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.

The Dividend Man Strategy

What is The Dividend Man Strategy?

The Dividend Man Strategy is to invest in the shares of dividend-paying companies.

This strategy achieves the long-term investment goal of most investors, and has a low risk of failure.

What is the Long-Term Investment Goal of a Typical Investor?

The long-term investment goal for a typical investor is something like:

• "I want sufficient income to finance my desired lifestyle, for the rest of my life"
  

• "With low risk of failure". Failure would be if your investment income is less than you need.

If you are retired and need $50,000 to pay for your preferred lifestyle in 2013, you want your investments to provide an income of at least $50,000 in 2013. Anything less is failure. And you want it to finance your desired lifestyle for the rest of your life, which means it must keep up with cost of living increases.

If you are not retired your goal might be a lifestyle after retirement which would cost $50,000 in 2013. Failure would be the income from your investment portfolio not growing to equal $50,000 plus any increases for cost of living, by the time you retire.

Don't Ignore the Dividends: Australian Share Market Was Up Today (Not Down)

Most of the financial media reported that the Australian share market fell today (Thursday 7 November) by 0.2%. Various reasons were given, including that two of Australia's largest banks traded ex-dividend.

The reality is that the share market rose by 0.3%, if looked at properly.

What do I mean?

Yes, ANZ Bank (ANZ) and National Australia Bank (NAB) did trade ex-dividend today. Last week's post reported on these dividends. The share price of these banks was expected to fall today by the value of the dividends, as a seller of the shares gets to keep the dividends, and a buyer does not receive the dividends.

Westpac Bank's (WBC) Dividends for December 2013

Westpac Bank (WBC), one of Australia's big-four banks, on Monday declared their final dividends for 2012/13. The dividends to be paid on 19 December 2013 are:

• an 88 cent per share fully franked ordinary dividend, plus
• a 10 cent per share special dividend, also fully franked
• shareholders will receive $3.0 billion in dividends plus $1.3 billion in franking credits

The total dividends are $1.40 per share (98 cents cash + 42 cents franking credits). This is an increase of 20 cents (14c cash + 6c franking credits) over the dividend paid in December 2012.