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Category: Provision Newsletter Articles

Dividends explained

Date: Jul 31st, 2019

If you are a shareholder of a company, you may receive payments known as dividends. These payments represent your share of the company’s profits and are your reward for investing. Dividends may be a great way to boost your income and are often considered tax effective. Find out exactly how they work and how often you’ll get paid.

Why and when companies pay dividends

When a publicly listed company makes a profit, its board of directors decides whether to:

  • pay out the profit to shareholders in the form of dividends

  • retain the profit to invest in the company’s growth, or

  • a mixture of both.

Australian companies tend to pay out a high proportion of earnings as dividends compared to companies listed in other countries. This currently sits around 65% compared to around 45% for global shares1, which could make Australian shares popular with income-seeking investors.

Some Australian listed companies choose to pay dividends twice a year, known as the interim and final dividends. However, dividends are not guaranteed, and some companies don’t pay any dividends at all. In fact, a company that has previously paid dividends may decide not to, and vice versa. The size of the dividend can also vary, and often depends on how the company has performed.

Dr Shane Oliver – Head of Investment Strategy and Economics and Chief Economist, AMP Capital says companies like to manage dividend expectations smoothly. 

“They rarely raise the level of dividends if they think it will be unsustainable. Sure, some companies do cut their dividends at times, but the key is to have a well-diversified portfolio of sustainable and decent dividend paying shares.”2

Large, well-established companies with stable earnings and certain industries like banks tend to pay dividends consistently. Other companies, such as those involved in developing new technology or medical research, often choose to reinvest all their earnings for research and development and pay no dividends at all. Investors in these types of companies are typically looking for long-term growth rather than income.

How are dividends paid?

Companies generally pay dividends in cash to the bank account that you nominate or send you a cheque.

In some cases, rather than receive a cash payment, investors may be able to take advantage of a dividend reinvestment plan. This involves the company offering investors the choice to use their dividends to purchase more shares in the company, instead of receiving the cash. Often, the shares are offered at a discount to the current market price. 

It’s important to consider your particular circumstances and goals before deciding what’s right for you. For example, investors who want to increase their income may prefer to receive their dividends as cash payments. However, investors who are more focused on growing their wealth may consider a dividend reinvestment plan to help grow the number of shares they own over time. It’s a good idea to seek financial advice to help determine a strategy that suits your needs.

How are dividends taxed?

Dividends are considered income for tax purposes. Just like the income you may earn from other sources, like rent from an investment property or interest from a bank account, dividends will be taxed at your marginal tax rate. 

The current income tax rates are published on the Australian Taxation Office website.

It’s important to keep records of your dividends so you or your accountant can complete your tax return accurately. You’ll receive a statement when dividends are paid. If you take advantage of a dividend reinvestment plan, you still need to include the dividend income in your tax return, even if you didn’t actually receive the cash payment.

Details of a company’s dividend are also published both on the company’s website as well as the Australian Securities Exchange (ASX) website.

What are franked dividends?

Companies are required to pay tax on their profits, which means the money they distribute via dividends has already been taxed. To avoid double taxation of company earnings, (once in the hands of the company, and then again in the hands of the investor) these dividends come with a franking credit, also sometimes referred to as an imputation credit. The franking credit represents the amount of tax that has already been paid either partially or in full.

Full-franked dividend

30% tax has already been paid by the company before the investor receives the dividend.

Partially-franked dividend

30% tax has already been paid on part of the dividend only. The exact amount will be specified by the company as a percentage. 

Unfranked dividend

No tax has been paid.

When you do your taxes for the year, you will receive a credit for any tax the company has already paid. If your top tax rate is less than the company’s tax rate of 30%, you’ll receive a refund from the Australian Taxation Office (ATO) for the difference. That’s why franked dividends are considered tax effective.

Case study

Maryanne is focused on building her personal investment portfolio and bought some shares in the Big Div Company. Later that year, she receives a fully franked dividend of $700, with a franking credit of $300. That means the before-tax total of her dividend is $700 + $300 = $1000.

