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Dividend Franking queries

Discussion in 'Beginner's Lounge' started by bullbear39, May 28, 2012.

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  1. bullbear39

    bullbear39

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    Hypothetical - Let's say I'm considering purchasing some stock for dividend income and lets say it's FMG for example, which was paying 4 cents in April 2012.
    The ASX website lists the franking amount under the '% Franked' column as 100% - but under the 'Further Information' column it shows "4C FRANKED @ 30%".

    Q1: In this case, what is it actually franked at, 100% or 30%? And if it's 30%, why would it not be listed as such under the % Franked column?

    Q2: So, with the above info if I bought 10,000 shares of FMG prior to it's ex-div date, what could I expect to receive in a dividend payment, assuming I'm an average wage earner (for tax purposes)?

    A) 10,000 x 0.04 = $400
    B) 10,000 x 0.04 = $400 x 30% = $120
    C) 10,000 x 0.04 = $400 x 70% = $280
    [above is excluding any tax implications of course]

    Q3: Furthermore - what if the dividend actually paid more than the current physical share price (which I have seen on occasion). How can they pay more than their underlying share price?
     
  2. McLovin

    McLovin

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    Q1. The dividend is 100% franked at a tax rate of 30%

    Q2. The payment you receive will be $400, however you need to gross it up to get the actual value of the dividend to you; $0.4 *(1/0.7) = $0.5714*1000 = ~$571. This is the pre-tax amount of the dividend. 30% tax has already been deducted though, so you then apply your own marginal rate to get the total tax you will pay. Assuming your marginal rate is 37% the calculation will be 0.37*$571 = 211.27-($571-400)= $40.27 (this is the amount you pay in addition to what has already been paid by the company)

    Q3. The SP makes no difference. The dividend, however, must be paid out of profits (iirc, those profits must exist at the time the directors declare the dividend), otherwise the ATO may consider it a "return of capital" and subject it to different tax.
     
  3. bullbear39

    bullbear39

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    Thanks for the detailed response. I'm doing up a spreadsheet with all this now.
     
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