3 High Dividend ETFs & Stocks for Roth IRA

With the tax season afoot, investors must be busy producing 2016 returns. In this context, we would like to delve into the retirement products that provide great tax benefits. While there are individual retirement accounts (IRAs) where the contributions are tax deductible, investors can also find Roth IRAs interesting for making contributions.

A Roth IRA is a type of individual retirement account, in which your after-tax investments can grow tax-deferred as long as they remain in the account, and qualified withdrawals are tax-free. So, this is quite a tax-advantaged means of savings for retirement.

There are a set of Contribution rules. For example, a yearly contribution limit of $5,500 ($6,500 if over 50) or your annual income, whichever is lower. Going by an article published on Forbes, “full contributions for those who are married filing jointly are only allowed if adjusted gross income is less than or equal to $184,000. Full contributions for single tax payers are only allowed if adjusted gross income is less than or equal to $117,000.”

Now the question is what kind of securities or ETFs would be the best fit for a Roth IRA. In fact, those securities should be apt for the present market conditions too. Higher yielding stocks and ETFs should be good for your Roth IRA. We’ll tell you why.

Why to Pick High-Yielding Securities for Roth IRA

Since income distributions kept in the Roth IRA account can be realized tax-free (for the most part), these tools are highly beneficial for high-dividend products. Investors should note that qualified dividends are taxed at the long-term capital gains rate of 20% and nonqualified dividends are taxed at 39.6%. But if kept in a Roth IRA account, investors can get away with tax on dividend income. Also, tax on capital gains to be paid every year is removed.

Plus, the Fed’s policy tightening mode and Trump’s pledge for fiscal reflation should boost inflationary expectations and U.S. Treasury yields. On January 24, 2016, the yield on 10-Year U.S. Treasury note was 2.47%. So, ETFs and stocks with benchmark-beating yield should do well in the present market environment (read: Yellen Hints at Faster Rate Hikes: 4 ETFs to the Rescue).

ETF Picks

Below we highlight three higher yielding ETFs which could be a part of your Roth IRA plan.

PowerShares KBW High Dividend Yield Financial Portfolio ETFKBWD – Yields 7.78%

Financial stocks perform better in a rising rate environment. And nothing could be better than coupling the high dividend nature with a financial ETF. Investors should note that KBWD yields about 7.78% annually. The fund has a Zacks Rank #2 (Buy) with a medium risk outlook (read: 9 Winning ETF Ways for Those Who Fears Rising Yields).

Global X SuperDividend US ETF DIV – Yields 6.59%

The fund invests in 50 of the highest dividend yielding equity securities in the U.S. and charges 45 bps in fees. The fund has a Zacks Rank #2 with a medium risk outlook (read: Earn 4% Yield with These Dividend ETFs).

iShares Select Dividend ETF DVY – Yields 3.04%

The fund gives exposure to 92 broad-cap U.S. companies with a five-year history of dividend payments. The fund charges 39 bps a year. Utilities, Financials, Industrials and Consumer Discretionary get a double-digit weight in the fund. The fund has a Zacks Rank #3 (Hold) with a medium risk outlook.

Stock Picks

Below are three Zacks Rank #1 (Strong Buy) stocks which fit the bill too.

Seagate Technology plc STX – Yields 6.93%

The company offers a portfolio of hard disc drives, solid state drives and solid state hybrid drives. It has a Zacks Industry and Sector Rank of top 10% and top 31%, respectively. The stock a VGM (Value-Growth-Momentum) score of ‘A.’

CoreCivic Inc. CXW – Yields 5.93%

It is a real estate investment trust providing correctional, detention and residential reentry facilities. Though the industry rank is into the bottom 50%, its Zacks sector rank is in the top 6%. Its VGM score is ‘B.’

Kronos Worldwide Inc. KRO – Yields 5.93%

Kronos is a global producer and marketer of value-added titanium dioxide pigments. It has a Zacks Industry and Sector Rank of top 25% and top 19%, respectively. The stock a VGM score of ‘B.’

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Seagate Technology PLC (STX): Free Stock Analysis Report
 
Kronos Worldwide Inc (KRO): Free Stock Analysis Report
 
Corrections Corp. of America (CXW): Free Stock Analysis Report
 
ISHARS-SEL DIV (DVY): ETF Research Reports
 
GLBL-X SPRDV US (DIV): ETF Research Reports
 
PWRSH-K HDY FP (KBWD): ETF Research Reports
 
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