Income (dividends): The profits of a company can either be reinvested in the business or distributed amongst its shareholders as ongoing income. This income is known as a dividend and is generally paid out on a semi-annual basis. A general rule is, the larger and more established the company, the larger the dividend yield.
Growth (capital gains): Purchasing a share at one price and selling it later at a higher price is commonly known as capital growth. The value of a share is influenced primarily from the growth of the company you are invested in. There is risk involved if you own a share in a company that becomes unsuccessful, causing the share to lose value.
Tax benefits (franking credits): Realising a capital gain will incur a tax implication, but unlike earning interest from cash in the bank a dividend payment can yield effective tax benefits known as ‘franking credits’.
Franking credits: Companies pay tax on their profits. When after-tax profits are distributed as dividends they are described as ‘franked’. Franked dividends come with a franking credit, which represents the amount of tax the company has already paid. Franking credits are then passed on to shareholders along with dividends.