To maximize your Roth IRA returns, you need to invest in stocks that do the following things:
Pay a quarterly dividend
Look for companies that pay a quarterly dividend through DRIP (dividend reinvestment plans) and increase their dividend year over year. A strong dividend means the company produces enough profits to reward the shareholders while maintaining strong revenue and profits.
A DRIP lets you automatically dollar cost average your position over time thus allowing you to purchase more shares while the stock price is down and fewer shares when it’s up. Reinvested dividends purchase you more shares without adding money to your Roth IRA.
Outperform the market over the long run
If your stocks don’t outperform the market, then you are better off buying a low cost index fund. However, stocks provide the greatest return so focus on companies that show strong growth and earnings potential. Take note of local and national trends to uncover potential buys and good value deals.
Shows a history of share buybacks
When a company is doing well and the management believes the shareprice is too low, the company will purchase its own shares using a share buyback program. Share buybacks reduce the number of outstanding shares and increase the overall value of each remaining shares. You own a larger portion of the company without investing any extra money. Also, companies only do this when performance is strong. It’s a great sign of financial health as well.
Maintain a long history of sales and clients through many decades
At the end of the day, companies need to make strong sales to keep profits growing and strong. Look for companies that have a healthy track record of producing sales because revenue is highly correlated to sales numbers. If sales begin to fall, then revenue dives and companies may miss earnings, which causes the stock price to fall.
Follow socially responsible investment practices
I’m a big believer in socially responsible investing, however, what you do with your time & money is 100% your business.
Top 5 Roth IRA Stocks (Socially Responsible)
Target operates general merchandise stores in the United States. This dividend champion has raised distributions for 46 consecutive years in a row. Over the past decade, Target has managed to boost dividends by 18.60% per year. The company is selling for 17.20 times earnings and yields 2.70%. The big opportunity behind the company is international expansion, which could reward shareholders immensely, if it is done right. Check out this analysis of Target.
Exxon Mobil (XOM)
Exxon Mobil engages in the exploration and production of crude oil and natural gas, and manufacture of petroleum products. This dividend champion has raised distributions for 31 years in a row. Exxon yields 2.70% dividend annually. The stock popped on news Warren Buffett initiated a large position in it, which is why adding to Exxon on dips might be a good strategy. Check this analysis of Exxon Mobil.
Johnson & Johnson (JNJ)
Johnson & Johnson is engaged in the research and development, manufacture, and sale of various products in the health care field worldwide. This dividend champion has raised distributions for 44 years in a row. J&J averages a 3.30% dividend yield. Quarterly earnings are growing 37.10% yoy. With its recession proof field of healthcare, Johnson & Johnson is positioned to continue strong earnings growth and steady sales from its vastly large product line.
The Proctor & Gamble Company (PG)
The Procter & Gamble Company manufactures and sells branded consumer packaged goods. PG has raised dividend distributions for 44+ years in a row. PG averages a 3.30% dividend yield. Revenue appears flat but the company still made a $41 billion profit over the last 12 trailing months. Steady demand for consumer goods and a solid long term upside stock graph show plenty of safety in this stock.
Realty Income (O)
Realty Income is a publicly traded real estate investment trust that trades on the NYSE. The current yield is 5.4 percent. Realty Income owns over 3,600 properties, diversified across 46 industries and 194 companies. Realty Income has increased their dividend distribution for 19 years straight. This stock is one of the safest ways to invest in Real estate in your Roth IRA.
While his background is mostly related to trading stocks, he recently gained interest in real estate crowdfunding with Fundrise.