The Top 5 Reasons to Invest in Australian Dividend Stocks
Australian dividend stocks are particularly popular among income investors as they provide regular payouts throughout the year while still leaving room for the share price to increase in value over time. As a bonus, many also pay special payouts throughout the year, sometimes even multiple times per year. For these reasons and more, Australian dividend stocks can be some of the most lucrative assets in your portfolio; here are the top five reasons to invest in Australian dividend stocks right now!
- Fully franked dividends
A reduction in your taxes already offsets a portion of your payouts. When you own shares, you’re paid out, which are taxed at 15%. However, if your company has decided to pay out fully franked shares, they’ve already paid tax on those profits. So when you receive a payment from them, it’s also tax-free. In short: It saves you money! If Australian dividend stocks company is paying out fully franked shares, it also means they have plenty of cash flow available.
- Strong cash flow means strong business.
Before you get started, it’s essential to know that Australian dividend stocks don’t have anything directly to do with a company’s financial health. While strong payouts and strong cash flow go hand-in-hand, they are two separate factors. Cash flow refers specifically to how much money a company generates through its operations after all expenses (including capital expenditures) have been paid. This money can be redeemed into the business or paid out. A company with low cash flow could still pay healthy amounts, but it won’t have any surplus left over to make improvements or expand. And, of course, a strong cash flow helps build capital reserves that protect against downturns and other unexpected events.
- Growth through products
Australian dividend stocks provide a steady income stream, which means less financial risk than investing in individual shares. Plus, these typically increase annually—so your portfolio benefits from compound growth. The added stability is even more valuable when you’re living off your investments. A sudden market downturn could completely derail your retirement plan—but if you own companies that pay a regular amount, there’s no need to worry. All else being equal, high-yield companies offer higher returns than low-yield ones—but those returns may be easier to come by if you buy Australian dividend stocks with strong competitive advantages and significant barriers to entry.
- Favorable tax treatment
One of Australia’s greatest competitive advantages is its tax regime, which Australians are not shy about taking advantage of. Though there are many ways to get your hands on some dollars and spend them on whatever you like, one of our favorite options is to invest in an Australian dividend stock. Unlike interest income, which can be taxed at as high as 49%, payouts paid by a company are not considered ordinary income; they are considered franked instead. Franked products have a much lower tax rate of 15%—which makes investing for regular cash flow much more appealing.
One of Australia’s most attractive features is its economic stability. It has been through several economic booms and busts but has always recovered quickly. This security makes it an attractive option for investors looking for safe growth opportunities. Additionally, as one of only a few countries with their currency (rather than U.S. dollars or euros), Australia can make decisions that best benefit them when managing their economy, which further enhances stability and protects against outside forces that could threaten an economy’s recovery.
Investing in Australia is one of your best options for long-term growth and higher dividends. Although volatile at times, Australia’s market has consistently performed well over long periods. Many investment firms offer Australian dividend stocks as a core holding for investors looking to grow their money over a longer time.