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How you can beat the taxman with these 3 stocks

Australian share market and dividend investors have one big advantage over their overseas peers in the form of the generous franking credits attached to many dividend payments from companies.

In summary where a company has already paid tax on income it can attach franking credits to that income when paid to investors which gives them the chance to claim those credits back from the taxman in the form of an income tax bill discount or even a refund.

It’s these franking credit refunds that are in the sights of Labour politicians, although the ability to claim franking credits as an income tax bill discounter is not in question as the proposal would apply to effective zero tax payers only.

As such it makes a lot of sense for dividend seekers to buy shares with ‘100% franking credits’ as they give such a generous boost to your gross income. Below are three of the best to consider today.

Insurance Australia Group Ltd (ASX: IAG) is the Warren Buffett backed insurance business behind popular car insurance brands such as NRMA, CGU and Swann Insurance. In FY 2018 it paid 34 cents in fully franked dividends that places it on a trailing yield of 4.6% plus franking credits at today’s price of $7.34. It also pays special dividends reasonably regularly assuming it has excess capital to return. In November 2018 it paid a special dividend of 19.5 cents – just adding to the income pile for investors.

Collins Foods Limited (ASX: CKF) might not be known to many investors, but who will probably know the Kentucky Fried Chicken stores it operates. There’s huge amounts of money to be made in fast food and Collins can grow organically and via new store openings both in Australia and overseas. It paid 18 cents per share in dividends in FY 2018 and offers a trailing yield of 2.5% plus full franking credits based on that share price.

Tassal Group Limited (ASX: TGR) is the Tasmania-based salmon farmer that has a decent track record of profit and dividend growth. It’s benefiting from rising consumer demand for salmon helping support prices, with farmed supply in Australia reasonably constrained by regulations and the complexity of aquaculture. It offers a 3.8% yield plus full franking credits based on a recent pay out of 16 cents per share and share price of $4.23.

5 Companies we like better than Transurban

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See the 5 stocks

Motley Fool contributor Yulia Mosaleva has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Insurance Australia Group Limited. The Motley Fool Australia has recommended Collins Foods 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.

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