We recently published a list of 10 Best Roth IRA Stocks to Buy According to Analysts. In this article, we are going to take a look at where NextEra Energy, Inc. (NYSE:NEE) stands against other best Roth IRA stocks to buy according to analysts.
A Roth IRA, or individual retirement account, is a tax-advantaged savings plan designed for retirement. Unlike employer-sponsored plans such as 401(k)s, a Roth IRA is managed independently. This means the account is opened directly with a financial provider, contributions are arranged personally, and investment choices—whether selecting assets individually or working with an investment manager—are entirely up to the account holder. Roth IRAs are accessible only to individuals with a modified adjusted gross income (MAGI) below $165,000 for single filers. The annual contribution limit is set at $7,000, with an increased cap of $8,000 for those aged 50 and older. For individuals earning more than $150,000, contribution limits gradually phase out.
Roth IRAs are not just popular among retirees; they are also gaining traction among young investors. Data from the US Federal Reserve, analyzed by Boston College’s Center for Retirement Research (CRR), shows that the share of households led by individuals in their 20s who own a Roth IRA has surged, rising from 6.6% in 2016 to 19.2% in 2022. Surya Kolluri, head of the TIAA Institute, has highlighted the Roth IRA as one of the most effective tools for retirement savings. He noted that the potential for tax-free growth over several decades could have a significant impact on long-term wealth.
According to an analysis by the Center for Retirement Research (CRR), the increase in Roth IRA adoption has been most pronounced among the highest-earning third of households. The organization attributes this trend in part to fintech platforms like Robinhood, which have made financial instruments more accessible in recent years.
Another contributing factor has been the investment activity of younger households, particularly those with higher incomes. Many were able to invest substantial amounts during the pandemic, relative to their previous financial positions. Research from the Federal Reserve indicated that inflation-adjusted wealth for Americans under 40 surged by an impressive 80% between the first quarter of 2019 and the third quarter of 2023, largely driven by stock market gains. Evan Potash, executive wealth management advisor at TIAA, made the following comment about it:
“During the pandemic, people had more time on their hands, stimulus checks, and took an opportunity on the market decline. This is complemented by the fact that younger people starting out in their careers, who tend to make less than those further on in their career cycle, haven’t phased out yet for Roth IRA contributions.”
While the rise in Roth IRA participation is beneficial for higher earners, those with lower incomes have not experienced the same level of growth. Research from the CRR found that in 2022, only 4% of households led by individuals in their twenties from the lowest third of the income distribution were investing in a Roth IRA. Although this marks an increase from 2% in 2016, it remains far below the 41% participation rate among those in the top third of earners.
Additional studies indicate that the wealth gap between the richest and poorest young individuals continues to widen. Research published by the University of Chicago Press shows that the wealthiest 10% of millennials hold 20% more wealth than the richest baby boomers did at the same age. In contrast, those at the lower end of the income scale have either seen little to no growth in their wealth or, in some cases, a decline.
When building a Roth IRA portfolio, it is essential to focus on diversification to maximize long-term growth while managing risk. A well-balanced portfolio can include a mix of various asset classes that cater to different investment goals and risk tolerances. According to analysts, it may be beneficial to maintain a well-rounded portfolio that includes index funds, such as those tracking the broader market, along with dividend-paying and value stocks. In addition, investors might consider target-date funds or a combination of stocks, bonds, and real estate investment trusts (REITs) to enhance diversification. Given this, we will take a look at some of the best Roth IRA stocks to invest in.
Our Methodology
For this article, we selected companies that have long-term growth catalysts, dividend growth history, solid business fundamentals, and positive analyst coverage. From that group, we further refined our selection criteria by identifying stocks with a projected upside potential of over 7% based on analyst price targets, as of March 23. The stocks are ranked according to their upside potential.
At Insider Monkey, we are obsessed with hedge funds. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
NextEra Energy, Inc. (NYSE:NEE)
Analysts Upside Potential: 22.7%
NextEra Energy, Inc. (NYSE:NEE) is an American renewable company, headquartered in Florida. The company mainly generates, transmits, and sells electricity. It benefits from two key growth drivers. The company operates Florida Power & Light (FPL), the largest electric utility in Florida, which gains from the state’s ample sunshine and steady population growth. In addition, its energy resources division, a leading developer and operator of renewable energy, is capitalizing on increasing demand and declining costs.
Beyond its core utility business, NextEra Energy, Inc. (NYSE:NEE) generates stable cash flow from its clean energy segment, which operates under long-term contracts. With the growing shift toward renewables, the company is rapidly expanding this division. Management aims to boost its renewable energy capacity from 36 gigawatts to 46.5 gigawatts by 2027, potentially doubling the business in the coming years.
On February 14, NextEra Energy, Inc. (NYSE:NEE) announced a 14% increase in its quarterly dividend to $0.5665 per share, marking 29 consecutive years of dividend growth and reinforcing its status as a top dividend aristocrat. These payouts are backed by strong cash flow, with the company generating over $13.2 billion in operating cash flow in fiscal 2024. Looking ahead, it plans to raise its dividend per share by around 10% annually through at least 2026, using its 2024 distribution as the baseline. As of March 23, the stock has a dividend yield of 3.2%.
Overall, NEE ranks 2nd on our list of best Roth IRA stocks to buy according to analysts. While we acknowledge the potential of NEE as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued dividend stock that is more promising than NEE but that trades at 10 times its earnings and grows its earnings at double digit rates annually, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
