The debate about whether Australian retirees in pension phase (paying no tax) are better off in ASX-listed stocks, or the U.S. companies of the S&P 500 continues to rage.
Australian listed companies are known for their relatively high dividend payout ratios. It is estimated that, in aggregate, about 80 per cent of ASX 200 company profits are paid out as dividends.
Part of the reason is that our tax system causes companies to accumulate franking credits that have zero value to them but huge value to retiree shareholders.
Another reason could be that Australian companies have a lower need to retain capital for growth, as they tend to be mature businesses or have access to cheaper sources of capital elsewhere.
However, U.S. companies retain far more of their profits for growth. Provided they can compound their rising equity balances at high rates of return, they should deliver larger and/or faster increases in intrinsic value, which, over time, is reflected in share prices.
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