Dividends and Franking Credits

Think about dividends as a reward to the shareholders for investing in the company. Dividends are paid out of the after-tax profits, but companies often attach a franking credit or imputation credit to that dividend. This means if you're on a tax bracket lower than 30%, you'll get a tax refund. And sometimes, some companies retain the profits, but offer you more shares in the company for the same value as the dividends. Now, whether it's fair or unfair, that's a different question,. But we have to work within the rules to exploit them to suit our needs.