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Vanguard ETF dividends

Discussion in 'Stock Market Nuts and Bolts' started by jparrie, Jan 18, 2020.

  1. jparrie

    jparrie

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    Any accountants on here?

    The latest VHY div was $0.65794887 and from their statement:

    Franked - 79.61% - $0.523793095

    Unfranked- 10.77% - $0.070861093

    Dividends unfranked CFI - $0.020922774

    Interest subject to NRWT - $0.019672671

    Other income - $0.022699236

    Franking credits - 23.9369cpu ? (Where does this derive from?)
     
  2. Belli

    Belli

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    From this:

    Franked - $0.523793095

    Bear in mind the franking percentage may be higher than 30% or whatever as the managers can only take income from the dividend, and not from capital.
     
  3. jparrie

    jparrie

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    I really don't understand what you just said.
     
  4. Belli

    Belli

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    I see. I assume you are unaware of Franking of dividends. It is a credit for the tax paid by a company.

    ATO site has info on franking. It is extensive but I think sometimes it is good for investors to roll up their sleeves and dig into the details themselves when it comes to tax issues. Best way to learn is to do. That or obtain advice from a tax agent.

    Start here first

    https://www.ato.gov.au/individuals/income-and-deductions/income-you-must-declare/investment-income/
     
  5. Sharkman

    Sharkman

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    based on those figures the theoretical franking credits attached should have been $0.65794887 * 0.7961 * 3 / 7 = ~$0.2245

    why is the actual figure slightly higher than that? i don't know as i don't invest in VHY. my best guess is that at some point during the last dividend accrual period, the fund participated in some sort of off-market buyback. those are generally done at a discount to the prevailing share price, and comprised of a small capital return component plus a huge fully franked special dividend.

    so the fund may have taken a small capital loss during the period, lowering the total divs paid, but they gained a lot of franking credits from the off-market buyback special div, boosting that.

    if you really need to know for sure where that number is coming from, then you probably have to ask Vanguard themselves. otherwise if those are the figures they've quoted on the dividend statement, then that's what you have to declare to the ATO come tax time.
     
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  6. jparrie

    jparrie

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    No, I'm well aware of franked dividends. I was alluding to exactly what Sharkman said, that as far as I could see, the franking amount should have been $0 2245. So I am still in the dark as to how the figure of 23.9369cpu came to be, notwithstanding Sharkman's comments. However, no capital gains/losses or anything other than what I listed in the OP were given. Nobody else invest in Vanguard ETFs that know what's going on here?

    PS - I've fired off an email to Vanguard. Not hopeful at getting a response but I'll post back here if I do.
     
    Last edited: Jan 18, 2020
  7. KD2560

    KD2560

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    Sharkmans on the right track - it is the addition of the franking credits of
    ALL the underlying dividends paid in that reporting period - but not all will be franked to 30% - hence the variation - however Shartman went off track with capital losses - these do not form part of the dividend reporting but are part of the capital gain calc.
    Good luck asking Vanguard for a copy of their Detailed lnvestment Income Report for the period. Vanguard are good in transparency but let us know how go.
     
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  8. jparrie

    jparrie

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    Thanks KD2560, I'm sure you are on the money. So far all they've done is send a link to the ATO which explains how franking credits are calculated. Completely useless but expected. Waitng for further clarification.
     
  9. Sharkman

    Sharkman

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    that was just speculation on my part, i have no idea how the effective franking rate has seemingly got above 100% here. would be interested in finding out the explanation though (if you ever get one from Vanguard), i'm very much a numbers man, i like to know how everything gets derived. but would be a bit of a let down if the explanation was something mundane like; oh we pasted in the wrong number for the franked %, it's actually 85%, sorry about that!
     
  10. Belli

    Belli

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    Has anybody factored in the manager is required to take its cut from the cash and not from franking?

    If the dividend is $70 ff and the manager takes 0.1% what you get is $69.93 plus the $30 franking not $69.93 plus $29.97 of franking.
     
