More and more investors are clueing into the various methods of bolstering and assuring their portfolio growth with the notions of franked dividends, especially in 2022. The reason? More people are investing, and especially smaller-scale operations that were not always clued into the inner sanctums of the investment world. How times have changed.
There are now a multitude of investing opportunities being brought to the forefront that can improve the quality and longevity of the average investor portfolio with franked dividends taking the reigns as one of the more sought-after benefits for pundits.
This article will not be going over the political side and arguments of franked dividends, which many of you may recall was one of the focal points in Australian elections in the past few years. Instead, this article will delve a little more into how franked dividends work, why they should be on everyone’s radar, and the potential for growth that they represent for the average investor.
What Are Franked Dividends?
Let’s talk turkey and get into the beauty of franked dividends by understanding a little more about what they are and how they work. As some of you may already know, a great many companies offer their investors a bonus payment for their lucrative years, this is typically described as a yield stock. Essentially, these companies can choose to reward their shareholders with a slice of the profits from any given year and pay them a percentage based on the ownership share of the investor.
For the investor, this means that the money they’re given counts as income and is therefore subject to taxation, this is where the franked dividends make their presence and utility known. You see, companies have already paid their fair share of tax on the profits before doling it out to their investors, so, why get taxed twice? In short, they don’t.
Franked dividends is the term given to the payments made that have already had their fair share of tax given to the ATO. The way they have circumvented the double taxation worry is through credits attached to the payments that alert the Governing bodies and Tax Office of this fact. This means that the investor receives a credit for their tax return when they’re lodging.
The Untold Benefits
That sounds quite nice doesn’t it, the idea that franked dividends can give you some extra cushioned comfort come tax season is already lucrative – but then there are some untold benefits that aren’t always discussed openly or even aware in a majority of investors minds. One such benefit is that Australia is quite unique in its lucrative payouts of excess credits at the end of the year. If there are unused credits from franked dividends at the end of the tax return – they don’t go to waste, they get paid out!
Yes, that’s right, the excess credits are paid out as an excess return option for investors has led so many to consider it as an additional income stream that doesn’t have the detrimental excess taxation applied to it.
The Power Of Diversification
There is a lot to be gained by scaling the market and looking for the more lucrative franked dividend companies – while the major companies have their fair share of payback benefits for investors, our eyes have always been a little more leaning toward the up-and-coming companies that offer a bigger slice of the profits for their investors. These can pay off quite well if you diversify the portfolio enough and keep some safe yielding options in excess and splurge on the occasional longshot.
In the end, invest wisely, and always do your research.