It's not often the government hands back a reasonable chunk of cash to taxpayers, but this tax season Australians earning between $60,000 and $90,000 will have received $1,080 as part of the federal government's low and middle income tax offset. If that applies to you, you might be asking yourself whether it's time to dip your toe into the sharemarket.
Should I buy shares?
While $1,080 doesn't sound like a lot of money, it can get you started on the road to investing in some great companies. Take Qantas Airways Limited (ASX: QAN). Your tax rebate minus a $10 trading fee will get you about 186 shares in Qantas, based on the current price of $5.745 (at time of writing).
According to Marketindex.com.au, Qantas has more than 93 thousand shareholders, and about 44% of them own less than 1000 shares. Everybody has to start somewhere. Qantas also pays out a yearly dividend and your small stake will net you about $57, fully franked. If that still doesn't sound like much, try finding a term deposit that equals it over 12 months. With your Qantas shares you're already winning.
So, now that I've convinced you to start small and reach for the stars, here are a couple of starter suggestions for you to consider.
Westpac Banking Corporation (ASX: WBC)
Why not dive straight in with a blue-chip share like Westpac? It's one of Australia biggest banks with an attractive dividend and share price at $28.92. The current gross dividend yield sits at 9.35%. Some analysts suggest that an uncertain real estate market and the potential for further lowering of interest rates could bite into profit margins, so as a result, the current dividend price may not be sustainable. There's no way to know for sure, but Westpac's dividends have been consistent over the past 5 years.
With this pick you may not see a lot of growth in share value over the short term due to the mitigating circumstances mentioned above, but I see Westpac as a long-term option that I would be happy to see sitting in my retirement portfolio.
Coles Group (ASX: COL)
Coles is the iconic supermarket brand familiar to all Australians. Coles shares are currently trading for $14.28, so your tax rebate will get you about 75 shares and my advice is to hang on to them. Coles appeals to me for its huge potential to grow consistently over the long term – since spinning off from Wesfarmers Ltd (ASX: WES) 8 months ago, the Coles share price has been ambling its way upwards and has grown 12.24% since listing.
It's not just about supermarkets, there's plenty of growth potential in the Coles-owned liquor outlet brands as well the Coles Express service stations. I'm optimistic that growth will be driven organically through natural population increases but also though expansion via new supermarkets and outlets as our cities continue to sprawl out. There has been no dividend announcement from Coles yet, although we might expect one in the short term.
Foolish takeaway
I hope the above suggestions give you some food for thought as you receive your FY 18/19 tax returns. As mentioned, $1,080 might not seem like a lot, but it's more than enough to start your adventures on the Australian Stock Exchange.
