Correspondence: Dividend growers, investment visas, buying bonds

Calculating dividend franking, foreign property investors, how to buy bonds, and more.

Grossed-up yields for dividend growers

Australia’s best dividend growers is an excellent article, however, I think you should have included an extra column in the chart detailing the yield after franking. Whether the dividend is franked makes a big difference to the yield.


David Gilmour’s response: Thanks for your feedback. I’ve updated the article with estimated grossed-up yields for 2013-14 for the 25 dividend growers. However, be aware that for companies that historically only partially frank their dividends I’ve used the percentage they franked their dividends in the last financial year, so it could be more or less depending on whether their overseas exposure has increased or decreased.

Investment visas and property

My wife and I usually attend the local house auctions as we plan to move. Over the past year we have noticed quite spirited bidding and some great results for the vendors. Asian people were dominating the buying and I assumed our suburb was benefiting from an ethnic settling in the area.

Digging a little deeper, however, I discovered a foreign investment visa scheme which grants a visa to investors of over $5 million in property, state government bonds and some other specific projects. It was difficult to find out all of the rules pertaining to this scheme, however, among other things after four years, applications for Australian Citizenship could be considered.

I also read that $6 billion had been spent on Sydney and Melbourne property by foreign investors in 2013. This left me wondering, could one family member purchase the assets, become an Australian citizen, sell all of the assets, repay the loan and then apply for their family to immigrate on the family reunion scheme? I couldn’t find if there were any protections against this type of abuse but If there isn’t there could be an almighty drop in some suburb’s property prices if the scheme gets cancelled or changed because of abuse.

My opinion is that many SMSF trustees are not aware of this scheme that is artificially inflating prices in some suburbs, and they should be wary.

Mark Umbers

Getting started in bonds

The recent article Maintaining interest in a low rate environment by Elizabeth Moran is interesting, but gives no clues about how to get started in bonds (rather than hybrids) or actually investing (buying) bonds. Is this something I should see a broker about or can I do it myself.

Name withheld

Elizabeth Moran’s response: The vast majority of bonds are traded in the over-the-counter (OTC) market. That means in order to access the market you need to find a bond broker. The broker matches buyers and sellers in the market by providing buy/ sell prices available at the time. The rate of return they show you will be what you can expect to earn if you hold the bond until the expected maturity date.

In order to transact you will need to open a custody account. This enables the broker to transact on your behalf and your bonds are held in custody until maturity or you sell the bonds. At all times you are the beneficial owner of your bonds. Individual bonds can be purchased from just $10,000, but some bond brokers require a higher up-front minimum payment.

Reflecting on financial planning

Alan, you are such a cynic. That’s why you are right about financial planning and the finance industry in general (see Alan’s latest weekend briefing). Who really wants the thousands of supposedly different but actually the same financial products? The problem is, though, if it were made as simple as it really is, who would employ those currently in the finance industry? That’s a big problem for the government.

By the way, it’s easy to see why banks, etc. want to retain commissions – that way the customer pays the employees, not the company - very smart.

I have reflected upon financial planning, and some of your comments. Really it is about risk management, where products are the medium; it’s not about the products themselves. Managing risk for someone else you don’t really know through an unforeseeable environment is fraught with difficulty, and may be next to impossible. I find it hard doing it for myself!

Name withheld

Withholding tax for US ETFs

When in pension phase if I put investments overseas for reasons of diversity, say in one of the ETFs Tony Rumble mentioned in Boarding the ETFs boom, I believe I will lose out as I won’t be able to claim back the withholding taxes from the US government.

How can I invest overseas and avoid this problem?

Name withheld

Editor’s response: Thanks for your question. If you invest directly in the US, whether that be via US shares, ETFs, or managed funds, you will have to pay a withholding tax. However, you can reduce the withholding tax payable from 30% to 15% by filling out a W-8BEN form, which you can download from Computershare’s website. Depending on your individual circumstances, you may then be able to claim back the 15% tax paid at the end of the financial year.

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