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Why franking credits are a bigger sweetener than ever

ETF Securities

Franking credits were a hot election issue this year, and now that the rules remain untouched, there is significant opportunity for Australian investors in the new financial year.

The franking credits system in Australia gives domestic investors an opportunity that is unmatched by global standards, according to ETF Securities CEO Kris Walesby.

In the current market, yields and capital growth are soft in property and cash-based investments. However, with an unchanged franking credits system, investing in Australian shares presents a comparatively strong opportunity for portfolio growth, according to Mr Walesby.

“Australia, even with low interest rates, it still has something that does not exist in any other country in the world, which is franking credits,” said Mr Walesby.

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Mr Walesby also believes Australia’s yield return is second to none in the western world, based on its current and track record.

“The dividend yield in Australia is high and it has historically been high. Higher than most developed nations, although Australians don’t know that, but it is the case. 

“Something running, like the ASX 200, at 5 per cent yield is non-standard in America. The UK is less than 2 per cent. Then in Australia, you have franking on top of it. So you get this extra kicker,” said Mr Walesby.

Unmatched opportunity

These high yields, combined with a tax benefit, combine to create returns that are tough to recreate in other markets. 

“As an Australian, you can in a yield sense get 5-7 per cent a year without doing much a year. With the compounding effect, it only takes 10 years to effectively double your money,” said Mr Walesby.

“It is difficult to be an Australian and not have a substantial amount of money invested in Australia. It’s not even domestic bias, it’s just the structure of the market makes it attractive for any investor,” said Mr Walesby.

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Why franking credits are a bigger sweetener than ever
ETF Securities
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