Day: October 26, 2024

However, that’s not to say IBM’s AI advancements, including Granite 3.0 and Red Hat OpenShift AI, won’t contribute to future growth, particularly in the consulting business. These technologies enhance IBM’s capability to offer sophisticated AI solutions tailored to enterprise needs. By integrating these advancements into its consulting services, IBM can better support clients’ digital transformation efforts and potentially leverage additional growth.

One area I’m particularly interested in is quantum computing. Quantum computing promises to unlock vast computing potential due to something called superposition — the ability of a quantum system to be in multiple states at one time. In short, it means that vast calculations can be computed in almost no time at all. The problem is, the technology isn’t quite there yet.

In this context, IBM is well-positioned to become a dominant player in the quantum computing industry, having invested billions in research. The company is actively involved in significant quantum research projects, such as the Fermilab-led initiative, which focuses on developing superconducting quantum systems.

Moreover, the global quantum computing market is expected to grow significantly, with projections indicating an increase from $1.21 billion in 2023 to $12.62 billion by 2032, at a compound annual growth rate (CAGR) of 34.8%. This rapid pace of growth presents opportunities for companies that can master the technology and deliver commercially viable solutions.

On the other hand, IBM faces competition from a growing ecosystem of quantum investors, including players like Google (GOOGL) and Microsoft (MSFT). Additionally, smaller companies, such as IonQ, are investing heavily in producing early quantum solutions.

I’m concerned that IBM is expensive relative to its expected growth. The stock currently trades at 22.8x forward earnings, representing a 4.8% discount to the information technology sector as a whole. However, IBM’s expected earnings growth is below the industry average, with a CAGR of just 5.2% compared to the industry average of 14.8%.

Collectively, this results in a price-to-earnings-to-growth (PEG) ratio of 4.43. Even when we account for the forward dividend yield of 2.9%, the stock still appears expensive. As such, IBM seems priced according to unrealized potential, whether in AI or quantum computing. Personally, I think this makes it a risky bet.

On TipRanks, IBM comes in as a Hold based on five Buys, seven Holds, and two Sell ratings assigned by analysts in the past three months. The average IBM stock price target is $227.38, implying an upside potential of 4%.

See more IBM analyst ratings

On paper, IBM doesn’t look like a great value. The company trades above its share price target, and its PEG ratio is quite off-putting, even when dividends are taken into account. There’s, of course, potential in the highly exciting AI and quantum computing segments. However, I’d argue that the price tag is currently too high to take the plunge and invest.

Vestberg summarized his view, saying, “So all in all, we feel very positive where we are right now. We feel positive where the market is and our products.”

I think income investors should also feel positive about Verizon’s dividend. However, there is one potential fly in the ointment.

Bank of America analyst David Barden pointed out in the Q3 earnings call that Verizon’s cash tax and capital expenditures are increasing. He expressed concern that the company’s working capital could increase if iPhone upgrades take off. Barden also noted that Frontier isn’t generating positive free cash flow. He asked Vestberg if this year could be “the high-water mark for free cash flow at Verizon.”

Vestberg didn’t seem to agree with Barden’s assumptions, though. He replied that Verizon has plenty of tailwinds to boost its cash flow. Skiadas added that the company remains focused on EBITDA growth, and that interest rates (which are now declining) will have an impact.

Income investors will need to stay tuned to see if anything changes about Verizon’s ability to fund its dividend. However, based on its Q3 update, the company appears to be in a strong position to continue paying the dividend at current levels and extend its streak of dividend increases next year.

Before you buy stock in Verizon Communications, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Verizon Communications wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $860,447!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of October 21, 2024

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has positions in Bank of America and Verizon Communications. The Motley Fool has positions in and recommends Bank of America. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.

Verizon Just Gave Good News to Income Investors Who Love Its Ultra-High Dividend Yield was originally published by The Motley Fool

In addition, they both have diversified portfolios that include retail and industrial assets. Realty Income is heavy on retail and W.P. Carey is heavy on industrial, so they are actually fairly complementary holdings. Both these REITs have portfolios that span North America and Europe, offering geographic diversification to investors.

There is one notable difference that may worry some investors, but it probably isn’t as big an issue as it seems. Realty Income has increased its dividend annually for 29 consecutive years (no problems here). W.P. Carey cut its dividend at the start of 2024 after a string of 24 annual increases. It only has an increase streak a few quarters long at this point (a potential problem).

