How the estimate is worked out
Year 1's dividends are what your units are worth today times the dividend yield. A $10,000 holding with a 4% yield pays $400 in the first year.
Each year after, the dividend for each unit grows by the dividend growth rate, and the price grows by the price rise you chose. The two are kept apart because they rarely move together: a company can lift its dividend while its share price falls.
Money you add each year, and dividends you reinvest, buy more units at the end of the year. Those units earn dividends from the next year on.
The result splits what you end up with into four parts: what you started with, what you added, the dividends, and the growth in price on everything you held. Nothing you type here leaves your browser.
Franking credits
Many Australian companies pay dividends out of profits they have already paid tax on. The tax they paid comes with the dividend as a franking credit, so the same profit isn't taxed twice.
A company that pays 30% tax and pays a fully franked dividend of $70 attaches a $30 credit. You declare $100 as income (the grossed-up dividend), and the $30 counts towards your tax. If your tax rate is 30%, there is nothing more to pay. Below 30%, you get some of the credit back, and above it, you pay the difference.
Smaller companies that pay 25% tax attach less credit to each dollar. A dividend can also be partly franked, or unfranked, which is common for property trusts and overseas shares. Your dividend statement shows how much was franked.
The calculator doesn't reinvest franking credits, because they aren't cash in your account. They come back at tax time as a lower bill or a refund.
Reinvesting dividends
A dividend reinvestment plan (DRP) uses your dividend to buy more units, often with no brokerage and sometimes at a small discount. Over many years the extra units can make a large difference, because they earn dividends too.
Switch the DRP on and off above to see the gap. Keep in mind that tax is still due on reinvested dividends, and each new allocation needs recording, because it has its own cost base when you sell. The guide to the cost base of shares explains why.
Choosing your assumptions
The estimate is only as good as the rates you put in, and nobody knows future returns. Rather than one answer, try a cautious set and a hopeful set and see the range.
For the yield, use the dividends paid over the last 12 months. For growth, a company's or a fund's own history is a place to start, but past growth is no promise of more. Setting both growth rates to zero shows what today's dividend alone would pay.
Questions
How does the dividend calculator work?
It starts with what your investment is worth today and the dividend yield, and steps forward one year at a time. Each year it works out the dividends on the units you hold, grows the price and the dividend by the rates you choose, and adds any money you put in. With a dividend reinvestment plan, each year's dividends buy more units. Everything is worked out in your browser, and nothing you type is sent or saved.
What dividend yield should I use?
A share's yield is usually its dividends over the last 12 months divided by today's price. Your broker or the company's announcements will show the dividends paid. A yield that is much higher than similar companies can be a sign the market expects the dividend to be cut, so check what is behind it.
Does the calculator include franking credits?
Yes, if you enter how much of the dividend is franked. A fully franked dividend from a company that pays 30% tax carries a credit of $30 for every $70 of cash. The calculator shows the credits, the grossed-up dividends (the cash plus the credits), and, if you enter your tax rate, the tax left to pay or the refund.
Can I get a refund of franking credits?
If your franking credits are more than the tax on your income, the ATO refunds the difference to Australian resident individuals and complying super funds. To claim credits you generally need to hold the shares for at least 45 days in the period around the ex-dividend date, not counting the days you bought and sold. That rule doesn't apply if your franking credits for the year total less than $5,000.
How does a dividend reinvestment plan (DRP) change the result?
With a DRP, dividends buy more units instead of being paid as cash. Those units earn dividends of their own, so income grows faster over time. Reinvested dividends are taxed in the year they are paid, as if you received the cash. Each new allocation is a purchase with its own cost base, which matters for capital gains tax when you sell.
How often are dividends paid in Australia?
Most ASX companies pay twice a year, an interim and a final dividend. Many ETFs pay every quarter, and some every month. The calculator shows an average monthly figure to make the income easy to compare, but the cash arrives on each company's payment dates.
Does it include tax and fees?
Tax is included only if you enter your tax rate, and it is worked out on the grossed-up dividends less the franking credits. Brokerage, fund fees and capital gains tax are not included. The calculator assumes tax on reinvested dividends is paid from other money.
Is the result financial advice?
No. It is an estimate from the figures and assumptions you enter, and general information only. Future dividends and prices can be higher or lower, and companies can cut or stop their dividends.
Track the dividends you actually get
Portfoli.au works out the dividends on everything you hold from each ex-dividend date and the units you had. Add the franking from your statements, and you see your franking credits and grossed-up income for each financial year, ready for your tax return.
Start free, upload the file your broker gives you, and see what your shares have paid. Full dividend tracking and the tax-time pack come with Plus and Pro.
General information only, for Australian resident individuals. An estimate from the figures and assumptions you enter, not a prediction: dividends and prices can go down as well as up. Portfoli.au isn't a registered tax agent or a financial adviser. Check your figures with one before you act.