward:

  • A yield above 5%.
  • A propensity to maintain or raise its dividend.
  • A highly sustainable payout structure.
  • A market valuation in excess of $300 million.

The end result was an arbitrarily picked five-stock portfolio for your IRA that, if invested in equal portions, has the current potential to yield 6.5% on an annual basis. Put another way, if these yields and stock prices remained stagnant, you could double your money about every 11 years on dividend income alone.

Let's take a closer look at the five companies I believe could be the key to success for high-yield income seekers.

Alliance Resource Partners (NASDAQ:ARLP): 5.8% yield
First we have Alliance Resource Partners, a master-limited partnership in the coal production space. Before you freak out about a coal producer delivering sustainable profits understand that as an MLP Alliance Resource has a favorable tax structure which helps lower its costs, and also consider that it differs from its peers by locking in long-term contracts numerous years ahead. The result is that very little of Alliance Resource's production is exposed to current market prices which are currently under pressure, helping add cash flow consistently to Alliance Resource Partners' bottom line.

In spite of coal's swoon, Alliance Resources has delivered 13 consecutive record annual profits and has boosted its dividend in 23 straight quarters (its payout has more than doubled in those 23 quarters). With a yield of 5.8% and a sustainable payout ratio of 66% based on Wall Street's estimated 2014 EPS, Alliance Resource Partners appears to be the real deal for income investors.

New York Community Bancorp (NYSE:NYCB): 6.3% yield
When we're talking big dividends, it should come as no surprise to find one of the financial sector's most consistent payers among the crowd, New York Community Bancorp. Having not cut its dividend throughout the financial crisis, New York Community Bancorp delivered another strong fourth-quarter report in January, with a 15.3% return on average tangible equity, and a 9.4% improvement on held-for-investment loans despite a 23 basis-point year-over-year decline in net interest margin. However, don't let its shrinking net interest margin scare you, as its only real weakness was due to a number of prepayments signaling the improving credit quality of its clientele.

With consistency being king for this savings-and-loan giant, New York Community Bancorp has been pushing out $1 per share annually for close to a decade. Although I wouldn't anticipate any dividend hikes anytime soon as it's in the market to make a large purchase, I don't believe there's anything to worry about with regard to its 6.3% yield, either.

Energy Transfer Partners (NYSE:ETP): 6.8% yield
Tired of the natural up-and-down nature of the oil and gas drilling and refining sector? There's an easy solution to that: play the middle ground!


Nederland terminal. Source: Energy Transfer Partners.

Energy Transfer Partners is a midstream energy company that handles the transportation, transmission, and storage of energy assets such as oil and natural gas. With the past decade yielding record shale deposits on land, and the Gulf of Mexico offering drillers a bevy of energy assets deep below the surface, the need to store and transport all of these assets is only going to grow over time. The smartest way to play this energy boom is with the basic need of infrastructure, not the actual volatile assets like oil and natural gas themselves.

Inclusive of its acquisitions, Energy Transfer Partners' revenue basically tripled in 2013 to $46.3 billion from $15.7 billion in the year-ago period as its operating income improved by low double digits. As Energy Transfer Partners benefits from improved oil & gas production it could even see its dividend get raised beyond its current yield of 6.8%.

FLY Leasing (NYSE:FLY): 6.8% yield
Aircrafts aren't cheap -- and both the airline industry and FLY Leasing know this -- which is why more and more airlines are choosing to lease aircrafts over the course of a few years rather than purchase new planes outright. The advantage is often seen in both ends of the spectrum, with lower upfront costs for the airline and probably better fuel economy as well. For FLY it's the perfect scenario, because it allows the company to maintain strong pricing power while also giving it an opportunity to unload the aircraft when the lease is up, providing capital to purchase newer aircraft to lease out.

Clearly, FLY must be doing something right because its adjusted net income rose 10% for the full year, and it recently boosted its dividend again, pushing its yield very close to the 7% barrier. Shareholders should probably reduce their expectations of another huge dividend hike any time soon after this year, with FLY adding quite a bit of debt to its balance sheet from new plane purchases, but its current 6.8% yield is quite sustainable as is.

Prison Fence

Source: Jodylehigh, Pixabay.

GEO Group (NYSE:GEO): 7% yield
Lastly, we have one of the most basic necessities of all: prisons. With a considerably large number of Americans locked up behind bars in comparison with incarcerated citizens in other countries, the prison system in the United States has become a big money business. That's music to the ears of income investors.

Even better for investors, GEO Group officially became a real estate investment trust in early 2013, netting the company substantial tax benefits, but also requiring that it pay out at least 90% of its income in the form of a dividend to shareholders. This REIT conversion has helped push GEO Group's dividend up to the 7% mark, and it looks as if it'll remain quite sustainable, given the ongoing need for more prisons in this country.

Nine handpicked dividends from our top analysts
One of the dirty secrets that few finance professionals will openly admit is that dividend stocks as a group handily outperform their non-dividend-paying brethren. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool recommends Alliance Resource Partners. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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