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 Inc. (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.
U.S. Bancorp (NYSE:USB)
A top holding of Warren Buffett’s Berkshire Hathaway Inc. (NYSE:BRK.A), it’s what U.S. Bancorp (NYSE:USB) 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.
The Coca-Cola Company (NYSE:KO)
Another Berkshire Hathaway favorite, The Coca-Cola Company (NYSE:KO) 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, The Coca-Cola Company (NYSE:KO) 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.
The article 3 Stocks for an Income Investor’s Roth IRA originally appeared on Fool.com and is written by Nicole Seghetti.
Fool contributor Nicole Seghetti owns shares of US Bancorp. Follow her on Twitter @NicoleSeghetti. The Motley Fool recommends Berkshire Hathaway, Coca-Cola, and Illinois Tool Works. The Motley Fool owns shares of Berkshire Hathaway.
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