There are a few things that Australians are simply obsessed with. While not an exhaustive list, cricket, footy, rugby, and property prices rank very near the top. For Australian investors however there is an extra obsession to add to their list –dividends!
What is it about Aussies and dividends?
If you're wondering why local investors are so much more interested in dividends than our US and UK counterparts the answer is franking credits. The most appealing of all are fully franked dividends, which mean that the full corporate tax rate of 30 cents in the dollar has already been paid on the earnings before they are paid-out as a dividend. This 'ideal' scenario maximises the tax benefit to the shareholder.
It is an important aspect of investing to understand – in cricket parlance, it's as important as understanding the 'LBW' (leg before wicket) rule!
Not all dividends are created equally
For a multitude of reasons, not all dividend-paying companies have the ability to fully frank their dividends. This doesn't have to be considered a negative but it does mean adjusting for the difference. For this reason, it can be more informative to consider the grossed-up dividend yield of a stock as this effectively adjusts for the differing levels of franking and allows for a more meaningful comparison.
With the interest rate officially at just 2.5% and many commentators speculating that there could be two rate cuts coming this year, now could be a good time to consider adding some blue-chip stocks with high yields to your portfolio.
Here are four that could be worth taking a closer look at…
