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Australia Blue-Chip Dividend Stocks Guide

the blue-chip dividend stocks in Australia. The guide covers: the blue-chip companies (the "ASX 50 and the ASX 100 dividend payers") — the "blue-chip stocks" are the "large, the established, the financially sound companies" listed on the ASX with the "consistent history of the dividend payments" and the "stable earnings"; the typical blue-chip dividend stocks include: (a) the "banks" (the "Commonwealth Bank — the CBA, the Westpac — the WBC, the NAB, the ANZ"), (b) the "mining and the resources" (the "BHP Group — the BHP, the Rio Tinto — the RIO, the Fortescue — the FMG"), (c) the "telecommunications" (the "Telstra — the TLS"), (d) the "healthcare" (the "CSL"), (e) the "consumer staples" (the "Woolworths — the WOW, the Coles — the COL"), (f) the "property" (the "Goodman Group — the GMG, the Scentre Group — the SCG"), (g) the "infrastructure" (the "Transurban — the TCL, the Sydney Airport — the SYD"), (h) the "energy" (the "Woodside — the WDS, the Santos — the STO"); the franking credits system (the "Australian dividend imputation") — the "dividend imputation system" allows the Australian company to attach the "franking credits" (the "tax paid by the company on the profits") to the "franked dividends" paid to the shareholders; the "franking percentage" (the "100% fully franked, the 50% partially franked") indicates the portion of the dividend that carries the franking credits; the shareholder includes the "grossed-up dividend" (the "cash dividend plus the franking credits") in the assessable income and claims the "franking credit offset" (the "reduction of the tax payable" or the "refund of the excess credits"); the dividend vs growth investing (the "income vs capital appreciation") — the "dividend investing" focuses on the "regular income" from the dividends (the "yield of 3% to 6% per annum") while the "growth investing" focuses on the "capital appreciation" (the "share price increase"); the "total return" is the "dividend yield plus the capital growth"; the blue-chip dividend stocks typically provide the "moderate growth" (the "3% to 7% per annum") and the "stable dividend yield".

Dividend Reinvestment Plans

  • DRP structure: The "dividend reinvestment plan (the DRP)" allows the shareholder to use the "dividend amount" to purchase the "additional shares" in the company instead of receiving the "cash dividend". The DRP shares are issued at the "market price" (the "volume-weighted average price — the VWAP" over the "5 to 10 trading days" after the record date) and may be offered at the "discount of 0% to 2.5%".
  • DRP tax treatment: The DRP does not change the "tax treatment" — the shareholder must include the "full cash dividend amount" (the "grossed-up with the franking credits") in the assessable income even though the cash was not received. The "DRP shares" are acquired at the "market price" for the "CGT cost base" purposes. The shareholder must keep the records of the DRP acquisitions for the "CGT calculation".
  • DRP vs cash dividend: The DRP is suitable for the "long-term investor" who wants to "compound the returns" (the "building the shareholding without the brokerage"). The "retiree" or the "income-focused investor" may prefer the "cash dividend" (the "regular income for the living expenses"). The "bonus option plan (the BOP)" allows the shareholder to "switch between the DRP and the cash" for each dividend payment.

For the franking credits and the investment income tax, see our Investment Income Tax Guide →.

Dividend Capture and the Ex-Dividend Date

  • Ex-dividend date mechanics: The "ex-dividend date" (the "ex-date") is the date on which the share price is adjusted downwards by the "dividend amount" (the "theoretical adjustment" — the "share price drops by the dividend amount on the ex-date"). The shareholder must hold the shares "before the ex-date" to receive the dividend (the "cum-dividend" status). The new buyer on the ex-date does not receive the dividend.
  • Dividend capture strategy: The "dividend capture" involves buying the share "just before the ex-date" and selling "just after the ex-date" to capture the "dividend payment". The strategy is limited by the "price adjustment" (the "share price drop offsets the dividend") and the "brokerage costs". The dividend capture is less effective for the "high-franking companies" as the "price adjustment may be smaller than the dividend".
  • Sector dividend patterns: The "banks" typically pay the "semi-annual dividends" (the "interim dividend in March/April" and the "final dividend in August/September"). The "mining companies" (the "BHP, the RIO, the FMG") pay the "semi-annual dividends" linked to the "commodity prices". The "Telstra" pays the "semi-annual dividends" in March and September.

For the CGT on the share sales and the 50% discount, see our Capital Gains Tax Guide →.

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