Maryanne starts completing her individual tax return. When declaring her income, Maryanne must include the $1,000 dividend she received as income from Big Div, along with all income she receives from other sources. Her marginal tax rate is 19%. Normally, she would have to pay $190 tax on the dividend (19% x $1,000). However, because the dividend was fully franked, and her marginal tax rate is below Big Div Company’s tax rate of 30%, Maryanne is entitled to a refund. She will receive $300 – $190 = $110.

Please contact us on  |PHONE| we can help you make the most of dividends and create a strategy to help you reach your goals.

[1], [2] https://www.amp.com.au/personal/hub/grow-my-wealth/why-i-still-love-dividends-and-you-should-love-them-too

Source : AMP July 2019

Important:
This information is provided by AMP Life Limited. It is general information only and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances and the relevant Product Disclosure Statement or Terms and Conditions, available by calling |PHONE|, before deciding what’s right for you.

All information in this article is subject to change without notice. Although the information is from sources considered reliable, AMP and our company do not guarantee that it is accurate or complete. You should not rely upon it and should seek professional advice before making any financial decision. Except where liability under any statute cannot be excluded, AMP and our company do not accept any liability for any resulting loss or damage of the reader or any other person. 

 

Beyond super: Our other personal investments

Date: Jul 31st, 2019

Given the attention on the size of Australia’s super savings, it may surprise you that personal investors in total have almost as much outside super as inside super.

The latest Personal Investments Market Projections report, recently published by consultants Rice Warner, calculates that the total value of super* and non-super personal investments was $5.5 trillion at June 2018. Non-super investments make up almost half or $2.7 trillion of this total.

Taking a whole-of-portfolio approach

Depending upon their circumstances, it can be critical for investors to co-ordinate their super and non-super investment portfolios. This includes for their retirement and investment strategies, strategic asset allocations for portfolios, periodic rebalancing of portfolios, tax planning and estate planning.

And when assessing the adequacy of your retirement savings, consider taking account of all of your investments, inside and outside super, in your calculations.

Defining a non-super personal investment

Rice Warner defines the personal non-super investments market broadly, including all investments outside super held by individuals – directly or through trusts and companies. Family homes and personal possessions are not counted.

Directly-held property together with directly-held cash and term deposits make up a huge slice of non-super personal investments in dollar terms.

While the value of direct property (excluding mortgages) accounts for 42 per cent of the assets, directly-held cash and term deposits account for more than 41 per cent. By contrast, direct shares make up 8 per cent of personal non-super investments.

Individuals hold 92 per cent of personal non-super personal investments directly rather than through investment products and investment platforms. (In this research, exchange traded funds are classified as directly-held investments.)

Many investors, of course, choose to hold geared and non-geared direct property in their own names – often dominating their non-super portfolios – while having more widely-diversified super portfolios.

Looking ahead

The report’s expectations for the short-to-medium term for the non-super personal investment market include:

  • Exchange traded funds (ETFs) will continue to grow in popularity as investors seek to improve portfolio returns by investing more in low-cost, index-tracking investments.

  • Direct property will remain a major personal investment, driven mainly by low interest rates and its tax treatment. However, the growth in the popularity of direct property investments is “likely to be constrained” over the short-to-medium term because of less investment from overseas and tighter lending standards.

  • Demand for share investments through investment platforms will increase as investors pursue higher returns in a low-interest environment.

  • Low interest rates will further encourage investors to reduce their fixed-interest investments and seek higher returns in other asset classes.

  • Pressure will continue for lower investment management fees.

  • Technological developments will continue the growth of self-directed online advice, “increasing allowing investors to make more sophisticated decisions”.

Personal non-super investments are becoming more important to wealthier, higher-income investors with the introduction two years ago of the superannuation pension cap and tighter contribution limits.

Over the next 15 years, Rice Warner projects that our personal non-super investments will grow in value to $4.8 trillion in 2018 dollars against $5 trillion for the superannuation sector.

