LIC & LIT Beginner's Guide to Investing in Listed Investment Companies

That makes sense.

 

Have a foggy brain right now and need some clarification please, anyone that can help would be appreciated.
Say you buy bki today which is yielding 4.5% with 100% franked dividend.
Hypothetical. Let's say you have 500k and decide to buy bki. You have no other income or job or property or deductions on that money, and set up in your personal name only. No company or trust.

What amount will you receive after taxes, net?

This is where I'm lost. The first $18201 bracket means no tax payable. So if that 4.5% is fully grossed up then that is 6.42% return, so after this $18201, you move into the 19% bracket.

To earn $18,200 you need $283,500 at the grossed up 6.42%.

So since you will be earning more than 18200, what happens to the dividend yeild, does everything over 18201 then become taxed at 19%, meaning the dividend return after 18201 is....
6.42% grossed up x 0.81= 5.2% for 19% bracket.
500,000-283500= 216,500 x 5.2%=11,258
18200+11,258=$29,458 net?


Australian tax brackets.
Effective tax rate
$1 – $18,200 Nil 0%
$18,201 – $37,000 19c for each $1 over $18,200 0 – 9.7%
$37,001 – $87,000 $3,572 plus 32.5c for each $1 over $37,000 9.7 – 22.8%
$87,001 – $180,000 $19,822 plus 37c for each $1 over $87,000 22.8 – 30.1%
$180,001 and over $54,232 plus 45c for each $1 over $180,000 30.1 – less than 45%

 

It would be 500k x 6.42% = taxable income

You pay tax on taxable income
But receive a credit for the taxes paid by the company

 

Ok so that's 500k x 6.42%= $32,100 that gets placed into the tax calculator...
pay calculator

=$29,262 net.

 

Another example (which is mainly me thinking out load) ... borrowing parts from Barny's example:

Say you draw down $250k on a LOC (interest rate 4.5%) secured against a resi IP and buy BKI today which is yielding 4.5% with 100% franked dividend.

You receive $11,250 in dividends (4.5% yield), you pay $11,250 in interest (4.5% LOC rate). When doing your tax return these cancel each other out, however the franking gets added as income AND offset against the tax you need to pay.

So your taxable income (from this) is now $4,821. Assuming you are in 30% tax bracket you would be liable for $1,446.3 in tax - however since you've effectively already paid tax of $4,821 (franking credit) instead you get a $3,375 tax return.

Plus (hopefully) exposure to future increases in dividends ...

Regards,

Jason

 

Plus capital growth

Good example Jason.

 

Thanks austing for starting this thread.

After reading through the full thread over the past few days I've headed off top the shops (commsec) and swapped some of my ETF's for a nice small packet of LIC's (MLT, BKI, ARG, WHF, AFI and AUI). I tend to find I learn better with a vested interest, so look forward to following how they get on.

Regards,

Jason

 

@austing

 

Got myself my first small portions of WHF, ARG, AFI, BKI & AUI over the last 2 weeks. Now waiting on an order for MLT to fill and it's happy days. Save funds and tip into whichever is presenting best value at the time. Participate in SPP's when they arise. Simple set and forget.

 

Great portfolio! I like it a lot.

 

@RenegadeDom - love the sound of your portfolio.

 

Did you just do equal weightings?

 

Sure did. Equal spread across the ones I was interested in. Using Commsec's free brokerage when opening a new account the minimal outlay didn't hurt the bottom line. I'm even thinking about tipping the minimum into QVE just to get exposure to the small/mid cap even though it is trading at a decent premium. The premium is offset by no brokerage to some extent.

 

I thought I would bring together some thoughts that others are posting on the other threads that I thought are relevant in this type of thread. Please add to/comment on the posts here as you see relevant. I’m wanting to keep this thread as the title suggests ‘a beginners guide to….’

How much will you get from LICs/Peter Thornhill’s approach? Discussed further in the Peter Thornhill and LICs threads. @BingoMaster comments here –

More commentary about this topic on p41 of the Peter Thornhill thread

 

An article that I found interesting is attached here and how buying across the investing styles can allow an LIC investor to build a very diversified portfolio (although I assume the warning here, would be not to spread yourself too thinly?)

 

Continuing on from this post,

Is

(post #808 on p41 of Peter Thornhill thread)

 

In 2003, Peter Thornhill wrote a piece about LICs, which may present some comments about LICs in the broader share market (note article may be out of date, including here as some background for those who are interested)

 

I like this YouTube posted by @trinity168

 

In the Listed Investment Companies (LICs) thread, a page was uploaded with a summary of posts to that point. While the page includes a number of seemingly random comments and thoughts, I thought it brought together some of the main ideas of the thread to that point. Including it here should others find it useful.

 

Along with @austing's great Beginner's Guide to LICs, I found @The Falcon 's post in LICs a good summary about buying at premiums/discounts Listed Investment Companies (LICs)