Dividend yield measures a dividend against a share price; franking describes tax paid by an Australian company on profits behind a dividend; and a dividend reinvestment plan (DRP) uses a dividend to acquire more shares instead of paying it out in cash. These terms describe different things: yield is a price-based snapshot, franking affects tax treatment for eligible investors, and a DRP changes how a payment is received—not whether it is relevant for tax.
What is dividend yield?
Dividend yield expresses a dividend as a percentage of a share’s price. The ASX defines it as “Dividend shown as a percentage of the last sale price of securities.” It is a point-in-time measure based on the dividend figure and price used, not a promised return.
As an Amazon Associate I earn from qualifying purchases.
Any quoted yield should identify its basis. It might use dividends paid over a past period or a forecast; those are not interchangeable. The share-price date matters too: if the price changes while the dividend figure stays the same, the calculated yield changes. A special dividend or an announced change in payments can also make a past figure a poor guide to future income. The ASX glossary provides the definition.
Yield is not total investment return. Total return also reflects changes in the share price, and neither a yield figure nor a company’s previous dividends guarantees future payments. Companies are not required to pay dividends, and may choose to reinvest earnings instead, as the ASX explains in its share education.
#1 Best Overall
What does fully franked mean?
A franked dividend is paid from company profits on which tax has already been paid. A dividend can be fully franked, partly franked or unfranked. A fully franked dividend has a credit attached in relation to the full franked portion; a partly franked dividend has both franked and unfranked portions. The dividend statement identifies those portions and the associated credit. The Australian Taxation Office (ATO) explains the terms in its definitions of franking credits and franked dividends.
What is a franking credit?
A franking credit represents imputed company tax related to tax paid on company profits. It is attached to a franked dividend to account for that tax in the shareholder’s tax treatment; it is not a separate cash payment from the company.
Rank #2
For Australian resident individuals, the ATO’s 2025 tax-return guidance says to include the dividend or distribution and attached franking credit in assessable income, and to claim a tax offset equal to the credit, subject to eligibility and the rules. This does not mean every investor can use or receive a refund of every credit. Restrictions include holding-period, related-payment and dividend-washing rules. The ATO’s individual dividend guidance sets out the relevant treatment; check the current tax-year instructions for filing.
Non-residents are treated differently: the ATO says they cannot use attached franking credits to offset other Australian tax or receive a refund of them. Tax treatment depends on residency and individual circumstances; the ATO’s non-resident shareholder guidance explains this distinction.
What is a dividend reinvestment plan?
A DRP lets a shareholder use some or all of a dividend to receive additional shares rather than cash. Participation is optional and the details depend on the company’s current plan. Election steps, eligibility, pricing, cut-off dates, treatment of fractions or residual cash, and whether a plan applies to a particular dividend can vary. The ASX advises shareholders to check with the company’s share registry; its shareholder FAQ explains where to find participation instructions.
For capital gains tax purposes, the ATO treats a DRP participant as receiving the cash dividend and then using it to buy shares. Each parcel issued is a separate asset from its issue date. Reinvestment therefore does not make the dividend tax-free. Keep dividend and DRP statements, issue dates and parcel costs for your records. See the ATO’s capital gains tax guide.
Rank #4
How should you compare dividend-paying shares?
A high yield alone does not establish that a share is a sound investment. The figure can reflect a lower share price, a dividend that may not recur, or assumptions about future payments. Compare the basis and date of the yield, and consider the company’s ability and policy to pay dividends alongside your own need for cash or preference for reinvestment.
Recommended Free Tools
- Yield basis and date: Check whether the figure uses past, trailing or forecast dividends, and note the share-price date. Treat special dividends and price changes carefully.
- Payment sustainability: Consider earnings, cash flow, payout ratio, balance sheet and stated dividend policy. A company may reduce or stop dividends, or retain earnings.
- Franking: Check the franked proportion and how the relevant tax rules apply to your residency and circumstances.
- Cash or more shares: A DRP may suit an investor who wants additional shares, while another may need the cash or want to avoid increasing exposure to the same company.
- Plan details: Review the issuer’s current DRP rules for pricing, cut-offs, eligibility and treatment of fractions or residual cash.
The ASX discusses dividends and investment considerations in its share investment strategies guidance. If you are unsure how tax rules apply to you, seek advice from a qualified tax or financial professional.
Quick Recap
Product prices and availability are accurate as of the date/time indicated and are subject to change. Any price and availability information displayed on Amazon at the time of purchase will apply.
