Dividends
Dividends are one of the great benefits of owning shares. It’s quite satisfying to receive a dividend cheque—or more likely, seeing your bank balance jump a little—every six months or so. Dividends are the tangible reward for ownership. They are the fruits of perhaps hundreds or thousands of employees all toiling away for your benefit.
And you should not underestimate the contribution they make to your total return. You should expect a total return of 8% to 10% a year over the long term. If your dividend yield is 4% to 6%, you can see how dividends make up 50% to 60% of your total return. And there is another important way that dividends boost your return. If you buy dividends with a franked component, you get a credit for the tax the company has paid in your personal tax return. For some investors this means ‘fully franked’ dividends are effectively tax free. The interest on your bank account doesn’t look so crash hot now, does it?
Dividend statements from the share registry are therefore as important to keep as contract notes. You’ll need them to complete your tax return every year.
