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Franking credits hit record levels

Franking credits reached record levels in the six months to the end of March, driven by a mix of market returns and special dividends, according to AMP Capital.

AMP Capital income portfolio manager Dermot Ryan said the investment manager had tracked all announced franked distributions on the ASX 200 Index to the end of March and when combined with a strong fourth quarter last year “had seen a bonanza of franking credits issued to Australian investors”.

In figures presented as part of an earnings season update, AMP Capital revealed ordinary franking credits totalled around $9 billion for the six months to the end of March, while special dividends totalled $3.5 billion and off-market buy-backs totalled around $4 billion for the same period.

The previous highest level for franking credits of $11 billion was in September 2011 and was primarily made-up of ordinary credits and off-market buy-backs.

“One of the real growth spots in the current reporting season has been that we are entering a period that, by our estimates, by end of month we will have a record level of franking credit distribution for the Australian share market,” Ryan said.

He attributed the record levels of franking credits to a high rate of return across the ASX 200 Index, as well as dividends flowing from that rate of return and companies using buy-backs to return capital and credits to investors.

“We have also seen a large amount of special dividends which are being employed by companies to show they have earnings above the cycle and for investors not to get reliant on those earnings. It is a way of saying things are going well and giving a bit more to shareholders while looking to sustain normal dividends going forward,” he said.

“Despite all the talk about potential changes in legislation, it has been a wonderful run and win for Australian investors.”

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