Grossing up
The grossed up dividend measures the rate of return from dividend payments after taking into account the benefits of imputation credits (franking credits) to the shareholder.
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Before dividend imputation was introduced the customary way of quoting dividend yields was to divide the full year dividend in cents per share by the market price in cents per share. The result, expressed as a percentage, was then perfectly comparable with the yields from other forms of investment.
This is no longer true in all cases. To make yields from shares paying fully franked dividends comparable on an "after tax" basis with returns from shares paying unfranked dividends, or from deposits or securities paying interest, or from property investments paying rent, it is necessary to multiply the yield as calculated in the previous paragraph by 100/70, to reflect the 30 per cent company tax rate.
The term "grossing-up" is often used in this context, when the face value of a franked dividend is multiplied by 100/70 (in other words, by 1.42857). .
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