Why Dividends Are Important And The Take On Franking Credits - A View From ASX: MIR

March 24, 2019 08:00 AM AEDT | By Team Kalkine Media
 Why Dividends Are Important And The Take On Franking Credits - A View From ASX: MIR

The dividends are the share of profits which are distributed by any profit-making corporation out of the profits which it has earned over a specified period. The dividends can be a final dividend, interim dividend, and special dividend. The dividends are typically proposed by the Board of the Directors of the company and ultimately ratified by the shareholders of the company. The payment of dividend mainly depends upon two things, i.e., whether the company is making enough, or any profits and the kind of dividend policy adopted by any company.

The dividends are considered to be of utmost importance from the investors as well as the company’s point of view. The investors who want to earn a regular income and have a constant flow of cash prefer to invest in a company with a stable dividend payment history. Also, well to do companies generally tend to increase their pay-out ratio gradually over a period of time. The investors tend to suffer from the market risk as well as the inherent risk associated with the equity market. This statement in itself is indicative of the fact that the investor may or may not earn any capital gains; however, any dividend which has been paid to him is not subject to any risk. Also, in this era of low-interest rates the dividends received by the investors are typically much higher than the interest earned.

On the flipside dividends also offer tax advantages to the investors by way of Franking Credits. Hence it is also considered as a very tax efficient source of income. It has also been seen that the dividends are taxed at a lower rate as compared to the usual incomes of the assessee.

The franking can be explained as the tax credits, and this whole system is called dividend imputation. This system of the imputation of dividend only applies to the Australian domiciled taxpayers, and hence the foreign investors cannot have the benefits of franking. Therefore, to explain this scenario of franking credits, let us assume a company pays 30% tax on its income, and a shareholder receives a dividend which is fully franked, then it means that the shareholder is getting a dividend on which the company has already paid a 30% tax.

Another example by which we can provide some more perspective on the matter explained above is of Mirrabooka Investments Limited (ASX:MIR). The company has for the HY ended 31 December 2018, provided the shareholders with a special dividend of 10%, the source of this special dividend is the capital gains which were earned by the company on which it has already paid tax. The Board of the company, considering the uncertainty regarding the fiscal policy on future refundability of franking credits has felt that it was much more prudent to distribute special dividends. However, even after such distributions, the company is sitting on a healthy Franking credit balance. The company even conducted a survey to assess the impact in case the refundability of franking credits ends. This survey got a strong response, through which it was derived that 90% of respondents are expected to get negatively impacted and are dependent on franking credit refunds. Also, 88% of the respondents are either retired or approaching retirement, and thus heavily dependent on the dividend income.


Disclaimer

This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.


Disclaimer

The content, including but not limited to any articles, news, quotes, information, data, text, reports, ratings, opinions, images, photos, graphics, graphs, charts, animations and video (Content) is a service of Kalkine Media Pty Ltd (Kalkine Media, we or us), ACN 629 651 672 and is available for personal and non-commercial use only. The principal purpose of the Content is to educate and inform. The Content does not contain or imply any recommendation or opinion intended to influence your financial decisions and must not be relied upon by you as such. Some of the Content on this website may be sponsored/non-sponsored, as applicable, but is NOT a solicitation or recommendation to buy, sell or hold the stocks of the company(s) or engage in any investment activity under discussion. Kalkine Media is neither licensed nor qualified to provide investment advice through this platform. Users should make their own enquiries about any investments and Kalkine Media strongly suggests the users to seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice), as necessary. Kalkine Media hereby disclaims any and all the liabilities to any user for any direct, indirect, implied, punitive, special, incidental or other consequential damages arising from any use of the Content on this website, which is provided without warranties. The views expressed in the Content by the guests, if any, are their own and do not necessarily represent the views or opinions of Kalkine Media. Some of the images/music that may be used on this website are copyright to their respective owner(s). Kalkine Media does not claim ownership of any of the pictures displayed/music used on this website unless stated otherwise. The images/music that may be used on this website are taken from various sources on the internet, including paid subscriptions or are believed to be in public domain. We have used reasonable efforts to accredit the source wherever it was indicated as or found to be necessary.


AU_advertise

Advertise your brand on Kalkine Media

Sponsored Articles


Investing Ideas

Previous Next
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it.