This post is specifically for SMSF investors in pension mode. If your marginal tax rate is zero and you can claim franking credits back from the tax office, RHG looks like a lay down misere.
On Thursday RHG will trade ex a fully franked dividend of $0.79. For super funds not subject to tax, you can buy it at today’s price of $1.24, collect $0.79 in cash on 2 June and another $0.34 for the franking credit when you submit your tax return (as early as July if you are organised). That means you’ll have $0.11 left invested in RHG. I think the shares will trade somewhere between $0.25 and $0.35 after it goes ex-div and are potentially worth as much as $0.60 long-term, plus a few more franking credits that will be generated along the way.
Over the past few months I’ve seen a number opportunities where franking credits are being substantially undervalued, but none quite as good as this.
Note that it is difficult to get meaningful portfolio exposure to the ex-dividend RHG. Say you wanted to end up with a 5% position in the company, you would have to have enough cash to invest 55% of your portfolio in the stock today (the other 50% will come straight back as dividend and franking credits). Not many investors will have that much flexibility. And, as always, get your own tax advice (you will have to own the stock for at least 45 days to claim the franking credits).
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Forager Funds is a boutique fund manager specialising in a value investing approach. We offer an ASX listed Australian Shares Fund as well as an International Shares Fund both aimed at delivering returns for long term investors.