Australia’s obsession with dividends is doing you damage

Yield-seeking behaviour is causing some stocks to skyrocket – but starving our businesses of capital. If ever there were a sign that Australian investors are obsessed with dividends, this is it: Cochlear (ASX: COH) posted record sales for 2015 and a 56% rise in net profit – not to mention management expectations for 14%+ growth in 2016 – yet the share price fell 10% following the announcement. Why? Cochlear’s board reduced the full-year dividend by 25%. Of course, in Cochelar's case several other factors were also at play and investor expectations got ahead of themselves, but a broader question remains: Why has everyone gone gaga for dividends? Franking credits make dividends particularly tax friendly in Australia. But imputation has been around for nearly 30 years – it’s not the full story. We suspect the army of retirees now managing their own superannuation are to blame. The number of self-managed super funds has increased from roughly 100,000 in 1999 to over 500,000 today. Read full article (VIEW LINK)