In this article, we discuss the 10 best dividend stocks for Roth IRA.
The United States economy was disrupted by the pandemic in 2020 and the recovery from the crisis has since stalled due to rising inflation and the war in Ukraine. Despite these setbacks, consumer demand remains high, unemployment rates are falling, wages are increasing, and prices are climbing at a pace not seen in the past four decades. These changes have resulted in one of the most volatile markets of our lifetimes, forcing the Federal Reserve to raise interest rates and keep inflation from soaring unchecked.
In this context, investors have been pouring money into established companies that have the fundamentals to weather the present storm. Some of the best dividend stocks for Roth IRA presently include Two Harbors Investment Corp. (NYSE:TWO), Vale S.A. (NYSE:VALE), and Annaly Capital Management, Inc. (NYSE:NLY), among others discussed in detail below. Market experts had predicted that inflation would fall in 2021 but it only rose to new heights. In 2022, even a rise in interest rates has so far failed to curb rapidly rising prices.
Interest Rates Rise As Economic Crisis Escalates
Some of the other changes sweeping the economy related to jobs. Instead of rejoining their workplaces after the pandemic, workers have remained on the sidelines, forcing employers to raise wages. Work from home trends are accelerating even as the pandemic wanes. Consumer spending is also showing no signs of slowing down, despite predictions that a halt in pandemic-related stimulus payments would reverse the buying frenzy. Fed chief Jerome Powell has vowed to aggressively raise interest rates to keep the unfolding crisis at bay.
Market experts have forecast that as demand slows down, forces like inequality and aging populations will push advanced economies into “secular stagnation”. Mark Carney, a former head of the Bank of England, has said that a “long era of low inflation, suppressed volatility and easy financial conditions is ending” and is being replaced by “more challenging macro dynamics in which supply shocks are as important as demand shocks”. He made the comments about the global economy in a speech on March 22.
The increased volatility resulting from these changes have revived interest in Roth IRA accounts as a savings vehicle. These accounts are now becoming more popular with retail investors as well who have emerged as an important market force in recent months. The example of Peter Thiel, a famous tech entrepreneur who grew a $1,500 stock investment in a Roth IRA into a multi-billion dollar tax-free fortune over the course of just two decades looms large in the minds of the young generation.
Photo by Dan Dennis on Unsplash
Our Methodology
Stocks that are income-oriented and pay high dividends are usually a great bet for Roth IRA accounts since account holders are not taxed on these dividends if they obey the withdrawal rules of the accounts. Another key consideration is growth potential since capital gains over the years are also important for post-retirement income. Hence, the companies that have a dividend yield of more than 7%, sound business fundamentals, and positive analyst ratings were selected for the list. Hedge fund sentiment was included as a classifier as well. Data from around 900 elite hedge funds tracked by Insider Monkey in the fourth quarter of 2021 was used to identify the number of hedge funds that hold stakes in each firm.
Best Dividend Stocks for Roth IRA
10. NuStar Energy L.P. (NYSE:NS)
Number of Hedge Fund Holders: 3
Forward Dividend Yield: 10.39%
NuStar Energy L.P. (NYSE:NS) operates as an energy storage and transportation firm. Elite hedge funds hold large stakes in the company. Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Zimmer Partners is a leading shareholder in NuStar Energy L.P. with 657,966 shares worth more than $10.4 million.
On January 20, Barclays analyst Theresa Chen kept an Overweight rating on NuStar Energy L.P. stock and raised the price target to $20 from $19, noting that there was generally a positive outlook around the firm through 2022.
Just like Two Harbors Investment Corp., Vale S.A., and Annaly Capital Management, Inc., NuStar Energy L.P. is one of the stocks that elite investors are flocking to as inflation rises.
9. Telefónica, S.A. (NYSE:TEF)
Number of Hedge Fund Holders: 3
Forward Dividend Yield: 8.75%
Telefónica, S.A. (NYSE:TEF) provides telecommunication services. On February 28, Barclays analyst Mathieu Robilliard upgraded the stock to Equal Weight from Underweight and raised the price target to EUR4.2 from EUR3.9, noting that the “solid performance in Brazil and currency moves in Latin America” drove a significant upgrade to estimates.