    Last edited: Feb 7, 2020
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  11. Sharkman

    Sharkman

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    that's a good point, i didn't consider that possibility because i'd always assumed that;
    • franking credits have to be attached/stapled to the dividends that generated them, can't distribute one without the other
    • management fees get deducted from the NAV which then flows down to the spreads quoted by the fund manager. most funds will have a small cash component almost all the time as a result of their regular rebalancing, i always thought the fees come out of that, not from the dividend
    but i could be wrong, i never really got too caught up in the nitty gritty operational details of ETFs, was more worried about their underlying investments and potential returns. wouldn't mind finding out how these things are handled though.
     
  12. Belli

    Belli

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    If looked at from the perspective franking is not income but a tax credit it puts a different skew on the matter. Consolidated Income Statements don't include franking as a separate line nor is it included in the income components at all.
     
  13. Sharkman

    Sharkman

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    the type of legal structure the ETF uses could be a factor there. if it's some type of trust, reasonably sure that they have to be stapled together. otherwise if they don't have to be stapled, i could just have my discretionary trust distribute all the franking credits to Australian beneficiaries who don't earn any income, get the whole lot back at tax time, then distribute the actual dividends to myself and only have to pay a flat 15% withholding tax (i'm living overseas in a tax jurisdiction where dividend income received by individuals doesn't get taxed).

    i doubt i'm allowed to do that, so if the ETF is structured as a trust, it probably can't either.

    if it's structured as a nominee company though, which i don't think that stapled restriction would apply to, you could be right, the numbers do stack up - the gross div would be $0.239369 * 7 / 3 / 0.7961 = $0.7016, implying a fee of about $0.0435, or about 7 bp of the NAV. this ETF has a 25 bp annual fee and quarterly distributions, so it would be well within the ballpark.
     
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  14. Belli

    Belli

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  15. jparrie

    jparrie

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    I'm finding Vanguard's responses incredibly frustrating. I received this "If you need help working through the full calculation, we recommend you consult a qualified tax professional to help educate you for tax planning purposes."

    It sounds like Brandon Morin from Vanguard Client Services doesn't actually know himself how the figure was derived.
     
  16. Belli

    Belli

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    I suspect the gentleman you mention doesn't have to nor can he give any form of taxation advice. Fund managers, their staff or even share registries are not licensed to provide taxation advice. Individual investors should obtain their own advice from qualified professionals who are legally able to provide that information.
     
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  17. Sharkman

    Sharkman

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    i wouldn't get too fussed about drilling down to the nitty gritty details of the numbers from fund or broker statements, unless they are well out of the ballpark and so clearly wrong, then query them. these things are tightly audited, it is extremely unlikely (but not impossible) that they would have got that wrong. i can only remember one occasion of this sort of thing happening to me in my 25 odd years of investing/trading, IB once put in 0.03 instead of 0.30 for a GUD dividend several years ago, and i had to query them and get it fixed up. they acknowledged it within minutes and fixed it up the next day.

    the tax office however is a completely different story. they get things wrong all the time (i would cynically say semi-deliberately as the errors always seem to be in their favour) and i will always drill down into the fine details of any numbers coming out of the tax office. twice they have tried to charge me a 30% dividend withholding tax, and i had to spend a lot of time on the phone trying to explain to them that a) Singapore has a bilateral tax treaty with Aust and has had for decades, and b) that means the dividend withholding tax is 15%. on both occasions the difference was close to a grand, so i would've noticed it anyway, but even if it was only $10 or some meaningless figure, i still would have called them up and hassled them about it anyway out of principle - hate getting cheated by the tax office.

    if you don't get a concrete answer i'd say Belli's hypothesis of the MER being taken out is the most likely. by my estimates the numbers are well inside the ballpark on that.
     
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  18. Belli

    Belli

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    I did have a quick look at the VAS annual report. I noted the manager's fees is based on the NTA of the fund. Looking at the financials, it would seem that a tax credit (franking) isn't included in the NTA. If so, it therefore follows....
     
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