How does the value of your non-super savings compare with the value of your super savings? And do you take both into account when setting the most-appropriate asset allocations and assessing the adequacy of your retirement savings?

*Super calculations include unfunded public-sector liabilities and government pensions.

 

Please contact us on |PHONE| if yiu seek further asssitance on this topic.

Source : Vanguard July 2019

Written by Robin Bowerman, Head of Corporate Affairs at Vanguard.

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2019 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Prioritisation: The first key to productivity

Date: Jul 19th, 2019

By Flying Solo contributor Fiona Adler

If you think of the truly impactful, amazing people you know, that are operating 10x above their peers, chances are they have an uncanny ability to prioritise. They might work hard, yet they are not rushing and not particularly stressed. But somehow they achieve amazing results. In fact, they often have an enviable calmness and a sense of clarity around them.

These could be entrepreneurs, business leaders, people climbing the corporate ladder, or people excelling in their field, whatever it is. In fact, you can find them in all kinds of professions – developers, marketers, customer service consultants, sales professionals, human resources, finance, legal, etc. There are also incredible examples who are full-time parents, volunteers, or students.

So what’s the secret of these high performers? How do they achieve so much more than the rest of us without even breaking a sweat?

The answer is simple – they decide what’s important, and then they do the important things.

These two distinctions are equally important, but here we’re looking at prioritisation – the act of deciding, or choosing, what’s most important. If you’re wondering how to be more productive, start with prioritisation.

Why prioritisation matters

Prioritisation is effectively about making choices. It’s seeing all of the options available to you and honing in on what is really going to move the needle. It’s having the maturity to know that you can’t do everything now. It’s an acknowledgement of the reality that the fewer things you choose to do, the better you’ll be able to do them.

Right now, prioritisation is more important than ever. Never before have we had access to so many ideas implanting thoughts about other things we should be doing and access to resources on how to do it. If I get an idea to do something, chances are I can delve into it, find examples of others doing that thing, learn how to do it, and next thing you know, I’ve added something completely new to my day. This is an amazing time we’re living in! But equally, we can so easily get side-tracked (and before you know it I’ve spent half a day on something I didn’t even know existed at the start of the day!).

To prioritise, you need a clear goal

In order to prioritise and use our time wisely, we need to have a clear understanding of where we’re headed – something we’re aiming towards. This can be a vision or even your values, but the more concrete it is the better – which is why I prefer to focus on a goal.

Knowing your goal gives you a frame of reference against which you can judge all the possible things you could be doing.

Will this thing move me closer to my goal? Which option is more likely to get me closer to my goal? What is the most impactful thing I could do to move closer to my goal?

These are the questions that high performers are constantly asking themselves.

Don’t make the mistake of having too many goals either – these need to be prioritised too! Yes it might be nice to increase customer satisfaction, reduce costs, have a record sales month, and expand your product line, but it’s not realistic to do these things at the same time (especially as these are somewhat conflicting).

You need to choose which one to focus on now. Which goal will give you the best results? Choose one for now and you can switch to another once you’ve made progress against that one.

Prioritisation connects your daily actions to your goals

With a clear goal in mind, you can prioritise how you spend your time. The key is to take action towards your goals each day. Which also means that you say ‘No’ to a whole lot of other options and refuse to get sidetracked.

The foundational habit here is starting each day with a clear set of high priority actions.

By proactively planning your day, it’s you who decides what’s really important and you who creates your day.

Remember, it’s not the quantity of things you get done, it’s all about doing the right things.

Don’t think you’re being lazy by refusing to do other tasks that are not in alignment with your goal. We’re actually being lazy when we don’t force ourselves to decide what’s the most important!

How to use prioritisation in practise…

Almost all of the top thinkers on prioritisation theories and frameworks agree that being highly effective, comes down to how well you prioritise your day.

Here’s how to prioritise so that you accomplish more of the important things.

