For Beginner Investors: Franking Credits Explained

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For Beginner Investors: Franking Credits Explained

For all the newbie investors, or for those looking for a general refresher and need franking credits explained succinctly, you’ve come to the right place. It is inspiring to see so many people becoming more invested in investing, there has never been a better time to get onto the bandwagon as so many new platforms are popping up.

With so many new portfolios and pundits bolstering the market, there are also a whole barrage of people looking to have terms like franking credits explained, which is understandable. Terminology in the investing world can get a little convoluted and often comes down to context and layered comprehension.

This article is aimed at those who would like franking credits explained in a straightforward way with no technical jargon or caveats. They’re a vital aspect to any serious investors portfolio so its highly recommended to learn how they work, where they work, and why they’ll work in your favour if you play your investing cards right.

Franking Credits Explained With Dividends & Yields

Those who need franking credits explained are often new to the investing game, so let’s go over where they come from. When you’re investing on platforms like the ASX or NASDAQ, you’ll often see that certain companies offer what’s known as dividend yield stocks. Essentially these are investments made in companies that give a stipend or kickback to their investors at select times of a profitable year.

The dividend yield paid to investors counts as income for those investors – which any law-abiding citizen will already know comes with tax responsibilities. Companies that pay dividends have already paid the necessary tax on these profits/yields before divvying them to their investors. So why should you be paying twice the tax on the one piece of profit?

In short, you don’t.

For those people who want franking credits explained in a more metaphorical context, think of them as a ‘Get Out Of Paying 2x Tax’ card that the company paying the dividend attaches to the money they provide to you which is seen by the ATO when you’re lodging your yearly return.

If you’re having franking credits explained for the first time, that notion could seem quite lucrative – and it can be! You may remember a few years ago in the national election there was a lot of debate surrounding the practice, particularly by select larger corporations who were thought to be taking advantage of the system and garnering (what more believed to be) more than their fair share.

However, in the context of this article about franking credits explained for the regular investor, you don’t need to delve too deeply into politics. For now, consider it in the context of a regular everyday shareholder.

Why Are Franking Credits Explained So Differently?

For those who have seen franking credits explained in more negative light are likely pushing an agenda one way or the other or looking at them the wrong way. One of the common aspects we see on many articles about franking credits explained to investors is the lack of suitable comparisons and utilities it has for new shareholders.

Oftentimes they’ll delve into more complex taxation rates and not go down to how fundamentally lucrative they can be with an appropriately diversified portfolio. Newcomers to the markets will often head towards the large-scale operations that have dividend options, but not a lot of room to gain a meaningful profit. We’re here to say that with the right research, and by utilising trustworthy sources and stock charts, even the newest investor can find upcoming company’s that have a wonderous upside.

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