Franked income isn’t gone – here’s where to find it

In Australia, investors enjoy a built-in advantage which makes growing their wealth simpler and more effective.

That advantage lies in our dividend imputation system, with franking credits sitting at its core. These credits let shareholders reduce their personal income tax bill – and sometimes even receive a refund.

While this system has been good to investors for many years, the environment is changing. Bloomberg data shows that Australian 12-month forward dividend yields are currently at 25-year lows¹. In addition, just as bank hybrid begin rolling off for good. Put simply, it might be time for income investors to consider not just how much franked income they earn, but where it’s coming from.

The franking credits system – in a nutshell

Franking credits have become a core part of Australia’s investing culture since they were introduced in 1987². These tax offsets reduce the levy already paid by companies, helping investors avoid double taxation on dividends.

In Australia, many publicly listed entities attach franking credits to the dividends they pay. Companies have the option of paying fully franked dividends – where the entire dividend has tax already paid – or partly franked dividends, which include only a portion of tax credits. Some examples of individual companies that have historically paid fully franked dividends include Woolworths, Telstra and Commonwealth Bank. An example of a company that historically pays a partially franked dividend is Macquarie Group.

These credits reflect the tax that the company has already paid. Shareholders can then use the franking credits to reduce their personal income tax bill. If your tax bill is low enough, you might even receive a refund at the end of the financial year³.

This system, as it currently stands, is rare and generous. Outside of Australia, only five other countries have a full imputation system like ours⁴.

Franking credits are cherished by many investors but particularly by SMSFs, retirees and low tax rate investors. These investors benefit the most from this system⁵.

The state of franked dividends in Australia

As at the end of December 2024, 111 members of the S&P/ASX 300 pay fully franked dividends⁶. However, as earnings have been declining in parts of the Australian corporate sector, and company boards become more cautious given the uncertainty in the economy, there are arguably fewer companies that can afford to continue paying the high levels of fully franked dividends that investors have come to expect.

As of the end of July 2025, 55% of all dividends paid out by the S&P/ASX 200 come from just ten companies. This concentration means that while franked dividends are still available, they are increasingly reliant on a small group of stocks, many of which are mature and cyclical.

One company that serves as an example of this trend is BHP (ASX: BHP), which recently declared a full year dividend payout of US$1.10/share⁷. While this is a fully franked figure, it is the lowest full year payout since 2016/17 and follows a 26% decline in full year profits⁸.

Another example is Woolworths (ASX: WOW), which recently reported a 17% drop in net profit and cut its final dividend by 41% to 45 cents per share⁹. This was a larger drop than anticipated by investors and analysts. Combined with a cautious FY26 outlook, the result saw shares fall more than 15% on the day of the announcement (27 August 2025).

Both these examples highlight how uneven the income opportunity set has become. While some companies continue to deliver sustainable franked income, others are forecast to deliver less. In this environment, a diversified approach to income investing is essential.

Does franking still apply if I hold ETFs?

The short answer is a clear yes. When the underlying holdings of an ETF pay dividends, the franking credits may be passed directly on to investors – as if the investor held them directly.

This means ETFs can not only save you the time and effort of investing in individual shares but also open you up to a wide array of franking opportunities.

One thing worth noting is that although some Betashares ETFs pay income monthly, franking credits are tallied and passed on at the end of the financial year. That’s when the ETF calculates how much tax was already paid on the dividends it received and how much of it can be passed onto you.

Two ways to tap into franking

The good news for income investors is that franked income is no longer limited to investing in individual shares. ETFs have the potential to pay out a competitive franked income while giving investors the opportunity to access many of the companies that distribute these payouts in a convenient and cost-effective way.

Two Betashares ETFs that make the most of this franking theme are Betashares High Yield Australian Shares ETF (ASX: HYLD) and Betashares Australian Dividend Harvester ETF (ASX: HVST). Both deliver franked income but do so in different ways.

HYLD S&P Australian Shares High Yield ETF aims to track the S&P/ASX 200 High Yield Select Index, offering exposure to 50 Australian companies with high forecast dividend yields. The Index screens out potential ‘dividend traps’ such as companies projected to pay unsustainably high dividend yields, as well as companies that exhibit high levels of volatility relative to their forecast dividend payout. It’s designed as a core Australian share exposure that provides attractive income for investors.

HVST Australian Dividend Harvester Active ETF , by contrast, is built specifically for income-centric investors like SMSFs and retirees. The fund follows a rules-based strategy to select 40–60 shares from the largest 100 on the ASX, targeting those expected to deliver strong dividend and franking outcomes. This portfolio is refreshed every three months to stay aligned with its income-focused goals.

Both ETFs seek to pay out monthly distributions with franking credits attached. This feature allows investors who value regular cash flow the benefits of receiving monthly distributions, while also accumulating franking credits that are passed on at the end of the financial year.

It’s important to keep in mind that dividend yields and franking levels can vary over time. This is particularly true for tactical strategies like the one used in HVST, so investors should remain mindful of how these factors may evolve.

Franking is as Australian as Ampol

For investors looking for fully franked income, HYLD and HVST provide two straightforward ways to tap into Australia’s dividend advantage. Whether you’re after consistency, tactical opportunity or both, these funds let you enjoy all the benefits of franking credits in a simple and popular investment vehicle.