Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 199

Why Australians love dividends and franking

In no other country do shareholders love dividends as much as in Australia. Here are 10 key facts on dividends and franking, including one concluding piece of trivia.

1. Over the long haul, dividends have generated about half of the total return – capital gains plus dividends – investors have earned from Australian shares.

2. Dividends have more than pulled their weight in the last 10 years. Despite the collapse of share prices in 2008, the average investor who entered the share market a decade ago has achieved positive total returns, mainly due to the combination of good dividends and franking credits. The S&P/ASX200 Price Index (excluding dividends) is currently around 5,900, still well below its October 2007 level of 6,754.

The importance of dividends and franking credits to investor returns is illustrated in this chart from Don Hamson of Plato Investment Management. For many years, Plato has successfully run a managed fund specialising in franked dividends, and is currently launching a similar listed investment company.

3. Dividend franking particularly benefits investors on low tax rates. To a tax-free investor, including superannuation funds in pension mode, each dollar of a fully franked dividend is worth $1.43. That dollar of fully franked dividends would be worth $1.21 to an investor paying tax at 15%, including superannuation funds in accumulation mode. (From 1 July, tax at 15% will also apply to income paid into a retiree’s superannuation balance on assets exceeding $1.6 million).

4. For eight years, the average dividend yield on Australian shares has consistently been between 4% and 4.5% a year. With interest rates at low levels, and many investors on the hunt for yield, shares with good dividend prospects have had additional appeal.

5. Of course, it’s sustainable dividends that matter in stock selection. Among other things, investors need to avoid holding shares on which dividends are ‘paid’ from asset revaluations and capital raisings, and to be alert for ‘dividend traps’ (where the high dividend yield on a share may simply reflect the low share price because of an expected cut dividend).

6. Over the investment cycle, dividends are more stable than either company earnings or share prices. At times, however, dividends vary suddenly and unexpectedly, such as the dividend cuts announced by banks in 2009 and resource companies in 2016. The usual sequence in the investment cycle is for share prices to go through their cyclical turning point (maybe after one or more ‘false dawns’), followed by the turning points in company earnings and (later) in dividends.

7. On average, dividends account for about 80% of the after-tax earnings of Australian companies. That’s more than double the proportion paid in the US, where dividends are taxed twice and capital gains are taxed at lower rates than in Australia. Often in the US, total share buybacks exceed dividends. Even then, however, US companies finance a higher proportion of their future growth from retained earnings than Australian businesses.

8. Over the long haul, the average dividends per share in Australia has risen by about 7% a year – or slightly above the long-term increase we’ve experienced in nominal GDP. Looking ahead, trend growth in average dividend per share is likely to be a more modest 5% a year.

9. Dividend franking will lose some appeal from the recent legislation to cut the rate of company tax on businesses with revenues of less than $50 million.

10. Finally, let’s look at a dividend yield that shows this year’s dividend as a per cent of the share price an investor would have paid when purchasing the share many years ago. When the Commonwealth Bank was floated in 1991, its shares each cost $5.40. In the last 12 months, the dividend per share has been $4.21. Thus, the dividend yield is 5% on the current share price, but 78% when calculated on the share’s original cost. A zero-taxed investor would also have benefited by $1.80 a share in the past year from the franking credit, giving a dividend plus franking yield of 111% on the price many (patient) investors would have paid.

 

Don Stammer has been involved with investments since the early 1960s including senior executive positions in Deutsche Bank and ING. These days, in his semi-retirement, he’s an adviser to Altius Asset Management and Stanford Brown Financial Advisers and he contributes a fortnightly column on investments for The Australian. The views expressed in this article are his own.


 

Leave a Comment:

RELATED ARTICLES

Should you bank on the Westpac buy-back?

An easy fix for Dick Smith’s franking problem

Maintaining dividend income in turbulent times

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

100 Aussies: seven charts on who earns, pays, and owns

The Labor government is talking up tax reform to lift Australia’s ailing economic growth. Before any changes are made, it’s important to know who pays tax, who owns assets, and how much people have in their super for retirement.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Chinese steel - building a Sydney Harbour Bridge every 10 minutes

China's steel production, equivalent to building one Sydney Harbour Bridge every 10 minutes, has driven Australia's economic growth. With China's slowdown, what does this mean for Australia's economy and investments?

With markets near record highs, here's what you should do with your portfolio

Markets have weathered geopolitical turmoil, hitting near record highs. Investors face tough decisions on valuations, asset concentration, and strategic portfolio rebalancing for risk control and future returns.

Latest Updates

Retirement

The best way to get rich and retire early

This goes through the different options including shares, property and business ownership and declares a winner, as well as outlining the mindset needed to earn enough to never have to work again.

Shares

Boom, bubble or alarm?

After a stellar 2025 to date for equities, warning signs - from speculative froth to stretched valuations - suggest the market’s calm may be masking deeper fragilities. Strategic rebalancing feels increasingly timely.

Property

A perfect storm for housing affordability in Australia

Everyone has a theory as to why housing in Australia is so expensive. There are a lot of different factors at play, from skewed migration patterns to banking trends and housing's status as a national obsession.

Economy

Which generation had it toughest?

Each generation believes its economic challenges were uniquely tough - but what does the data say? A closer look reveals a more nuanced, complex story behind the generational hardship debate. 

Shares

Is the iPhone nearing its Blackberry moment?

Blackberry clung on to the superiority of keyboards at the beginning of the touchscreen era and paid the ultimate price. Could the rise of agentic AI and a new generation of hardware do something similar to Apple?

Fixed interest

Things may finally be turning for the bond market

The bond market is quietly regaining strength. As rate cuts loom and economic growth moderates, high-quality credit and global fixed income present renewed opportunities for investors seeking income and stability. 

Shares

The wisdom of buying absurdly expensive stocks (or not!)

Companies trading at over 10x revenue now account for over 20% of the MSCI World index, levels not seen since the dotcom bubble. Can these shares create lasting value, or are they destined to unravel?

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.