Search by ticker code:
Generic filters

Search by ticker code:
Generic filters

Search by ticker code:
Generic filters

Are fully franked ASX dividend shares a great option for income?

Many ASX dividend shares are known for paying fully franked ASX dividend shares. Does this make them an excellent income option?

Australia has one of the most generous dividend policies in the world thanks to franking credits. You should check out our linked guide about franking credits if you haven’t already.

One of the easiest ways to think about franking credits is that they are generated when Australian companies pay tax and are used by an Australian taxpayer when they do their tax return to offset personal taxes.

A quick example

Say a company makes $100 of profit and pays $30 of tax, with $70 of net profit. If the company pays a fully franked dividend of $70, then $30 of franking credits are attached – the dividend is fully franked – and the person gets $70 cash.

When they do their tax return, they report both the $70 cash dividend and $30 franking credit as income. If their personal tax rate is 29% then they get a $1 tax refund added to their tax position from that dividend being paid (rather than owing 29% of $70, $20.30). If their tax rate is 31% then all they need to do is pay $1 extra tax (rather than paying 31% of $70, $21.70).

If their tax rate is 0% then they get to keep all of the $70 cash dividend and they’d receive a $30 tax refund when the tax return is lodged.

What franking credits mean for investment returns

Australia is a great place to receive dividend income. While the franking credit part is delayed, it does mean that investors that get a fully franked dividend yield see a boost in the dividend yield they get.

A fully franked 7% dividend yield turns into a 10% yield including the franking credits.

A fully franked 3.5% dividend yield turns into a 5% yield.

A fully franked 2.1% dividend yield turns into a 3% yield.

It’s a big boost for income returns, so I think franking credits are awesome. It means we can get more net returns out of fully franked ASX dividend shares like Washington H. Soul Pattinson and Co. LtdĀ (ASX: SOL),Ā Fortescue Metals Group LimitedĀ (ASX: FMG),Ā Telstra Corporation LtdĀ (ASX: TLS),Ā Wesfarmers LtdĀ (ASX: WES),Ā Metcash LimitedĀ (ASX: MTS) andĀ JB Hi-Fi LimitedĀ (ASX: JBH).

But, each investment needs to be considered separately. It doesn’t get a free pass just because it pays dividends that are fully franked.

Should we only go for fully franked ASX dividend shares?

Not necessarily. It’s only Australian companies that generate franking credits and only Australian tax residents can access them.

But, investments that operate through a trust structure are also worthwhile considering.

For example, exchange-traded funds (ETFs) operate in a trust structure. So, I wouldn’t totally exclude investing in all ETFs. Also, ETFs that invest in ASX shares can pass through any franking credits they receive from Australian dividends.

The clue is in the name, but real estate investment trusts (REITs) are also worth considering in my opinion, with names likeĀ Rural Funds GroupĀ (ASX: RFF) and Centuria Industrial REIT (ASX: CIP) some of the leading income ideas in the property sector, in my view.

Finally, international investments aren’t going to generate franking credits. But it would have been a mistake to miss out on companies likeĀ AppleĀ orĀ Microsoft over the long-term.

$50,000 per year in passive income from shares? Yes, please!

With interest rates UP, now could be one of the best times to start earning passive income from a portfolio. Imagine earning 4%, 5% — or more — in dividend passive income from the best shares, LICs, or ETFs… it’s like magic.

So how do the best investors do it?

Chief Investment Officer Owen Rask has just released his brand new passive income report.Ā Owen has outlined 10 of his favourite ETFs and shares to watch, his rules for passive income investing, why he would buy ETFs before LICs and more.

You can INSTANTLY access Owen’s report — or get it emailed to you — for FREE by CLICKING HERE NOW or the button below.

Unsubscribe anytime. Read ourĀ Terms,Ā Financial Services Guide,Ā Privacy Policy. Weā€™ll never sell your email address. Our company is Australian owned.

Information warning: The information on this website is published by The Rask Group Pty Ltd (ABN: 36 622 810 995) isĀ limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you donā€™t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read ourĀ Terms and ConditionsĀ andĀ Financial Services GuideĀ before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

At the time of publishing, Jaz owns shares of WHSP, Rural Funds and Fortescue.
Skip to content