Pressure to dole out credits
Even so, as the annual meeting season reaches its final week, with Harvey Norman, Woolworths, Bank of Queensland and Challenger Financial Services among the companies set to present their earnings to shareholders, there will be one likely constant — that the retailer will continue to keep hold of its more than $650 million of franking credits.
"They've been accumulating for such a long time, and I really do want to pay them out," Harvey Norman's chairman and founder, Mr Harvey, said on Sunday. "We will do it one day but I don't know when.
"There are plenty of people arguing that we could gear up higher and pay it out, and that the company's strong enough to do that. They are probably right, but at the same token I've been around a long time and I know if you hit bad times, it's nice to have a solid company."
Mr Mayne said the retailer was one of the worst offenders when it came to distributing franking credits, given its market capitalisation and capacity to pay. Harvey Norman had a market capitalisation of $3.4 billion as of Friday. "Shouldn't these be paid out to shareholders before they become less valuable when Tony Abbott's paid parental leave scheme is introduced?" Mr Mayne asked in a statement.
"The tax position of the controlling shareholder may be different from that of retail investors, so we will also ask the independent directors why a lowly geared company like Harvey Norman doesn't distribute more of its franking credits."
The ASA also took aim at what it said was the high number of ASX-listed companies, more than 200, holding their annual meetings on the final day of the season, calling it the "last day laggards' club".
"If you've got something to hide, having an AGM on Friday afternoon in Perth on the last day of the season is the best way to avoid attention," Mr Mayne said.
This year's annual meeting season has been fairly uneventful, with financial markets more focused on the news from US Federal Reserve about when it might start to reduce its bond-buying program, Patersons Securities strategist Tony Farnham said.
"I think everyone's been more focused on what's been happening overseas. Will [the Fed] taper, won't they taper?" Mr Farnham said. "The AGM season, unless there's a spectacular story like WorleyParsons, hasn't been getting the front pages."
Frequently Asked Questions about this Article…
Franking credits are tax credits that companies can pass on to their shareholders along with dividends. They are important because they can reduce the amount of tax investors need to pay on their dividend income, making them a valuable benefit for shareholders.
Harvey Norman is under pressure to distribute its franking credits because it has accumulated over $650 million worth, and there is a belief that these should be paid out to shareholders before they potentially lose value due to changes in tax policies.
The Australian Shareholders Association believes that Harvey Norman should distribute more of its franking credits to shareholders, especially given its market capitalization and capacity to pay. They argue that holding onto these credits may not be in the best interest of retail investors.
Harvey Norman's market capitalization, which was $3.4 billion as of the article's publication, suggests that the company has the financial capacity to distribute its franking credits. This is part of the reason why there is pressure for the company to pay them out to shareholders.
Stephen Mayne is concerned that Harvey Norman is one of the worst offenders in not distributing its franking credits, despite having the capacity to do so. He questions whether these credits should be paid out before they become less valuable due to potential tax changes.
Some companies might hold their annual general meetings on the last day of the season to avoid attention. This tactic is sometimes referred to as joining the 'last day laggards' club,' as it can help companies with something to hide to avoid scrutiny.
The US Federal Reserve's bond-buying program has a significant impact on Australian financial markets, as investors are keenly focused on whether the Fed will taper its program. This focus can overshadow local events, such as the annual general meeting season in Australia.
Harvey Norman might be hesitant to distribute its franking credits because, as its chairman Gerry Harvey mentioned, it's beneficial to maintain a solid company in case of bad times. This cautious approach suggests a preference for financial stability over immediate distribution.
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