December 31 is the deadline for certain investors (especially those who turned 70 ½ in 2014) to make sure they take their Required Minimum Distributions.
Here’s the smart way to handle it…
If you’re of that certain age or older, the RMD is a feature built into retirement plans like an IRA to force you to take some of your money out rather than keep it sheltered from taxes and growing indefinitely.
You must take the money out by the end of the calendar year (12/31) or risk a penalty of 50% of the amount of the RMD.
That’s a pretty big hit on your tax bill if you don’t act, so if you’re sitting on the fence today, for heaven’s sake get off it!
What to do with the money? Before you hit the casino, consider these smart ways to make that money work for you…
Heck, you can head off to your favorite golf course, travel, or play daily fantasy football if you like.
But for most, the idea is to plow at least some of the money back into your investment portfolio.
And what better way than putting it to use in dividend stocks?
Payouts will certainly help your cash flow, and with safe and sound investments, you won’t suffer sleepless nights.
Here are three ideas for stocks with dividend yields north of over 3%, easily beating the 10-Year Treasury Note rate.
Let’s get started…
With a dividend payout sitting at just over 5.50%, AT&T (T) is one of the most yield-friendly stocks you can put into your portfolio.
AT&T’s dividend is also one of the safest, as it has now paid out 30 years of consecutive dividend increases, including this year’s increase that now stands at 47 cents per share on a quarterly basis.
While those dividend increases are fairly small on a percentage basis, with just a 2.3% annualized growth over the last 3 years, in this case slow and steady still wins the long-term dividend payer race.
AT&T has made its long-term bets on the value of wireless, broadband and most recently, digital entertainment with the purchase of DirecTV (DTV).
As Leo Sun at Motley Fool points out, that play on DTV is critical to long-term dividend players, as AT&T expects to reap the benefits of excess free cash flow in addition to expanding its markets into Latin America.
Excess cash flow, a respectable 70% dividend payout ratio (which gives the stock room to grow that incremental payout), and its history of increasing dividends make AT&T a first-class stock to buy with that RMD money.
Speaking of which, our second RMD stock is making a huge comeback from its recent fall…
What was once a giant of the U.S. economy, not to mention one of the bluest of the Blue Chips, General Electric (GE) is starting to round into form as a player once again on the global stage.
With its dividend yield just nudging past our benchmark of 3%, GE’s daily price will affect its ability to stay above the threshold.
However, with its renaissance in full flight, sitting right on the (yield) number isn’t such a bad place to be.
With its plan to exit the financing business virtually complete, GE is not viewed as a standard-bearer for the Internet of Things (IoT), or what it terms the “Industrial Internet” conglomerate world.
Indeed, CEO Jeff Immelt, whose guidance and vision has been instrumental in GE’s resurgence, is looking for GE to become “a top-ten software company by 2010” according to The New York Times’s Steve Lohr.
What it means for investors looking for a place to sock away that RMD money is that GE is back as a powerhouse corporation, looking at the long view.
And dividend payouts will become an increasingly important part of that vision, as InvestorPlace Editor Jeff Reeves predicted earlier this year.
Keep in mind that, until 2009’s financial implosion, GE was a stalwart dividend payer: It paid out shareholders every quarter from 1889-2009, and 32 consecutive annual dividend increases.
After cutting the dividend by one-third in 2009, GE has reversed course, and has since doubled its payout to today’s 23 cents per share quarterly (still below 2009’s 31 cents per share).
Jen Wieczner at Fortune wrote back in April that GE is looking to ascend to the top once again, and there is every reason to believe GE will make good on its promise.
General Electric is a solid second choice for your RMD distribution.
As for our last dividend player, sometimes looking to a beaten-up star is the way to go…
Which is a bit nuts, particularly for those looking to put safe, sound money into a dividend investment.
Walmart’s dividend history includes over annual increases since 1975, and today’s 49 cents per share quarterly payout provides investors with a very sweet 3.3% dividend yield.
C’mon people: Walmart might get squeezed by the likes of Amazon (AMZN), Target (TGT), Costco (COST) and any number of smaller retail fleas nipping around the edges, but it isn’t going anywhere in our lifetime.
Which makes it a really sound investment for your RMD money.
Add in the kicker of a price-earnings ratio today of 12x trailing earnings, and a forward p/e of under 15x earnings, and you’ve got a pretty inexpensive entry price for your money, too.
Here’s one more item of note to help make that decision: At just over 43%, WMT’s dividend payout ratio leaves plenty of room to grow the payout, and with a free cash flow of over $13 billion and cash of $9 billion, WMT should make increases happen.
Savvy RMD investors can tune out the noise of slower top and bottom line growth at WMT and focus on the dividends for the long term, and put them back to work in their portfolios.
This post originally appeared in mainstreetinvestor.com.
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