An edited extract from the Cuffelinks Facebook page shows how widespread the debate on Labor’s franking has become, and the majority of people need a simple, logical explanation on how franking actually works.
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As he prepares for retirement, a Chief Investment Strategist from a major global fund manager summarises what he has learned working through five full business cycles. He says it’s time to take risk off the table.
Two studies dive into the numbers to argue that Labor’s franking policy will hit low income earners the hardest, because a franking credit is a constant 30% of the taxable income.
Many people, especially SMSF trustees who expect to go on the age pension in future, remain confused about Labor’s proposed franking policy. These 10 emails confirm Labor’s position.
A reader of Cuffelinks sent an email to the Shadow Treasurer complaining about the future loss of franking credit refunds. Here is Chris Bowen’s response and a firm stance on the policy.
Dividend streams tend to be stable and determined by fundamental factors. Unlike capital valuations, which are affected by estimates of prospective returns which are, in turn, strongly affected by market sentiment.
LICs can sustain their dividends not only from current year profits, but from reserves built up in prior years. This report looks at reserve levels as a sign of consistency of future dividends.
Doubts about the value of franking credits under Labor’s proposed policy have already led to a rise in spreads on hybrids, which might throw up good investment opportunities.
For a pension fund with a tax rate of zero, it is better to receive an after-tax dividend of $100 than a company retaining after-tax capital of $70. Why aren’t company directors asked about this tax inefficiency?
Australians love owning dividend-paying shares, especially with the added benefits of franking credits, and the rewards from owning shares should not be judged in terms of price movements in isolation.
With the majority of Listed Investment Companies reporting lower earnings in the six months to 31 Dec 2016, it’s the LICs with adequate profit reserves that can offer dividend sustainability for investors.
There are many LICs with current dividend yields above the average of 4.4%, often fully franked, and there are ways to know whether the dividend is likely to be sustainable. Not all LICs are managed the same way.
With the cash rate now at 1.5%, the margin between dividend yields and interest rates is at historical highs. However, payout ratios are high and forward earnings growth is subdued.
While investors like receiving healthy dividends, it’s money that the company can then no longer use for capital growth. Less can really be more if there are better growth prospects with lower dividends.