Opening an account for retirement savings can be one of the most profitable financial decisions a person has ever made. If you’re eligible for a Roth IRA – the type that offers duty-free compounding and retirement withdrawals – this is one of the easiest ways to accumulate wealth you can find.
Many people say that it is best to buy in these accounts those stocks that can skyrocket, or those that bring big dividends. It makes sense. If you don’t have to pay taxes on profits, why not hold the stocks with the highest potential? However, companies like Apple (NASDAQ: AAPL) which generate huge returns for shareholders through both dividends and share buybacks should not be ignored. Simple math shows how investors shouldn’t be overlooked by the tech giant because of its preferential tax treatment.
Going beyond iDevices
Apple has a reputation for being an innovator. But there were portable music players, smartphones, and tablet computers even before they were well-known products. The most revolutionary was how the company managed to dramatically improve the user experience and integrate products into the ecosystem. For her customers, these products are now everywhere, wherever they go in their lives, and they are all integrated with each other.
With an installed base of devices, Apple has cleverly moved to offering services. Beyond the App Store, products like iCloud, Apple Music, and Apple Pay make it easier and more convenient for customers to spend more money with the company. In fact, services accounted for 18.5% of total revenue over the past 12 months. In 2016, this figure was only 11%. The broader range of services is not related to the fact that the revenue from the products remains at the same level. Not at all.
The power of the ecosystem
Since 2016, total revenue has grown by almost 51%. iPhones, iMacs, and iPads have grown significantly. The service category was impressive, with growth of 147%. However, the wearable category has grown the fastest. Sales in this segment grew 216%, from $ 11 billion to $ 35 billion during this time.
Growth in these categories is important because wearable devices and services make devices much more “sticky” – customers are less likely to switch. Basically, it turns buying an Apple device into a lifestyle rather than just a transaction. The ongoing success has allowed the company to return a lot of money to shareholders. It is thanks to this capital return program that the tax-exempt Roth IRA shares are ideally suited.
Total profit tells the whole story
Since 2013, Apple has returned over $ 440 billion to shareholders. This happened both in the form of dividends and in the form of share buybacks. During this time, dividends rose from $ 0.41 in 2013 to a projected $ 0.88 next year. The total number of shares outstanding has decreased by 34% since 2013. This is a large increase in shareholder income and may not be taxed in the Roth IRA.
If you count someone who plans to retire in 30 years, share buybacks plus dividends (when reinvested) turn an initial $ 6,000 investment into $ 22,000. And this is without increasing the size of the company. Make the same investment every year and the bill will go up to nearly $ 400,000 – again, without Apple getting bigger.
|Year||Outstanding promotions||Dividend per share||Portfolio value|
|2021 g.||17.2 billion||US $ 0.88||USD 6,000|
|2030 g.||12.4 billion||US $ 1.67||USD 87,500|
|2040 BC||9.0 billion||US $ 3.16||USD 205,000|
|2050 BC||6.5 billion||USD 5.99||USD 399,000|
The result is life-changing. When choosing stocks for a retirement account, it’s easy to overlook how a huge company secretly returns capital to shareholders. The conventional wisdom about being a big dividend payer or speculative stock with huge profit potential makes sense. It is important to remember, however, that the purpose of an account is to accumulate wealth that is tax-free. From this point of view, Apple could be a great promotion for your Roth IRA.
This article represents the opinion of an author who may disagree with the “official” recommendation position of Motley Fool’s premium consulting service. We are colorful! Bidding on an investment thesis – even our own – helps us all to be critical about investing and make decisions that help us become smarter, happier, and richer.