SOME commentators have told us that the halving of capital gains tax to a maximum of 24.5 per cent will change the dynamics of the marketplace.
They argue that ‘value’ companies paying steady dividends will be on the outer, because income will be taxed more than capital gains.
They predict that companies will find share buy backs and cash distributions are more popular with their shareholders.
Briefcase thinks they could be wrong.
A good proportion of the 5.5 million people who now own shares directly or indirectly are nearing retirement age or possibly work part-time. They need income, as well as, hopefully, some capital growth. Australia is one of the few stock markets in the world where quality shares can be found yielding 6 per cent or more.
Many of our companies pay partly or fully franked dividends. Franked income rebates can be claimed by people whose marginal tax rate is lower than the corporate rate.
Non-working spouses, low income earners or retirees have often discovered that their franked income credits were wasted, because they had insufficient income to offset them against.
Possibly the most under reported aspect of the new tax system is that, from July 1, investors in that position will be able to take those ‘refunds’ in cash.
That is a very significant concession.
It will be important to scrutinise company statements in the coming reporting season for signs of a change in policy from high dividend ratio payment to conserving cash for more expansion.
Contrary to belief among some brokers, those that opt for cutting dividends may be punished.
One of the best reasons for holding shares in a company that pays decent dividends well covered by earnings is that you can ride out market bumps and grinds and just keep banking the twice-yearly cheques.
Many of the non-dividend paying go-go ‘growth’ stocks may not in fact grow.
Some may crash and burn – presenting the opportunity of buying a few cheap.
