Superannuation funds have low tax rates but still get full value for the franking credits they receive from their investments. Even tax free accounts in superannuation will get the full value for these credits. Funds in retirement phase will typically be getting tax refunds each year.
For example, a $700 fully franked dividend in a tax free account generates a $300 tax refund so is actually worth $1,000, plus the added pleasure of actually having the government pay money to you. If the super fund is paying the 15% tax rate, the $700 fully franked dividend still generates a tax reduction of $150 so is actually worth $850.
Franking credits are a highly valuable boost to an investor’s after-tax income, both before and after retirement and both inside and outside of superannuation. Targeting dividends that are 100% franked can be a valuable strategy, but not all equities and therefore not all equity strategies pay 100% franked dividends.
A simple way to access the benefit of companies paying 100% franking credits is to invest in the VanEck Vectors S&P/ASX Franked Dividend ETF (ASX: FDIV) which tracks the S&P/ASX Franked Dividend Index (FDIV Index). FDIV provides your clients with:
Index performance relative to the S&P/ASX 200 over last 15 years
FDIV proposition for you our clients: