In a financial world that is currently light on for good news, largely courtesy of Europe and the US, it may surprise you to know that almost 50% of the top 200 Australian companies increased their dividend last financial year.
There are clearly two parts to determining the return from investing in shares. The first is movement in the share price and the second is the dividend paid each year by the company. Dividends are often overlooked as an important reason to invest in shares, but Platinum Asset Management recently reminded that from 1900 – 2008 the average return from shares was over 6% above the inflation rate and that dividends contributed 4% of this figure. (Platinum were quoting figures from the US share market, where dividends are generally lower than Australia)
Total dividends from the Australian market rose by over 9% last year and here is a selection of companies to show the increase in dividends. This information has been sourced from IRESS.
| Company | 2010 Dividend | 2011 Dividend | % Increase | 2011 Dividend Yield ** | Dividend Yield adjusted to include tax credit |
| Wesfarmers | $1.25 | $1.50 | 16.6% | 5% | 7.1% |
| CBA | $2.90 | $3.20 | 10.3% | 7% | 10% |
| Woolworths | $1.15 | $1.22 | 6.1% | 5% | 7.1% |
| Platinum Asset Mgment | $0.22 | $.0.25 | 13.6% | 6.75% | 9.6% |
| NAB | $1.47 | $1.62 | 10% | 7.2% | 10.3% |
| Telstra | $0.28 | $0.28 | No Increase | 9.4% | 13.4% |
| QBE | $1.28 | $1.28 | No Increase | 10.1% | 10.5% |
** Based on closing price of company as of 12th September 2011.
Not only are the dividends being paid by these companies significantly higher than the current cash rate of 4.75%, but dividends are bankable and can be spent or saved by investors. Companies that pay fully franked dividends means that the tax has already been paid at a rate of 30% on that dividend. The right column titled “Dividend Yield adjusted to include tax credit” includes the value of tax paid by the company on a fully franked dividend.
While share values fluctuate daily, it is the dividend stream that investors can rely on over time paid from rising profits.
Note: Advice contained in this article is general in nature and does not consider your personal situation or needs. Please do not act on this advice until its appropriateness has been determined by a qualified adviser. While the taxation implications of this strategy have been considered, we are not, nor do we purport to be registered tax agents. We strongly recommend you seek detailed tax advice from an appropriately qualified tax agent before proceeding. The information provided is current as at September 2011.