why dividends, growth and franking matter in the world of trumpflation · 2017-07-27 · why...
TRANSCRIPT
Why dividends, growth and franking
matter in the world of Trumpflation
Paul Rickard
Trump has been great for US equities, okay for Oz
95.0
100.0
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US S&P500 vs S&P/ASX 200
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AUD
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Better with dividends
95.0
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115.0
US S&P500 TOTAL RETURN vs S&P/ASX 200 TOTAL RETURN
USA
AUD
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Australia for income, ROW for Growth
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A world of opportunities…
• Long term outperformance
• Aussie market just 2% - 98% of opportunities outside Oz
• Overweight banks and resources, underweight IT
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Sector weights - Australia vs USA
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Based on GICS® sectors. The weightings for each sector of the index are rounded to the nearest tenth of a percent; therefor, the aggregate weights for the index may not equal 100%. As of 30 June, 2017
0.0%
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S&P 500 ASX200
Aussie dividends are higher
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And that’s before franking
• System is unique to Australia. Called dividend imputation – more colloquially referred to as “franking”
• Introduced by Paul Keating – aim was to prevent the double taxation of company profits
• Only companies that pay Australian company tax can frank their dividends
• Companies with overseas earnings, or carry forward tax losses, often can’t frank their dividends
• All taxpayers receive the same benefit
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The power of dividend imputation – how does it work
• Both the dividend received in cash, and the franking or imputation credits (non cash) are included in your assessable income
• Tax is then assessed at your marginal rate
• Franking credits then act like a tax offset – and reduce the tax payable
• Unlike other tax offsets, if franking credits can’t be used, they are refundable in cash
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Example – dividend of $70 in cash, franking credits of $30
47% 39% 30% 15% 0%
Dividend (cash) $70 $70 $70 $70 $70
Franking Credits $30 $30 $30 $30 $30
Assessable Income $100 $100 $100 $100 $100
Tax Payable $47 $39 $30 $15 $0
Less Franking Credits $30 $30 $30 $30 $30
Net Tax Payable (cash) $17 $9 $0 -$15 -$30
Tax Refund (cash) $15 $3010
Who benefits• All taxpayers who can use franking credits (Australian residents)
benefit
• Gross up franked yields to compare with other investments (eg. interest, rent, unfranked dividends), or calculate after- tax yield
• After tax yields
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Franked Yield 0% tax 15% tax 47% tax
3% 4.3% 3.6% 2.3%
4% 5.7% 4.9% 3.0%
5% 7.1% 6.1% 3.8%
6% 8.6% 7.3% 4.5%
7% 10.0% 8.5% 5.3%
My favourite investment slide
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Dividend Cents Per Share
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CBA Dividends
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Dividends vs Term Deposits – increasing income!
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CSL Dividends
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Ramsay Dividends (RHC)
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Centsper share
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Telstra dividends
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Centsper share
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BHP Dividends
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Centsper share
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What is dividend growth
• Companies that have the capability to grow their dividends
• If a company can grow its earnings per share, pay higher dividends,
then over the long term, the market will pay a higher price (growth)
• More relevant in Australia because taxation system favours payment
of dividends
• Franking credits only valuable in hands of shareholders
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Switzer Dividend Growth Fund
• Aims to provide investors with tax effective income and capital growth by investing in a core portfolio of blue-chip Australian shares
• Switzer Asset Management – Peter Switzer, Charlie Aitken, George Boubouras & Paul Rickard
• ASX quoted - SWTZ
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Peter Switzer Paul Rickard
George Boubouras Charlie Aitken
Portfolio
• 30 to 50 stocks, drawn from the largest 200
• Dividend growth
• Attributes:• Sound balance sheets
• Desirable dividend stream & capability to grow
• Preference for franking
• Moderate to low volatility
• Aussie shares 80% to 99%, Cash 1% to 20%
• Fund now $66m
• Learn more: 11.45am Verandah Room
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Summary
•Australia for tax effective income, ROW for growth
•Dividend growth
•More info on SWTZ – go to
www.switzerassetmanagement.com.au
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