This dividend share has the most franking credits on the ASX

New Hope Corporation Limited (ASX: NHC) offers the most franking credits on the ASX 200 as a proportion of market capitalisation.

| More on:
ASX dividend shares represented by cash in jeans back pocket

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

When it comes to ASX dividend shares, most income investors tend to focus on the trailing dividend yield a company has on offer at any one time. Sure, there is something to be said for a high yield.

Thus, it's understandable that a company like Telstra Corporation Ltd (ASX: TLS), with its 16 cents a share dividend offering 5.23% yield, is arguably more attractive from an income standpoint than, say, Woolworths Group Ltd (ASX: WOW), which currently offers just 2.44% on current pricing.

But, almost uniquely in Australia, the dividend yield of an ASX share isn't the only thing that matters for income investors. There's also the franking credits. Franking is a system that most other countries don't have. It means that shareholders of a company can be acknowledged for the tax 'their' company has already paid.

In the United States, for example, a company's dividend is effectively taxed twice. That's once at the corporate level, and once at the investor level as income tax.

But here in Australia, company dividends derived from a pool of Australia-taxed profits come with a 'receipt' for this tax. Shareholders can offset this against other income (or claim as a cash refund). These 'receipts' are known as franking credits, and they can significantly increase an ASX dividend share's income potential.

ASX franking heroes

We already touched on how Telstra shares are offering a 5.23% yield on current prices. But Telstra's dividend also comes with full franking credits. That means, if you include the benefits of this franking, Telstra's grossed-up yield rises to a whopping 7.47%.

Franking credits are generated by paying corporate tax to the Australian Taxation Office (ATO). Thus, a company can effectively 'stockpile' franking credits if it doesn't pay all of this taxed profit out at once.

And reporting from the Australian Financial Review (AFR) today reveals the company holding the most franking credits as a proportion of its market capitalisation on the ASX, according to Macquarie Group Ltd (ASX: MQG).

That company is coal miner New Hope Corporation Limited (ASX: NHC). The AFR reports that New Hope currently "has the equivalent of 44 per cent of its market cap [currently $1.2 billion] in franking credits". However, it also notes that New Hope has declined to pay a final dividend in 2020. Although it did pay an interim dividend of 6 cents per share back in May. It seems shareholders might have to wait a little while until they can enjoy the benefits of New Hope's franking pool.

The AFR also notes that BHP Group Ltd (ASX: BHP) has the most franking credits available out of any company in the S&P/ASX 100 Index (ASX: XTO), at 13% of market cap. What's more, the AFR reckons that BHP is far better placed to return these credits to shareholders. That's reportedly due to the strength of its balance sheet at the current time. Unlike New Hope, BHP has paid 2 dividends in 2020. It offers a trailing, grossed-up yield of 5.93% on current pricing.

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Telstra Limited. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Market News

Piggy bank sinking in water symbolising a record low share price.
52-Week Lows

9 ASX 200 shares tumbling to 52-week lows today

Israel's strike on Iran on Friday dragged several ASX 200 shares to new depths.

Read more »

Female miner smiling at a mine site.
Share Gainers

Up 834% in a year, guess which ASX mining stock is hitting new all-time highs today

The ASX mining stock has gone from strength to strength over the past year.

Read more »

Broker written in white with a man drawing a yellow underline.
Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A male investor wearing a blue shirt looks off to the side with a miffed look on his face as the share price declines.
Share Fallers

Why COG, Karoon Energy, Netwealth, and Pilbara Minerals shares are dropping today

These ASX shares are ending the week deep in the red. But why?

Read more »

Man drawing an upward line on a bar graph symbolising a rising share price.
Share Gainers

Why Fiducian Group, Northern Star, Paradigm, and Santos shares are charging higher

These shares are avoiding the market selloff.

Read more »

Dollar sign in yellow with a red falling arrow in front of a graph, symbolising a falling share price.
Share Market News

Why did the ASX 200 just sink to new 2-month lows on Friday?

It’s been a rocky week for the ASX 200. But why?

Read more »

Woman looking at a phone with stock market bars in the background.
Opinions

I'm buying these quality ASX shares to capitalise on the decline

These are the shares I'd buy if the markets get any worse.

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Broker Notes

Why this ASX 100 stock can rise 14% to a new 52-week high

Goldman Sachs thinks investors should be buying this top stock now.

Read more »