“Franked dividends: What are they, and are they any use to my generation?”

World-leading taxation from a resourceful government! Franked dividends are the government saying “We’re stealing some of your money now. But we’ll give you a credit note for it.” Genius!

But it’s darn site better than the previous arrangement. “We’ll still take it, but we won’t credit you for it and we’ll tax you on it again later.”

Franked dividends stop the double taxation of company profits. When companies pay tax on their profits, they can attach “franking credits” to dividends, meaning the tax office notes some tax was already paid before it came to you.

All investors can benefit from franking credits on dividends. For those on low incomes or low-tax brackets like super funds, it’s possible they’ll get some of the tax paid by the company back from the ATO.

Should Gen X investors chase franked dividends? It’s probably less important for Xers as it might be for older generations, who rely on dividends for income.

When Gen Xers’ invest in shares, they should be more focussed on growth than income.

Good examples are Telstra and BHP Billiton.

Telstra’s share price has been abysmal since being floated in 1997. But older investors may well have continued to like the stock because of the income paid as huge fully franked dividends.

BHP’s dividends are also franked. The dividends just aren’t very big. They have, however, provided spectacular capital growth over that period, which probably suits Gen X and Y investors more.

Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser.