Chart of the Week: CGT reform strengthens the case for dividend investing
Why dividend stocks are gaining an edge after tax reform.
This week’s insights come directly from our equity analyst Shaun Ler in the Australian Dividend Outlook and Top Picks 2026 Q2.
Dividend stocks appealing following tax reform
We believe the relative appeal of regular income streams has strengthened. The May 2026 Federal Budget introduced a significant capital gains tax, or CGT, reform. The long-standing 50% CGT discount has been replaced with cost-base inflation indexation alongside a 30% minimum tax floor on inflation-adjusted gains. This policy shift compresses the long-term, post-tax profitability of growth strategies, especially for investors whose gains are mostly real growth rather than just inflation.
It especially penalizes investors who historically deferred selling down assets, since the 30% floor sets a rigid minimum liability regardless of timing. The budget left dividend imputation untouched. Franked dividends keep their existing tax advantage. This means investors should look past the headline of low market yield.
This creates a comparative advantage for dividend investors—its scale varies by one’s marginal tax rate and the level of franking attached. For fully franked dividends, the prepaid company tax acts as a shield, lowering the investor’s personal tax bill or even generating cash refunds. Overall, this makes franked dividend-paying stocks key for investors seeking tax-efficient returns. This means that despite the overall low-yield environment, companies prioritising consistent dividend policies are likely to command a premium.
We believe companies with economic moats, Low or Medium Uncertainty Ratings, above-average distribution yields, higher franking levels, and strong financial health offer a durable, tax-shielded investment option. We see a broad range of stocks offering attractive, durable yields.
This quarter’s Pick List features 23 companies spanning multiple sectors and market capitalizations. We forecast an average yield of 5.6% for the group over the next two fiscal years, with more than one-third of companies offering yields of 6.0% or more—above the 4.6% simple average for our ANZ coverage universe.
The full report is available to Morningstar Investor subscribers and trialists.