Major hedge funds hold bullish positions in Telefónica, S.A. stock. Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Telefónica, S.A. with 562,043 shares worth more than $2.3 million.
8. Icahn Enterprises L.P. (NASDAQ:IEP)
Number of Hedge Fund Holders: 3
Forward Dividend Yield: 15.65%
Icahn Enterprises L.P. (NASDAQ:IEP) is a Florida-based industrial conglomerate. It is one of the favorite conglomerates in the finance world. Among the hedge funds being tracked by Insider Monkey, Florida-based investment firm Icahn Capital LP is a leading shareholder in Icahn Enterprises L.P. with 257 million shares worth more than $12.7 billion.
Icahn Enterprises L.P. has an impressive dividend history and has paid a payout to shareholders consecutively for the last sixteen years. On February 25, the company declared a quarterly dividend of $2 per share, in line with previous.
7. Sibanye Stillwater Limited (NYSE:SBSW)
Number of Hedge Fund Holders: 10
Forward Dividend Yield: 7.14%
Sibanye Stillwater Limited (NYSE:SBSW) is a precious metals mining firm. On March 10, Deutsche Bank analyst Liam Fitzpatrick kept a Buy rating on the shares and raised the price target on the stock to $21 from $18.5, noting that a “supply shock” from Russia was driving a rise in commodity prices and would benefit the firm.
Sibanye Stillwater Limited is one of the top mining stocks on Wall Street. Among the hedge funds being tracked by Insider Monkey, Connecticut-based investment firm AQR Capital Management is a leading shareholder in Sibanye Stillwater Limited with 2.7 million shares worth more than $34 million.
In its Q1 2021 investor letter, Desert Lion Capital, an asset management firm, highlighted a few stocks and Sibanye Stillwater Limited was one of them. Here is what the fund said:
“Sibanye Stillwater Limited is a South African gold and platinum group metals (“PGM”) producer with mines in South Africa and the U.S. Established in 2012, Sibanye Stillwater Limited has since become one of South Africa’s largest gold producers and the largest PGM producer in the world. Sibanye Stillwater Limited also operate a PGM recycling facility and own a majority interest in DRDGOLD, a specialist in the recovery of gold and other precious metals from open pit tailings.
The investment thesis incorporates the following logic:
If central banks globally are going to continue printing money unabated, precious metals prices should rise.
The drive for cleaner and greener is accelerating. The market for platinum, palladium and rhodium is structurally attractive.
Sibanye Stillwater Limited is generally mischaracterized. Ask around, and one will find that most people still refer to Sibanye as “a South African gold miner” with “lots of debt from that Sibanye Stillwater Limited acquisition.”
It is not quick and easy to ramp up PGM supply in response to higher demand and prices. Favorable supply-demand characteristics will likely remain favorable for longer.
Bad capital allocation decisions, corporate excesses, and resultant tarnished reputations from the previous boom period are still fresh in the minds of most mining executives. Neal Froneman has proven himself a disciplined capital allocator. His approach to capital allocation is straightforward: deploy capital at expected returns that enhances value to shareholders or distribute it via dividends and buybacks.
Sibanye Stillwater Limited is debt-free and generating heaps of cash.
The valuation is cheap. At current metal prices, Sibanye Stillwater Limited is trading at about 5 times after-tax cash profits.
Sibanye Stillwater Limited is effectively a call option on a potential commodity super cycle. In the meantime, the value of our “option” is unlikely to deteriorate as we are rewarded with healthy dividend flows.”
6. Gerdau S.A. (NYSE:GGB)
Number of Hedge Fund Holders: 11
Forward Dividend Yield: 7.95%
Gerdau S.A. (NYSE:GGB) markets steel products and related services. Hedge funds seem keen on the stock amid unprecedented economic uncertainty. Among the hedge funds being tracked by Insider Monkey, Greenwich-based firm Contrarian Capital is a leading shareholder in Gerdau S.A. with 23 million shares worth more than $113 million.
