Stock Market Report - 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.

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.

An example of a growth stock is News Corp, which has a low annual dividend yield of less than 1%.

More established shares are usually the ones who will pay dividends to their shareholders.

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