The Motley Fool team have noted in the past that in order to double your money every 10 years, investors need to generate an annual return of around 7% after tax. That can be achieved via dividends or share price growth.
Investors relying solely on dividends to generate a 7% return need a pre-tax yield of around 9.1% annually, as tax is required to be paid on income at the completion of each financial year.
Conversely, investors in growth stocks they hold for many years are not taxed on accumulated profits until sale, meaning that only a 7% annual return is required to double your money (assuming that shares aren’t sold). It’s also worth noting that tax payable on capital gains is reduced by 50% if the shares are held for more than 12 months.
Growth stocks can therefore be a great way to grow wealth over the long term (if the right stocks are picked). Here are three great options for your portfolio:
Amcor Limited (ASX: AMC) is one of the dominant players in the global flexible and rigid plastic packaging business. The company has a long and successful history of smart acquisitions and has developed a strong and well regarded management team. Analysts forecast the company to grow earnings per share by around 10% in each of the next two years, which is great for a company with a market cap of nearly $13 billion.
Carsales.Com Ltd (ASX: CRZ) owns and operates the dominant car advertisement website in Australia as well as owning a strategic stake in iCar Asia Ltd (ASX: ICQ) that owns a number of car advertisement websites throughout Asia. iCar also has minority interests in other Brazilian and Asian websites. Carsales is also moving into vehicle financing and is expected to see earnings per share growth of nearly 30% in 2015.
Finally, childcare centre aggregator G8 Education Ltd (ASX: GEM) is growing rapidly by buying up childcare centres all around Australia. G8 has had a spectacular share price run and is still having success buying centres at attractive prices. Earnings are expected to grow nearly 80% in the most recently finished financial year and up to 50% next year depending on acquisitions between now and then.