Big Bank Dividends Can Still Grow

Summary:  Big bank dividends can continue to grow even if the Murray Report recommends that the banks hold more equity capital. The growth of the economy and management performance are the major threats to dividend growth.

Key Relevance: Dividend growth can continue, and be just 1% slower than each bank's profit growth, while significantly increasing the capital reserves. 

Woodside Shareholders Lose to Shell

Summary:  Woodside plans to use $US2,680 million of shareholders' funds to buy-back 78.3 million shares from Shell. Most of the payment ($US2,058 million) is a fully franked dividend which carries $US882 million in franking credits. Woodside shareholders (other than Shell) get nothing. Only one shareholder wins, Shell. The rest lose. These amounts could be used to pay a big special dividend to all shareholders.

Woodside calculates the benefit from the transaction is a US12 cent increase in annual dividends. The $US2,680 million would pay a special dividend of $US3.25. $US2.50 if only the $US2,058 million dividend component was used.

Key Relevance: This is a bad deal for everyone except Shell. The cost to Australian shareholders is $A48.50 which is 14.3% above the market price, not a 14% discount to market price. The franking credits have been ignored in the costing, but not by Shell. Australian shareholders would be much better off with a fully franked dividend of $US2.50 ($A2.66) per share, or $US3.25 ($A3.47) per share, to all shareholders.

Franking Credits Increased Returns by 58%

Summary:  Franking credits have increased total investment returns by 58% since their introduction on 1 July 1987. Investment income in 2013 (dividends + franking credits) was 96% higher than would have been the case without franking credits.

Key Relevance: Eliminating franking credits would significantly reduce investment income (between 24% and 49%).

Tax Increase: Franking Credits Hit in Budget

Is this the first step to abolishing franking credits?

 

Have we seen the first step towards the government abolishing franking credits, as occurred in the UK in the 1990s? If so, this is a major problem for Australian investors, particularly those with superannuation.

Which is almost everyone.

Abolishing franking credits could halve retirement incomes.

The Budget and Franking Credits: What Happened?

Australian investors suffer a $1.4 Billion reduction in their dividends due to a 7% loss of franking credits in the Federal budget. The cause of the reduction in franking credits is the decision that the new 1.5% company tax for paid parental leave (PPL) will not have franking credits.