But that dividend cut came about because W.P. Carey decided to exit the troubled office sector, a move that strengthened its portfolio and left it with cash to invest, but also reduced earnings. That dividend blemish has left W.P. Carey with an elevated yield, despite what is really a fairly strong record of returning value to investors via dividends. As W.P. Carey regains dividend investor trust (specifically by getting back onto its schedule of quarterly increases), and puts its cash to work in new growth investments, the yield gap here could close.

You could obviously add some utility stocks to this list, such as Dividend King Black Hills (NYSE: BKH), which has a 4.3% yield. But the real takeaway is that the Schwab U.S. Dividend Equity ETF could be a solid core holding for a dividend investor, if it’s augmented with attractive, cherry-picked dividend stocks that aren’t in the ETF. That list should probably include high-yield REITs like Realty Income and W.P. Carey. You could easily build out a small portfolio in this way and hold it for a decade or more without losing a minute of sleep along the way.

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $20,991!*

• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,618!*

• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $406,922!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 21, 2024

Reuben Gregg Brewer has positions in Black Hills, Realty Income, and W.P. Carey. The Motley Fool has positions in and recommends Realty Income. The Motley Fool has a disclosure policy.

2 High-Yield Dividend Stocks (and 1 ETF) You Can Buy and Hold for a Decade was originally published by The Motley Fool

What happens if you don’t take an RMD? The IRS charges you a penalty tax of 50% of the amount you were supposed to take. If you correct it and take the RMD within two years, the tax rate can drop to 25% or 10% depending on the circumstances. (If you need help calculating your RMDs, consider matching with a financial advisor.)

Any time you withdraw money from a pre-tax retirement account like a traditional IRA, you’ll pay income taxes on that withdrawal at your tax rate. Once you’re past age 59.5 you won’t be hit with the 10% early withdrawal penalty, but the money will become part of your taxable income.

In theory, if your total taxable income including the IRA withdrawal doesn’t exceed your standard deduction, you wouldn’t owe income taxes. The actual answer depends on your complete tax situation, which may change from year to year.

There are a few things you can do now to minimize future RMDs and future tax bills.

One option is to take withdrawals from your IRA now to lower the balance and reduce your future RMDs. That can also make it easier to wait until age 70 to start receiving Social Security, maximizing those benefits. On the downside, you’ll lose out on additional tax-deferred growth in your IRA and have a smaller nest egg to pull from later.

You can also convert some or all of your IRA to a Roth IRA. You’ll pay taxes on the amount that’s converted, just like you would if you withdrew the money. But your money will continue to grow tax-free in the Roth account, which isn’t subject to RMDs. For an added bonus, Roth withdrawals won’t count as taxable income, so they won’t impact taxes on your Social Security benefits. One caveat: Roth IRA conversions come with a strict five-year rule. To preserve complete tax-free status, you can’t generally make withdrawals for at least five years from the time of conversion.

Finally, if you don’t need the money from your IRA, you can directly donate your RMD to a qualified charity – a strategy called qualified charitable distributions (QCDs). This direct donation bypasses taxable income completely. If you were going to make donations, this is the way to do it. (If you have more questions about your future tax liability, consider speaking with a financial advisor.)

There are things you can do now to minimize your future RMDs, but each strategy will have a different effect on your overall financial picture. You may consider making withdrawals from your IRA, converting your IRA into a Roth account or even donating your RMD to charity, eliminating your tax bill on the money in the process. Just keep in mind that the option you choose may affect taxes on your Social Security benefits.

• A financial advisor can help you plan for RMDs and make other important decisions for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Consider a few advisors before settling on one. It’s important to make sure you find someone you trust to manage your money. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.

• Get retirement planning and investing tips with the SmartMoney Minute newsletter. It’s 100% free and you can unsubscribe at any time. Sign up today.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

Michele Cagan, CPA, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Michele is not a participant in the SmartAsset AMP platform, nor is she an employee of SmartAsset, and she has been compensated for this article.

Photo credits: ©iStock.com/Andrii Dodonov, ©iStock.com/mixetto

The post Ask an Advisor: I’m 67 With $218k in an IRA. Should I Start My Withdrawals Now to Reduce Future RMD Taxes? appeared first on SmartReads by SmartAsset.