Australian Dividend Stock Picks – The full story on dividends
Dividends are payments made by a company from its profits to its shareholders, in the form of cash or additional stock.
Most Australian listed companies who pay dividends do so either annually or six-monthly.
Dividends can also be issued with franking credits, which are tax credits that have been paid by the company on your behalf.
So if you receive a fully franked dividend, you may not have to pay any personal income tax on the money received, as tax has already been paid (at the company tax rate of 30%, which you then compare to your personal marginal tax rate to determine if any extra tax is payable).
Not all companies pay dividends, important to note when making Australian stock picks.
Often you will find that high growth companies will not pay dividends, as they tend to re-invest their excess profits to continue their growth.
These stocks will typically have a rising share price, so there is little incentive for the business to pay shareholders who are already benefiting from owning the stock, additional cash.
More established shares are usually the ones who will pay dividends to their shareholders.
These companies will often have share prices that are relatively stable, so a dividend payment is more or less a trade off for lower capital growth. These companies are often referred to as income stocks.
When a company decides on its dividend it will inform the ASX of both the size of the payment, and two important dates.
These dates are the books close date (also known as the record date), and the date payable (the day the company posts out the cheque).
Investors that are on the company’s books by the close of business on the books close date will be entitled to receive the dividend.
To be on the books, you need to have bought and paid for the shares by the book’s close date.
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