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The 1 Stock You've Been Overlooking for Your IRA

By James Brumley – Sep 15, 2021 at 7:01AM

Key Points

  • Dividend growth has been outstanding in recent years, yet this hasn't created any taxable income.
  • The big banking company doesn't impose the risk of a complete meltdown, even if its ultimate upside potential isn't as riveting as higher-profile picks.
  • Even so, JPMorgan's stock is capable of producing a surprising degree of capital appreciation.

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It's a solid investment no matter how or where you own it, but JPMorgan Chase makes the most of a retirement account's unique characteristics.

Got some idle cash in your individual retirement account you're ready to put to work, but worried about finding the ideal pick? You're not alone. Most investors view (and treat) their tax-deferring retirement accounts differently from their brokerage accounts, and rightly so.

The former doesn't incur any tax liability as an investment's value grows (or generates income), while the latter does. The latter, however, gives you a chance to offset any tax liabilities with an investment loss. There's also the not-so-small reality that the annual contribution you can make to an IRA is capped, while no such limit applies to a traditional brokerage account. It can all be a bit tricky.

Fear not. If you're ready to make a purchase within your individual retirement account, JPMorgan Chase (JPM -0.79%) is an often overlooked option that's well suited for the job. Here's why -- and note that the same basic reasoning applies just as well to a handful of other, similarly overlooked names.

Why JPMorgan is the perfect IRA pick

This isn't to suggest the well-diversified banking company isn't an appropriate pick outside of a retirement account. If you currently own it or are planning on buying it in a taxable brokerage account, it's still a worthy stock. But it's perfect for IRAs for three distinct reasons.

1. It's a proven name in a proven business

If you've ever taken a flier on an overly risky stock only to see it crash and burn, and that trade was made in a brokerage account, you at least had the benefit of offsetting taxable gains on other investments with that loss. You don't have that option within an IRA; if you take a loss in a retirement account, it simply lowers the total value of that account.

For this reason, IRAs are generally not the place to take risks that aren't likely to work in your favor. Instead, they are where most people need to stick with stocks that they know at least aren't apt to permanently lose value.

Written retirement plan lying on a desk, next to a calculator.

Image source: Getty Images.

JPMorgan brings such certainty to the table. The company itself has existed as a financial institution since 1799, and the banking industry it operates within has been around and organized for even longer. It's not a complicated business. But it's an incredibly necessary one, and will be forever.

The kicker: JPMorgan Chase is an amazingly consistent earner. Not counting its one-off $13 billion settlement with the federal government back in 2013, the company hasn't reported an operating loss since 2008, when the world was in the throes of the subprime mortgage meltdown. Better still, it's an amazing earnings grower! The company's trailing-12-month earnings of $14.99 is nearly three times greater than the sort of per-share profits the bank was generating just five years ago.

2. Its dividend growth is amazing

This stock's current dividend yield of 2.3% is respectable, but hardly thrilling. The S&P 500's current yield of 1.3% isn't remarkably lower, and bear in mind that the index's average yield is weighed down by a bunch of companies that don't pay dividends at all, and have no interest in doing so.

What's not readily indicated by the dividend yield alone, however, is how quickly the quarterly dividend payment has grown. The current annualized payment pace of $3.60 per share is 45% better than 2018's figure of $2.48, and nearly twice as much as 2016's full-year dividend payout of $1.84. Dividend payments are, of course, taxable distributions ... when they're generated by stocks owned in a taxable brokerage account. Investors holding JPMorgan in an IRA have collected all of this quickly rising dividend cash tax-free, and are able to use it to buy more JPMorgan stock, or to make other investments.

3. It's a growth stock in disguise

Lastly, the discussion thus far would imply IRA holdings should lean toward slow-moving, dividend-paying value stocks and steer clear of more aggressive stocks that are presumed to be high-growth picks. But insisting on narrowly categorizing stocks based on broad assumptions might actually prevent you from stepping into stocks capable of dishing out surprisingly big-time growth.

JPMorgan Chase is one such stock. It's up more than 140% over the past five years, and higher by 380% for the past 10 years. That's not bad at all for a stock tethered to a highly saturated a banking market, and well tethered to the growth of the economy. Yet investors itching to lock in these long-term gains within a tax-deferred retirement account can safely do so without worrying about the tax consequences.

Think strategically

Again, if you happen to own JPMorgan Chase in a traditional brokerage account (or are thinking about buying it in a taxable account), that's OK. It's a solid holding wherever it's held.

It's a stock, however, that ticks off a lot of the boxes for making the most of an IRA's unique characteristics. Those are, of course, tax-deferred growth and income as well as limitations on how much money can be contributed to these accounts in any given year. These are accounts where losses can't simply be overcome by adding more money to them.

And here's some really good news: JPMorgan Chase isn't the only name out there that checks off these boxes. They're certainly worth the hunt.

JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

JPMorgan Chase & Stock Quote
JPMorgan Chase &
$135.16 (-0.79%) $-1.08
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$4,071.70 (-0.12%) $-4.87

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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