Dividend yields

High dividend yields - can they be sustained? Here's Tim Boreham in the Australian having a look.

Westpac cuts dividend

Westpac joins the ranks of the dividend cutters this week. Some accounting analysis helps explain why.

Dividend imputation

Ken Henry, the head of Treasury, flags a possible change in the taxation treatment of dividend income. Hmmm; as long as they don't ONLY remove imputation, then it could work. Recall that the arguement for imputation is that it removes the double taxation on dividends; first in the hands of the company as it pays tax on its taxable income, and then in the hands of the investor when it receives that income in the form of a dividend.

Dividends and franking credits

Here's a good overview of dividends, and Australia's franking credits system (dividend imputation).

That's thanks to our system of "franked dividends" (or "dividend imputation") introduced by the Labor government in 1987 and improved by the Coalition government in 1996.

The system is logical -- and simple. When a company pays tax on its profits to the Australian government, and then pays a dividend to its shareholders, the shareholders receive credits ("franking credits") for the income tax already paid by the company. These credits, which apply whether the Australian resident owns shares directly or through a managed fund, are included in the shareholder's tax return both as income and as tax already paid.

The extent of the benefit depends on the shareholder's marginal rate of tax. If the company pays tax on its profits at the full company tax rate of 30 per cent and distributes a dividend, a taxpayer on the 30 per cent tax rate (which this year applies on taxable incomes of $30,000 to $75,000) effectively receives the dividends tax-free.

Have a look at the whole article. Note also the impact of continuing economic uncertainty could result in decreases in dividends, or at least a stop to increases in them. Probably more so in the U.S than here.

Dividends and future profits

Looks like dividend payout ratios aren't on the increase. If you take dividends as a signal of future profitability, then that's not great news. John Durie (I can't find the article online; page 35 of the 24-25 Aug Weekend Oz) notes that in the current reporting period EPS is up on average 14.6%, sales growth up 9.4%, but payout ratios down to 64.5% (average in the last 8 years at 71%).

Financial policy decisions

Tim Blue in the Weekend Australian writes a nice article about BHP's upcoming decision about financial policies (especially dividends and buybacks - on market vs off market). Whether shareholders will want some of the spoils returned as a fully franked dividend, or as a buyback will depend on their tax preferences.