| Franked Dividend | |
 An arrangement in Australia that elimintates the double taxation of dividends. Dividends are dispersed with tax imputations attached to them. The shareholder is able to reduce the tax paid on the dividend by an amount equal to the tax imputation credits. Basically taxation of dividends has been partially paid by the company issuing the dividend. |
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 This concept is best illustrated by an example. Suppose you receive a franked dividend of $100. Assume the before tax value of this dividend was $125 (this will depend on the company's rate of taxation). That is to say that the company had to generate $125 of pre-tax profit to be able to disperse the dividend. Assume your marginal tax rate is 30%. Therefore you will owe $12.50 in taxes on the franked dividend (($100) -($125 * (1-.3))= $12.5). If the dividend were unfranked, you would owe $30 on the $100 dividend ($100 * (1-.7)= $30. Essentially the company has paid a portion of the tax that you would owe if the dividend were unfranked. In Australia taxes of this sort are paid to the Australian Tax Office (ATO). |
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 How Dividends Work For Investors - They might not be as "sexy" as growth stocks, but paid dividends are profits put directly into your hands. Dividend Reinvestment Plans--Are They for You? - Thanks to DRIPs, you can directly invest into some of the world's top corporations for just $10! How and Why Do Companies Pay Dividends? - Explore arguments for and against company dividend policy, and learn how companies determine how much to pay out. |
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