Don’t want your dividends taxed twice? Be glad you’re in Australia!

Most countries tax dividends twice; once when the company earns the profit, and again when shareholders receive it. Australia’s dividend imputation system eliminates that double tax. When a company pays corporate tax on its profits, it earns franking credits, which it attaches to the dividends that it pays its shareholders. The credits offset your personal tax bill dollar for dollar (Parliamentary Budget Office, 2024). For a superannuation fund in its full pension phase, every single franking credit comes back.

Franking is the Aussie investor’s structural advantage. You can do it through ETFs, listed investment companies (LICs), and direct shares. Each delivers income differently and with a different tradeoff between control, cost and certainty.

ETF

For most investors, an ETF is the natural starting point.

An exchange traded fund tracks an index and trades on the ASX like any share. Vanguard’s Australian Shares High Yield ETF (VHY) holds around 70 dividend paying Australian companies, selected by forecast yield. It charges 0.25% per year and pays quarterly distributions (Vanguard, 2026). Its most recent quarterly payout carried 89% franking. Blackrock’s iShares S&P/ASX Dividend Opportunities ETF (IHD) screens 50 ASX listed companies on a similar basis and charges 0.23% per year (Blackrock, 2026). Both are among the cheapest ways to access a diversified income stream on the share market.

The limitation is that ETFs have no discretion. They hold what the index holds. When the major Australian banks cut or deferred dividends in 2020, high yield ETFs could not exit those positions. NAB cut its interim dividend from 83 cents to 30 cents per share in May 2020 (NAB, 2020). Westpac and ANZ deferred their interim dividends entirely (Westpac 2020; ANZ 2020). For investors who rely on that income to cover regular expenses, this variability matters.

LIC

Some Australian LICs held their dividend flat through the GFC. 

A listed investment company holds a portfolio of ASX listed securities and is itself listed on the ASX. Two of the largest are AFIC (Australian Foundation Investment Company) and Argo Investments.

LICs differ from ETFs in that they raise capital once at IPO. They do not issue or cancel shares as investors come and go and the manager never has to sell a holding to fund a redemption. This creates the advantage of income smoothing. An LIC can retain earnings in a strong year and distribute them later. AFIC’s published dividend history shows it paid the same combined annual dividend in FY2009 as in FY2008 (through the GFC) and held distributions steady again though 2020, when many of its underlying holdings cut their own payments (AFIC, 2026). All AFIC dividends are fully franked at 100% and its annual management expense ratio is 0.13% (AFIC, 2021). Argo has also paid dividends every year since its founding (Argo, 2024).

LICs also trade at a premium or discount to net asset value (NAV), which matters when you buy and sell. AFIC has historically traded at a small premium (AFIC, 2026), where investors pay slightly over NAV for the reliability of the dividend record. Some smaller LICs trade at a persistent discount. If you buy at NAV but then sell below it, that gap erodes your return, so checking an LIC’s current premium or discount against its historical range is standard due diligence before buying.

Direct Shares

Direct shares cut out the middleman entirely. The company earns a profit, declares a dividend, and sends the money straight to you. You pay no management fee, and no index forces the stocks you hold.

Buying individual ASX listed shares gives you maximum control over your income. Commonwealth Bank, NAB, ANZ, Westpac, BHP, Wesfarmers and Woolworths are amongst the most widely held for this purpose. Most pay fully franked dividends and the major banks have historically offered dividend yields well above those of comparable international banks due to the imputation system.

This risk is concentration. A portfolio of 10 or 15 stocks is actively manageable, but it still carries real company level and sector risk. An investor holding only the big four banks in 2020 lost a significant portion of their annual income in a single season. ETFs and LICs provide protection by spreading that outcome across wider portfolios.

Direct shareholdings work best alongside a diversified base, not as a replacement for one.

How to buy stocks in australia

The question isn’t which one to choose, but how much of each. Getting started is easier than you might expect. 

All three trade on the ASX and are purchased the same way. You open a brokerage account with an ASIC-licensed broker such as Vitti Capital, fund the account, and place a buy order using the relevant ticker.

Working out the right combination takes a little more thought. An SMSF in the pension phase might hold direct shares for fully franked income, a LIC for distribution stability, and an ETF for broad ASX exposure. A younger investor might start with an ETF and add the other two as the portfolio grows. Vitti Capital’s advisers assess your tax position, income needs, and existing holdings to work out which mix fits.

Australia’s franking system is common to all three, and we can help you navigate it.

Disclaimer

Vitti Capital Pty Ltd (ABN 13 670 030 145) is a Corporate Authorised Representative (001306367) of Point Capital Group Pty Ltd (ABN 41 625 931 900), the holder of Australian Financial Services Licence number 518031. This communication contains general information only and does not take into account your objectives, financial situation, or needs. 

Before acting on any information, you should consider whether it is appropriate to your circumstances. We recommend you seek personal financial advice before making any investment decision.

If you have not previously received a copy of our Financial Services Guide (FSG), it is available free of charge by contacting us or via https://vitti.capital/fsg/

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