Generate a solid income stream from Australian shares
Many investors are currently looking for investments that will generate a high income. When it comes to income, you may typically think of fixed interest or cash type investments. However, with historically low cash rates, these investments may not be delivering the level of income that some investors require.
If you have a long term investment horizon, Australian shares can also provide a source of income and franking in your overall portfolio.
A long term income stream
We all know that Australian shares provide investors with the potential of capital growth over the long term. Many overlook that good quality Australian shares also have the potential to generate a solid income stream through dividends. Not to mention the enhanced yield that investors can obtain, depending on their marginal tax, through the franking credits associated with those dividends. So the total return of shares is based on capital growth and dividends.
What level of income have leading shares provided?
The table below shows the income stream generated from an investment into a portfolio of shares in June 1998. The portfolio consists of the 20 largest shares on the Australian share market, equally weighted semi-annually.
|
Date
|
Yield (% p.a.)
|
Income Distributions
|
Capital Value ($)
|
|
30-Jun-98
|
|
|
$100,000.00
|
|
30-Jun-99
|
3.36%
|
$3,427.63
|
$112,615.28
|
|
30-Jun-00
|
3.09%
|
$3,603.27
|
$130,953.87
|
|
30-Jun-01
|
3.57%
|
$4,728.87
|
$146,424.93
|
|
30-Jun-02
|
3.43%
|
$4,989.75
|
$138,915.63
|
|
30-Jun-03
|
4.00%
|
$5,265.64
|
$124,506.99
|
|
30-Jun-04
|
4.14%
|
$5,384.02
|
$146,826.26
|
|
30-Jun-05
|
4.24%
|
$6,516.87
|
$172,778.26
|
|
30-Jun-06
|
4.14%
|
$7,635.78
|
$205,986.41
|
|
30-Jun-07
|
4.31%
|
$9,252.99
|
$251,451.09
|
|
30-Jun-08
|
4.05%
|
$10,186.17
|
$209,658.66
|
|
30-Jun-09
|
5.43%
|
$10,088.40
|
$173,562.48
|
|
Total
|
|
$71,079.39
|
|
Source: IRESS and ASX
Portfolio is equally weighted and rebalanced semi-annually in June and December.
Dividends are not reinvested.
Fees and transaction costs are excluded.
The payment of dividends including the amount and the level of franking and the return of capital are not guaranteed
Investment in securities involves risk. Security prices rise and fall. Past performance is not a reliable indicator of future performance.
Where to from here?
The Financial Crisis has had a dramatic impact on company profits and balance sheets. Some companies have cut dividends to retain cash on their balance sheets, as witnessed in the banking sector with cuts of around 25% from 2008 levels. At the same time share prices were falling, so while yields remained largely unchanged the cash dividend received was lower. Now that the prospect of Armageddon has largely passed, the banks should be able to relax their conservatism and may begin to release some of the excess capital they are holding. This is likely to come in the form of share buybacks, capital returns and increased dividends. Over time we should see cash dividends restored back to their previous levels.
In summary
Depending on your risk profile, if your investment objective is to generate income, you could consider Australian shares as an investment option. Leading Australian shares can generate a solid consistent income for investors. Plus, if you invest in a diversified portfolio of shares you have the potential to achieve capital growth over the long term.
A variety of investments are avaliable that can give you access to leading Australian shares. If you are interested make an appointment with one of our Matrix advisers today.
Disclaimer:
Issued by Next Financial Limited (ABN 37 081 722 894), AFSL No. 235671. This information is unsolicited general information only, without regard to any investor’s individual objectives, financial situation or needs. It is not specific advice for any particular investor. Readers should seek their own professional advice in assessing the effect of the information in their circumstances. Next Financial Limited seeks to ensure that the information provided in this document is complete and correct but does not warrant its accuracy or reliability. Information and opinions may change without notice. Next Financial Limited is not obliged to update you if the information