Why are ASX investors so obsessed with dividends?

Dividends from ASX shares have helped many investors outperform the broader market.

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Woman laying with $100 notes around her, symbolising dividends.

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If it seems like many Aussie investors are obsessed with ASX dividends, that's likely because we are.

Dividends from ASX shares have helped many investors outperform the broader market.

And for shareholders who choose not to reinvest those dividends, they can offer a handy annual passive income stream.

Australia is also rather unique in the world in that many ASX dividend stocks offer franking credits.

Passive income with a tax break

Unlike most major stock markets, like in the United States, companies listed on the ASX can pass on the credit for the 30% corporate tax rate they've already paid on their profits.

That means investors receiving a fully franked ASX dividend should be able to hold onto more of that passive income at tax time. And who doesn't like to keep more of their hard-earned money themselves?

Investors choosing to reinvest those dividends in companies offering dividend reinvestment plans will also receive those franking credits.

The lack of a similar system in the US instead sees more US-listed stocks return money to shareholders via buybacks rather than get hit with double taxation. It's why billionaire investor Warren Buffett opts not to pay dividends to investors in Berkshire Hathaway and instead focuses on other ways to boost shareholder value.

Quality high-yielding ASX dividend shares

ASX dividend stocks offer some of the highest yields in the world.

And the global dividend pool is massive and growing.

According to Janus Henderson, global dividends increased by 5.0% on an underlying basis in 2023 to an all-time high of US$1.66 trillion.

With the big dividend-paying S&P/ASX 200 Index (ASX: XJO) mining stocks slashing their 2023 dividends amid a big retrace in resource prices, Australia's 2023 dividend pool shrank from 2023.

But the ASX 200 banks did their best to make up for lost ground. And this saw the Australian dividend pool grow year on year in the final quarter of 2023.

According to Janus Henderson:

With no mining companies represented in the fourth quarter, underlying [ASX dividend] growth of 6.9% was driven by the banks whose margins are expanding along with their peers around the world.

Here's what the big four ASX 200 bank stocks are yielding today:

  • Australia and New Zealand Banking Group Ltd (ASX: ANZ) 6.2%, partly franked
  • National Australia Bank Ltd (ASX: NAB) 5.1%, fully franked
  • Westpac Banking Corp (ASX: WBC) 5.5%, fully franked
  • Commonwealth Bank of Australia (ASX: CBA) 4.0%, fully franked

Do note that these are trailing yields. Future yields may be higher or lower depending on a range of company-specific and macroeconomic factors.

If you're investing in ASX dividend shares, make sure to do your own thorough research first. If you're not comfortable with that, or simply lack the time, then reach out for some expert advice.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. 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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