1. Plan your day

Don’t just let the day happen. Deliberately take 5 minutes to plan – either first thing in the morning or the night before. Here’s how to write an effective daily action list.

2. Be intentional and proactively decide how your day will unfold.

Think about how you want to feel when the day ends. What do you want to have accomplished?

3. Choose 3-5 small, but meaningful actions to do that day.

Aim low – yes, seriously! Instead of coming up with a shopping list of things you’d like to do, restrict yourself to 3-5 things. Then get into the habit of actually doing them! Attack the day with laser focus and stick with it until those things are done.

4. Each action should be achievable in under an hour.

Break your items into small actions. They should each be quite small so keep breaking them down until you think you could do it in less than an hour. (It could be just a draft of the first paragraph, some sketches, writing an email, etc.)

If you get into the daily prioritisation habit you’ll be amazed at the results you’ll achieve. The cumulative effect of consistently taking the right actions (instead of floundering around doing thousands of unprioritisated tasks), makes a huge difference to your productivity. Soon, others will be wondering how you get so much done without working like a crazy person!

Source : Flying Solo July 2019 

This article by Fiona Adler is reproduced with the permission of Flying Solo – Australia’s micro business community.Find out more and join over 100K others.

 

Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Any information provided by the author detailed above is separate and external to our business and our Licensee. Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee take any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Good investment habits versus damaging biases

Date: Jul 05th, 2019

In a low-interest, lower-return, more-volatile investment environment, investors have an even greater incentive to keep wealth-damaging behavioural traits or biases under control.

 

Individual investors have no control, of course, on the emotions of other investors or the overall state of investment markets. However, you can try to keep your emotions in check when making investment decisions.

And it is under your control to create and stick to an appropriately-diversified portfolio, set achievable long-term goals and have realistic expectations for returns. A disciplined investor guided by a solid financial plan is less likely to allow emotions to get in the way of investment success.

Here are seven of the undesirable traits that behavioural economists generally say investors should avoid:

Overconfidence

Many investors have an unjustifiable confidence in their ability to make smart investment decisions. Overconfident investors often believe they can pick future winning investments and somehow beat the market.

This overconfidence typically leads to frequently buying and selling shares in a chase for winners and being overly optimistic about the future performance of chosen investments.

Loss aversion

An excessive aversion to loss can make investors unreasonably sensitive to investment losses. Such investors tend to sell their winning investments while holding on to losers that are unlikely to recover.

And loss aversion can lead to investors being unwilling to take appropriate investment risks – potentially lowering long-term returns.

Regret

Excessively dwelling on past losses can lead to investors focusing too much on part of their portfolio rather than the portfolio as a whole. This trait, also known as “narrow framing”, can hinder an investor’s efforts to have a properly-diversified, long-term portfolio and make them more sensitive to short-term market movements.

Inertia

Inertia tends to get in the way of beginning to seriously save, saving more whenever possible and developing a long-term financial plan.

Fear and greed

These are the terrible twins of becoming fearful when markets are falling and becoming greedy when markets are rising. Fear and greed often lead to selling shares after prices have sharply fallen, only to buy after prices have sharply risen.

Comfort in crowd-following

Investors often gain a false sense of security by following the investment crowd. As with fear and greed, this usually results in jumping in and out of the markets at the wrong times.

Confirmation bias

This involves deciding on a course of action and then looking around for evidence to support that action while blocking out contrary opinions and research.

As part of your efforts to keep damaging traits or biases in check, try to block out investment “noise” – the abundance of often-conflicting and misleading information facing investors.

Make the most of investment compounding to magnify your long-term returns. (Compounding occurs as returns are earned on past returns as well as your original investment.) Recognising the rewards of compounding can help investors to stay focussed on the long term.

And think about ways to beat investment inertia including putting yourself into a form of saving “autopilot” by making higher salary-sacrificed super contributions.

 Please contact us on |PHONE| if you seek further assistance on this topic.

Source : Vanguard June 2019 

By Robin Bowerman, Head of Corporate Affairs at Vanguard

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2019 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author.

Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

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