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. 

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%).

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.

Introduction

Welcome to the Dividend Man. My name is John King.

Most investors want their investments to grow so they can finance their desired lifestyle. Which line on the chart would you like your investments to follow?

Did you choose the solid line? It looks a lot more successful than the dotted line.

The graph shows the results of two different investing strategies on the Australian stock market, from June 2000 to June 2013:

• The solid line shows the value of an investment in dividend-paying companies. The portfolio of the dividend paying companies tripled in value over the 13 years.
• The dotted line shows the result of investing in companies which did not pay dividends. The portfolio of non-dividend companies fell 30% over the same period.

It was research like this which increased my understanding of the importance of dividends to successful investing, and led me to become the Dividend Man. I want you to also benefit from my research.

The Dividend Man will provide information from ongoing research, as well as updates on dividends being paid by Australian companies.

Comments and questions, as well as suggestions for blog topics are very welcome.