In an interesting article written in the Australian newspaper Don Stammer -economist, company chairman and noted financial columnist spoke about the importance of investors giving careful consideration to the importance of receiving dividends as part of their investment portfolio.
Clients of 5Financial know from experience that our advisers spend a lot of time discussing the importance of being invested in quality companies that have a history of paying dividends and as a result being in a position to use that income stream to either reinvest or to support your lifestyle.
Stammer says that stock exchange listed companies have, over the past one hundred years, increased the size of their dividend payments by, on average, 7 percent per year. Further, Stammer says “There are good reasons to expect average dividends per share to continue increasing at about 7 per cent a year, on average, during coming decades.”
Another benefit to owning quality Australian companies that pay dividends is that the variation in the dividend payments does not vary anywhere near as much as the movements in share prices or, as Stammer puts it “The cycle in dividends is nowhere near as wide as the cycle in share prices…”
Stammer asserts that another reason Australian investors like dividends is because of our franking credit system.
Our tax system allows a credit to be given to the investor where the company paying the dividend has already paid company tax on the company profits that were the source of the dividend payment. This credit can be quite lucrative in the hands of the investor and effectively add extra percentage points to their investment return.
“Because of franking credits, Australians love dividends and average dividend yields here are about double those in the US”