by Marc Bastow | December 3, 2012 2:14 pm
In addition to the fiscal cliff, special dividends and, of course, holiday shopping, retirement investors age 70 1/2 and older need to think about at least one more financial event: taking their required IRA distribution by year-end.
Remember that IRS rules pertaining to IRA accounts require distributions based on a somewhat complicated table, and not adhering to the rules can be punitive — namely, the IRS can penalize (tax) you 50% of the required minimum distribution (RMD).
Of course, the question then becomes: Now that you have the money from the RMD, what do you do with it (if you don’t want/need to spend it right away)?
Well, this situation came up just last week with a reader (let’s call her “Mom”), who said she put her distribution money into a dividend stock through a separate non-IRA account.
I love the idea — it’s certainly better than just dumping it into a bank account paying just more than nothing, or a CD that would tie her money up for 18 months at an interest rate of … well, just more than nothing. So what are some dividend stocks you might consider piling your RMD into? Here are five ideas:
12/3 Dividend Yield: 2.8%
Mom’s stock of choice just happened to be Newell Rubbermaid (NYSE:NWL), a company known for what she describes as “making things people use” and being a steady dividend payer. Both are quite correct: In addition to Rubbermaid itself, the company’s brands include Sharpie, Calphalon and Lenox. And NWL has indeed been a steady payer since 1946.
NWL was a nice pick. I like the idea of companies that “make something” as a base for an IRA distribution investment. A $20 to $30 per share price and a dividend yield of 2.8% are also nice lures. So, here are four more larger-cap stocks, all for under $30 per share that “make something” and pay a nice dividend for your IRA distribution money.
12/3 Dividend Yield: 4.2%
Talk about making products, Leggett & Platt (NYSE:LEG) was founded on the idea of developing and manufacturing a steel-coil bedspring that was patented in 1885. The designer, J.P. Leggett, joined forces with his future brother-in-law and manufacturer, C.B. Platt, to market the new product, and in 1901 the partnership was incorporated.
Today, the company is 20 business units rolled into 10 segments producing residential furniture, commercial fixtures and displays, and automotive parts and supplies. L&P sports a market cap of $1.3 billion, with dividends paid since 1939. Today’s 29-cents-per-share quarterly dividend gets you a dividend yield right at 4.19%. With a share price under $30 per share, it’s right in the sweet spot for your distribution funds. The company has also managed to increase its share price over 20% for the past one- and five-year periods. A definite win-win at LEG.
12/3 Dividend Yield: 2.4%
Combine the inventiveness of Stephen F. Briggs, who worked with engines and power equipment, with the financial acumen of Harold M. Stratton, and you get Briggs & Stratton (NYSE:BGG). Now a 100-year-old-plus producer of air-cooled gasoline engines for outdoor power equipment, it’s best known for its small, reliable engine technology for a variety of uses, especially powered lawn mowers.
Today’s BGG has branched out using the same baseline business model, offering engines for industrial, agricultural and construction applications, while its products segment manufactures and sells portable and standby generators, snow blowers, and lawn and garden equipment.
The result is a $1 billion market cap company that has paid a steady dividend since 1929. BGG’s 12-cents-per-share quarterly payout gets you a 2.38% dividend yield, and the share price is just over $20. Some caution might be in order because the company’s 63x price-earnings ratio appears perhaps a little bit rich. But with year-to-date and one-year returns of more than 30% on its shares, lots of investors believe strongly in the company.
12/3 Dividend Yield: 3%
Corning‘s (NYSE:GLW) history is as famous as its iconic glassworks factory and products. Founded in 1851 by Amory Houghton Sr., Corning was and is still in the forefront of glass technology. Its initial glassblowing technology has long since given way to countless innovations incorporated into products including light bulbs, TV tubes, cookware, optical fiber, and active-matrix liquid crystal displays. And don’t forget Gorilla Glass.
Corning was under the gun in the 1990s and 2000s, but it has come back to life as a world leader in specialty glass and ceramics, and its labs and R&D facilities are still world-class. With a market cap of just over $18 billion, its quarterly dividend of 9 cents per share provides a dividend yield of 2.94%. And the dividend has some room to run because GLW’s dividend payout is only 12.7%.
With a P/E of under 10x earnings and a price tag of under $15 per share, GLW could be a very nice longer-term dividend play for your distribution dollars. But be careful here, too, becuuse the shares haven’t performed well over the past year.
12/3 Dividend Yield: 2.8%
Started in 1919 by brothers William Howard and Joseph Hampton Flowers, Flowers Foods (NYSE:FLO) opened up by providing 30,000 loaves of white bread a day. By 1940, it was only one of six bakeries to franchise the Sunbeam and Little Miss Sunbeam brands of bread. Flowers went public in 1968, and when it introduced the Nature’s Own bread products in 1977, the company took off.
After a series of brand purchases including Keeblers and Mrs. Smith’s, Flowers is today primarily focused on bread, including its Nature’s Own and Cobblestone Mill brands. Flowers recently purchased Tastykake, and the company is rumored to be a suitor for the Hostess Brand.
With a $3 billion market cap, Flowers’ 16-cents-per-share quarterly dividend provides a tasty 2.76% dividend yield at a price of just under $25 per share. A 26x P/E ratio appears in line with a company that saw its shares increase over 50% in the last five years and nearly 30% year-to-date.
One long-time dividend concern might be its rather high 64% dividend payout ratio. However, Flowers has consistently raised the dividend since it started paying one in 2002
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he does not hold a position in any of the aforementioned securities.
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