At the turn of the year, Goldman Sachs analyst Marcio Farid initiated coverage of Gerdau S.A. stock with a Buy rating and a price target of R$360, underlining that the firm had the “most diversified, resilient and quality business profiles” among companies in Latin America steel.
Along with Two Harbors Investment Corp., Vale S.A., and Annaly Capital Management, Inc., Gerdau S.A. is one of the stocks on the radar of institutional investors amid rising market volatility.
5. BHP Group (NYSE:BHP)
Number of Hedge Fund Holders: 21
Forward Dividend Yield: 9.43%
BHP Group (NYSE:BHP) is a diversified metals and mining firm. Elite hedge funds hold bullish positions in the stock. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in BHP Group with 7.8 million shares worth more than $470 million.
BHP Group has a stellar dividend history stretching back over thirteen years. In the past five years, the company has consistently grown the dividend payout. On February 23, the company declared a semi-annual dividend of $3 per share.
In its Q1 2021 investor letter, Harding Loevner, an asset management firm, highlighted a few stocks and BHP Group was one of them. Here is what the fund said:
“Our purchase of Australian mining company BHP Group is an example of a quality company at a moderate valuation that should deliver attractive long-term returns. We believe the market has undervalued its enduring competitive advantage due to its low cost iron and copper mining operations which has allowed the company to deliver consistent profits and cash flows across the inevitable ups and downs of the global metals cycle. While the variability of commodity prices prevents BHP Group from scoring in the top ranks of measured quality, we are willing to bear some of that uncertainty in return for a more attractive valuation given the company’s strong business fundamentals.”
4. Annaly Capital Management, Inc. (NYSE:NLY)
Number of Hedge Fund Holders: 21
Forward Dividend Yield: 12.21%
Annaly Capital Management, Inc. operates as a diversified capital manager. The company has paid a dividend to shareholders consistently for the past 23 years. On March 17, it declared a quarterly dividend of $0.22 per share, in line with previous.
Annaly Capital Management, Inc. remains one of the top corporate lending firms in the finance world. Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Arrowstreet Capital is a leading shareholder in Annaly Capital Management, Inc. with 2.5 million shares worth more than $19 million.
3. Rio Tinto Group (NYSE:RIO)
Number of Hedge Fund Holders: 22
Forward Dividend Yield: 10.13%
Rio Tinto Group (NYSE:RIO) operates as a resource firm. It is one of the favorite resource stocks on Wall Street. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Rio Tinto Group with 13.5 million shares worth more than $907 million.
On March 26, UBS analyst Myles Allsop upgraded Rio Tinto Group stock to Neutral from Sell and raised the price target to GBP5,200 from GBP4,200, noting the risk/reward for the firm had improved amid supply disruptions of iron ore and steel from Russia.
2. Vale S.A. (NYSE:VALE)
Number of Hedge Fund Holders: 25
Forward Dividend Yield: 11.15%
Vale S.A. markets iron ore products. On March 10, Deutsche Bank analyst Liam Fitzpatrick kept a Buy rating on the stock and raised the price target to $20 from $19, noting that the Ukraine conflict would lead to a new era of investment in resource stocks in the West, benefiting Vale.
Major hedge funds hold large stakes in Vale S.A.. Among the hedge funds being tracked by Insider Monkey, Washington-based investment firm Fisher Asset Management is a leading shareholder in Vale S.A. with 30 million shares worth more than $434 million.
1. Two Harbors Investment Corp. (NYSE:TWO)
Number of Hedge Fund Holders: 34
Forward Dividend Yield: 12.71%
Two Harbors Investment Corp. is a Minnesota-based real estate investment trust. The company has paid a dividend to shareholders consistently for the past eleven years. On March 23, the company declared a quarterly dividend of $0.17 per share, in line with previous.
Hedge funds have been loading up on Two Harbors Investment Corp. stock. At the end of the fourth quarter of 2021, 34 hedge funds in the database of Insider Monkey held stakes worth $141 million in Two Harbors Investment Corp., compared to 31 in the preceding quarter worth $155 million.
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This article is originally published at Insider Monkey.
