Opening an account to save for retirement can be one of the most rewarding financial decisions a person will ever make. If you qualify for the Roth IRA – a type that offers tax exemptions and withdrawals when you retire – this is one of the easiest ways to create wealth that you can find.
Many say the best stocks on these accounts are those that could jump up or those that pay big dividends. Makes sense. If you don’t have to pay income tax, why not hold stocks that offer the most potential? That being said, companies love it Apple (NASDAQ: AAPL) who must not neglect those who produce large incomes for shareholders both through dividends and through share repurchases. Simple math emphasizes that investors should not overlook the technology giant because of its tax advantage.
Switch outside of iDevices
Apple has a reputation as an innovator. But there were portable music players, smartphones and tablets even before well-known products. Most revolutionary is how the company has managed to drastically improve the user experience and weave products into the ecosystem. For their customers, these products are now everywhere they turn while living their lives – and they are all integrated with each other.
With the device base installed, Apple has professionally moved on to offering services. With the App Store, products like iCloud, Apple Music and Apple Pay make it easier and easier for customers to spend more money with the company. In fact, services accounted for 18.5% of total revenue in the past 12 months. That number was only 11% in 2016. A larger combination of services is not because product revenue is stagnating. Far from it.
Since 2016, total revenue has climbed by almost 51%. The iPhone, iMac, and iPad have all grown fairly. The service category impressed with growth of 147%. However, the category of wearable equipment has grown the fastest. Sales in that segment increased by 216%, from 11 billion to 35 billion during that time.
Growth in these categories is important because wearable equipment and services make devices much more sticky – users are less likely to switch. Basically it makes a purchase Apple device lifestyle choices, not just transactions. Continuing success has allowed the company to return some of the money to shareholders. It is this return on capital program that makes stocks excellent benefits for a tax-friendly Roth IRA.
The total yields tell the whole story
Since 2013, Apple has returned more than $ 440 billion to shareholders. It came in the form of both dividends and share buybacks. During that time, the dividend rose from $ 0.41 in 2013 to a projected $ 0.88 over the next year. The total number of shares issued has decreased by 34% since 2013. These are large increases in shareholder profits that could be non-taxable in the Roth IRA.
Counting someone who plans to retire in 30 years, buying shares plus dividends (when reinvested) turns the initial $ 6,000 into $ 22,000. This is without any increase in the size of the company. Invest the same thing every year and the bill grows to almost $ 400,000 – again, without Apple actually getting bigger.
|Year||The shares are outstanding||Dividend per share||Portfolio value|
|2021||17.2 billion||$ 0.88||$ 6,000|
|2030||12.4 billion||$ 1.67||87,500 USD|
|2040||9.0 billion||$ 3.16||$ 205,000|
|2050||6.5 billion||$ 5.99||$ 399,000|
It is a life-changing result. It is easy to pass by a huge company that steals capital back to shareholders when choosing shares for your pension account. The common wisdom of a large dividend payer or speculative stock with huge potential returns makes sense. However, it is important to remember that the purpose of the bill is to create wealth that is not taxed. From that perspective, Apple could be a great stock for your Roth IRA.
This article presents the opinion of a writer who may not agree with the “official” position of the Motley Fool premium advisory service recommendation. We are colorful! Rethinking the thesis of investing – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier and richer.