Thursday, January 27, 2022

Still New To Investing? Franked Dividends Explained 

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Everyone has that one friend that talks endlessly about his investment portfolio, throwing economic terms like franked dividends, yields, and exit prices around every conceivable conversation. There comes a time where you may start thinking, they could have a point.

So, you head home and begin googling the various terms like franked dividends and notice that there is some money to be made, and perhaps the investment market is not so out of reach. When cascading along these trains of thought you begin downloading various applications and means of beginning your investors journey.

We’re all for more people joining in on the conversation and investment journey, there is simply too much to cover in a singular article so this will be purely based on the rhetoric behind, and the means of recognizing franked dividends. Following through from here will allow you to spruce up your own conversations before you know it.

First Things First, What Are Franked Dividends?

Let’s deal with the elephant in the room, the definition of franked dividends – no doubt many of you recall the last election cycle wherein the subject was thrown around in small bites of media coverage and one-line-wonders from politicians from all sides of the argument. The problem a lot of us faced was what a franked dividend and credit ascribed to?

When you invest in certain companies or shares on the marketplace, the company may choose to give stipends back to investors when they’re having a positive profit windfall – this is what’s known as a yield. Investors receive this surplus payment from their investment – and like any form of income, it is very taxable.

Most companies do their due diligence and pay their share of taxes on the money going out to investors. So, this means the payment received would be technically taxed twice over if all goes according to plan. This was an issue and deterrent for many investors for years until the notion of franking credits came into being.

These essentially become payoff attachments for the ATO to have on file when an investor completes their yearly tax return, a franked dividend would be the eventual tax credit received by the investor which could end up saving them more money in their yearly tax return. There’s a reason so many of Australia’s rich and ritziest take advantage of the franking credits methodology.

Now you can too.

Playing The Yield

So now that we have a basic idea of franked dividends (the variable tax credit received and processed through tax returns), it’s now time to learn about finding the companies and investable shares that pay out these lucrative little bonuses.

Most of the time, you’ll be able to find the companies that pay in the event of yielded profits by simply looking through your preferred investment platform, if not on the actual website for the company itself. Otherwise, there are a number of very good services online that showcase a number of companies that have the better rates of franked dividends and consistency of payouts.

Taking the time to consider the longevity of your investment before taking the plunge is an especially beneficial mode of thinking to have in the beginning of your journey. A good, diversified portfolio with investments in a number of companies that offer franked dividends has the best chance of sustaining fruitful returns in the least amount of time, especially if the companies you choose to invest in are of note and have a good track record.

While it may be one drop in the pond of commerce rhetoric, understanding the fundamental principles of franked dividends are an important step in your own investment journey. Good luck.

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