Franked Dividend

AAA

DEFINITION of 'Franked Dividend'

An arrangement in Australia that eliminates the double taxation of dividends. Dividends are dispersed with tax imputations attached to them. The shareholder is able to reduce the tax paid on the dividend by an amount equal to the tax imputation credits. Basically, taxation of dividends has been partially paid by the company issuing the dividend.

INVESTOPEDIA EXPLAINS 'Franked Dividend'

This concept is best illustrated by an example. Suppose you receive a franked dividend of $100. Assume the before-tax value of this dividend is $125 (this will depend on the company's rate of taxation). In other words, the company has to generate $125 of pre-tax profit to be able to disperse the dividend.

If your marginal tax rate is 30%, you will owe $12.50 in taxes on the franked dividend (($100) -($125 * (1-.3))= $12.5). If the dividend is unfranked, you will owe $30 on the $100 dividend ($100 * (1-.7)= $30. Essentially, the company pays a portion of the tax that you would owe if the dividend was unfranked. In Australia, these taxes are paid to the Australian Tax Office (ATO).

RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Ex-Date

    The date on or after which a security is traded without a previously ...
  3. Double Taxing

    A tax law that causes the same earnings to be subjected to taxation ...
  4. Dividend Payout Ratio

    The percentage of earnings paid to shareholders in dividends. ...
  5. Dividend Imputation

    An arrangement in Australia and several other countries that ...
  6. Ex-Dividend

    A classification of trading shares when a declared dividend belongs ...
Related Articles
  1. Fundamental Analysis

    The Perks Of Dividend Reinvestment Plans

    These plans offer shareholders a way to directly invest in some of the top companies without the commissions.
  2. Investing Basics

    How And Why Do Companies Pay Dividends?

    If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments ...
  3. Investing Basics

    How Dividends Work For Investors

    Find out how a company can put its profits directly into your hands.
  4. Options & Futures

    Trade Covered Calls On High Dividend Paying Stocks

    We explain the risks, rewards, timing, and profit and loss considerations for covered calls with dividend stocks.
  5. Mutual Funds & ETFs

    Should the YYY ETF Be on Your Radar?

    Why you should, or shouldn't, invest in YYY.
  6. Mutual Funds & ETFs

    How To Build A Bond Ladder?

    Bond laddering is a strategy used when building a portfolio: an investor can spread out interest rate risk and create a stream of cash flows for income.
  7. Economics

    What is the Income Effect?

    In economics, the income effect is the change in the consumption of goods caused by a change in income, whether income goes up or down.
  8. Investing Basics

    What is Treasury Stock?

    Treasury stock is a company’s own stock that it holds in its treasury for later use.
  9. Retirement

    How To Move From Nest Egg To Income?

    Income vs. a nest egg is closely tied to what most of us are ultimately interested in for retirement – maintaining our standard of living and to travel.
  10. Stock Analysis

    Is This Dividend Stock A Value Or Value Trap?

    We can say that Fifth Street Finance has had a rough year, but there's a huge difference between an undervalued stock and a stock that's cheap for a reason

You May Also Like

Hot Definitions
  1. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  2. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  3. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  4. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  5. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  6. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
Trading Center