The Tax Man And Your Compounding Machine

In an interview with Forbes on January 22nd, 1996, Charlie Munger said, “The objective is to buy a non-dividend paying stock that compounds for thirty years at 15% a year and pay only a single tax of 35% at the end of the period. After taxes this works out to a 13.4% annual rate of return.” The one advantage possessed by companies that pay no dividend, compared to those that do return cash to shareholders, is that they only have to pay one layer of taxation to their owners.

I’ll use as an example one of my favorite companies that pays no dividend at all: Autozone, the country’s largest retailer and … Read the rest of this article!