The impending dividend flood

One of the many great aspects of investing directly in solid blue chip Australian listed companies is the flood of money into portfolio’s that occurs twice a year as companies pay their biannual dividends.

All up the Australian market is currently expecting some $23 billion to be paid out to shareholders by way of their 2026 interim dividends. Half has already been paid during the past week while the remaining dividends will be paid across the next two weeks.

For those who are fortunate to have invested their superannuation savings in those companies paying fully franked dividends and are using those assets to support an account-based pension, the benefits are even greater.

The reason is that alongside the dividends being paid directly into their portfolios, they will receive a second cash payment by way of the franking credits attached to those shares.

Franking credits or imputation credits are a tax mechanism in Australia that prevent the double taxation of company profits. They allow shareholders to receive credit for tax already paid by a company on dividend payments.

Most companies pay out a franking credit that is worth about 30 per cent of the value of the dividend but some companies pay out much higher franking credits.

So for example, BHP recently paid its shareholders about $1.04 cents a share but in addition, BHP shareholders also received 44 cents a share due to the franking credits attached to those dividends.

This meant shareholders received $1.44 per share. If you assume this will be doubled by the full year dividend, the total return on a BHP share worth about $40 a share, is almost 7 per cent plus capital gains.

While the share price has moved around a lot during the past twelve months, starting the year at about $40 a share and trading as high as $59 a share, I think it’s reasonable to rate an investment in BHP as relatively low risk.

This is why BHP is one of my favourite investments. This sort of return plus potential capital gains from a low-risk investment is a good result all day every day in my book.