Shares that pay a fully franked dividend are becoming far more common and investors are the real winners in this scenario. Today we’re exploring this concept, as well as how it can benefit you.
What Is A Fully Franked Dividend?
A fully franked dividend is earnings paid to shareholders of a company in a method that means the company’s tax contribution is considered when assessing the shareholder’s income. When assessing income from a fully franked dividend, the shareholder’s tax rate is considered against the company tax rate, meaning that if your personal tax rate is equivalent to, or less than, the company tax rate, income from a fully franked dividend is essentially tax free. This benefits owners of shares in many ways, including those below:
What Are The Benefits Of Owning Shares That Pay A Fully Franked Dividend?
You’ll Receive A Passive Income
One of the biggest benefits of shares that pay a fully franked dividend is the passive income that they produce. As long as the company that you have invested in makes regular profits, you too will receive a regular income, simply for holding the shares that you own. If your portfolio is large enough, this could even work to replace part or all of your regular income, allowing you to enjoy more financial freedom with less input on your behalf which is always a good thing.
Tax Credits Are Available
When it comes to tax time, a share that pays a fully franked dividend is one of the best assets to have in your portfolio. Because you will earn credits based on tax that the company has paid before they issue income to shareholders, you may be able to claim some extra funds. Even if this is not the case, you will pay significantly less tax on a fully franked dividend than you would on other income from shares so it essentially means more of your funds stay in your pocket.
They Provide Higher Yields
Because shares that pay a fully franked dividend have already been subject to tax before they ever hit your account, they also offer higher yields than other share options. This is because you will be subject to tax on the total income from other assets, while your credits will ensure that you have a nice buffer to offset some of your obligations no matter what your total income is. This should be considered both when buying and when holding shares as it may mean that an option which shows lower profit on paper could actually outperform others with similar distributions if they do not benefit from credits.
More Than One Income Source From A Single Investment
Finally, the last benefit that we need to touch on is the ability to earn multiple income streams from a single asset. Because shares will increase in value whenever a company does well, as long as you have made good choices when selecting where to invest, your shares will appreciate in price. This is referred to as capital gains and does come with its own tax implications, but it can still provide a decent paycheck upon sale of your stocks if your portfolio is sound and has been managed correctly. This means that you will have been receiving passive income for the duration of your ownership, with a lovely bonus when it comes time to sell.
Now that you understand a bit more about how types of shares work and what the benefits are of holding a particular type of portfolio it’s time to get investing. Remember to never put more into the market than you can afford to lose and ensure that at least some of your investments offer a fully franked dividend – good luck.