Next month’s “Super Saturday” federal by-elections will put the focus on the prospect of Labor leader Bill Shorten taking the reins to the country with the Liberal party coming off second best in 34-straight Newspoll.
Free marketeers will be offended by the notion that politics could leave some listed companies worse off but that’s the era we live in – so we better get used to it.
If you were wondering what stocks could be worse off under a Shorten government, investment bank Macquarie Group Ltd (ASX: MQG) has done some digging to highlight those exposed to the change in the franking rebate rule that would bar investors from claiming a cash refund on franking credits that are in excess of their tax obligations.
I’ll resist the temptation of calling these stocks “Frankensteins” as the impact shouldn’t have a very material impact on stocks although it is still good for investors to know how Shorten’s franking change could influence the flow of capital across the S&P/ASX 200 (Index:^AXJO) (ASX:XJO).
Macquarie has been collecting franking account balances from ASX listed companies over the past 13 years and believes that the tax rule change will prompt some investors to rotate from fully franked dividend stocks to high-yielders that pay no franking.
So, while mining giants BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) may hold the biggest franking credit balances of all stocks on the ASX, they probably won’t be hurt from the rotation given that resource stocks are typically the favourites of income-seeking investors who treasure their franking rebate checks.
Macquarie thinks it’s bank stocks like National Australia Bank Ltd. (ASX: NAB), Bank of Queensland Limited (ASX: BOQ) and Westpac Banking Corp (ASX: WBC) that could be worse for wear under this scenario.
With their reduced franking advantage, investors might be willing to distribute their capital a little more widely to avoid having too much of their income concentrated into a limited number of sectors (mostly financials).
Utility stocks like Spark Infrastructure Group (ASX: SKI) and Ausnet Services Ltd (ASX: AST) and property stocks like Stockland Corporation Ltd (ASX: SGP) and Vicinity Centres Re Ltd (ASX: VCX) could suddenly look more appealing.
These stocks offer a defensive income stream that isn’t as prone to economic cycles as financials. You can also enjoy better diversification by throwing in airport operator Sydney Airport Holdings Pty Ltd (ASX: SYD) and packing company Amcor Limited (ASX: AMC), according to the broker.
However, there’s no need to panic. While the loss of franking rebates won’t just impact on the rich as claimed by Labor, most investors won’t be affected by the rule change and that means we shouldn’t get mass selling of our top income stocks.
“This proposal could impact SMSFs in pension phase and taxpayers in the lowest income tax brackets, given they pay no to very little income tax. This group of investors is a small proportion of the Australian equity market, though,” said Macquarie.
“Additionally, more than 92% of taxpayers do not receive a cash refund for excess imputation credits, according to the Labor Party.”
That may be the case, but this factoid won’t bring much comfort to those affected. But there’s some good news. The experts at the Motley Fool have four stocks that they believe are well placed to help those close to retirement to build their superannuation wealth.
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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Macquarie Group Limited, National Australia Bank Limited, Rio Tinto Ltd., Telstra Limited, and Westpac Banking. The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited and Telstra Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. 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). Authorised by Scott Phillips.