One thing that beats a fully franked dividend

Credit: Penfolds

As judged by the latest ANZ-Roy Morgan consumer confidence survey, Australians are feeling pretty good about their finances.

They are feeling so good that their confidence in financial conditions is standing at a post GFC high.


Something doesn’t seem quite right.

Interest rates are at rock bottom. House prices are at all time highs. Wage growth is stagnant. Trump is still a chance to be President.

And it’s not as if many of the widely held ASX blue chip stocks are shooting the lights out.

Maybe it’s house prices that’s making people feel good.

For existing home owners, it feels good to be sitting on a $1 million asset. Never mind that you can’t pocket the money and spend it all on overseas cruises and fast cars.

For investment property owners, it’s happy days. Your asset is gaining in value. You are generating an income — never mind it may not cover all your costs — and you are saving tax, due to the government’s very generous negative gearing policy.

As for potential first time home owners, home owners saddled with mountains of mortgage debt and renters, stiff cheddar for you.

Maybe it’s superannuation that’s making us financially happy, especially the government’s recent backtrack on the retrospective and unfair $500,000 lifetime contributions cap.

Maybe it is the sharemarket after all, given billions of dollars in dividend payments are in the process of hitting bank accounts, a lot of them fully franked. Although I knew it was coming soon, I was still very pleasantly surprised when I received my Telstra (ASX: TLS) dividend earlier this week.

Few things in life beat a fully franked dividend. Passive income, hitting your bank account, like clockwork, often coming with a tax deduction, courtesy of the government’s generous dividend imputation scheme.

No wonder Australian investors are totally in love with dividend-paying shares.

They love them even more when, as well as paying dividends, they can also generate juicy capital gains.

Sadly, many dividend investors — people who remain rusted on to their traditionally “safe” ASX blue chip stocks — are missing out on capital gains.

Worse, in recent times at least, they are generating capital losses.

Take Commonwealth Bank of Australia (ASX: CBA), for example. It’s shares are down 14% so far in 2016, a capital loss that dwarfs the stock’s 5.75% fully franked dividend yield.

The Woolworths (ASX: WOW) share price has slumped almost 7% in 2016, a year in which the once dominant supermarket has once more slashed its dividend.

It’s even worse for QBE Insurance Group (ASX: QBE). Its shares have crashed over 25% so far in 2016. That’ll wipe out any gains from dividend payments, and a whole lot more!

Now, it must be said that not every blue chip has had a horror year.

Believe it or not, BHP Billiton (ASX: BHP) shares have had a great 2016, jumping over 20%. And that’s despite the Big Australian slashing its dividend by 75%!

In fact, many mining stocks have been on a tear, with Fortescue Metals Group  (ASX: FMG) shares up a whopping 165% so far in 2016, South32 (ASX: S32) shares gaining 128% so far this year, and the Newcrest Mining (ASX: NCM) share price has jumped 74% over the same period.

So much for my decision to swear off mining stocks for life, huh?

Never mind.

I’ve never been any good at reading tea leaves, and I’ve never been any good at buying mining shares at the bottom of the cycle and selling them at the top.

I suspect I’m not alone, either.

I mean to say, how many of you were lining up to buy BHP shares in January this year when they slumped as low as $14?

Still, I continue to hold my BHP shares, holding out for what could turn out to be an illusive (and my totally arbitrary) share price target of $25.

I’m on my own with BHP. Not one of our top stock pickers have recommended BHP as a buy in any of our premium advisory services.

BHP aside, much of my SMSF contains Motley Fool recommended stocks.

Companies like Corporate Travel Management (ASX: CTD), up over 700% since our own Scott Phillips first recommended it to Motley Fool Share Advisormembers.

Companies like Solomon Lew’s Premier Investments (ASX: PMV), up over 160% since Scott first recommended it to Motley Fool Share Advisor members. Sadly, for me, I passed on Premier Investments, much to my cost!

And companies like Retail Food Group (ASX: RFG), up over 180% since Scott first recommended it to Motley Fool Share Advisor members.

Stating the obvious, the capital gains are sensational.

Less obvious is that all three of the aforementioned companies ALSO pay fully franked dividends.

It’s the best of both worlds… capital appreciation AND fully franked dividends.

Speaking of the best of both worlds, tomorrow Scott Phillips will reveal his brand new definitive list of 5 dividend-paying stocks to buy right now, exclusively to Motley Fool Share Advisor subscribers.

Called Income Extra, not surprisingly it’s one of Motley Fool Share Advisor’s most popular and eagerly awaited features.

I’ve had a sneak preview…

On Scott’s list is one company that’s currently trading on a fully franked dividend yield of over 7.5%, which grosses up to almost 11%.

In fact, across all 5 stocks, the average dividend yield is 5.4%, with 4 out of the 5 dividends being fully franked, the other being 70% franked.

I’m biased, because I work here, and because I already own 4 out of the 5 stocks, but it looks to me like it could be the perfect mini dividend portfolio. Click here for more information, including details of my 60% off subscription offer.

In the meantime, stay financially happy. Enjoy the house price gains. The dividend cheques. The investment properties. The generous tax breaks. All of superannuation.

And best of all, enjoy that, after yesterday’s first US debate, the odds of a Trump presidency just lengthened, considerably so.

Of the companies mentioned above, Bruce Jackson has an interest in BHP, Telstra, Retail Food Group and Corporate Travel Management. The Motley Fool Australia owns shares in Retail Food Group and Corporate Travel. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). 

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