Australian investors have long prized dividend-paying shares for their steady income and franking credits. But with some ASX blue chips trimming payouts in 2025 and global markets shifting, many are asking: can you build your own reliable income stream, even when companies don’t pay hefty dividends? Enter the concept of homemade dividends—a flexible approach that’s gaining traction among savvy Australians.
What Are Homemade Dividends?
Homemade dividends refer to the practice of generating your own cash flow from investments, regardless of whether the underlying shares or assets distribute income. Instead of relying on a company’s dividend declaration, investors can sell a portion of their holdings to create the cash they need, mimicking the effect of receiving a dividend.
- Example: If BHP reduces its dividend but its share price climbs, you can sell a few shares to create the cash you would have received.
- This approach works across shares, ETFs, and managed funds—especially those that focus on growth rather than income.
- Homemade dividends let you tailor cash flow to your needs, rather than being beholden to company policies.
Why Homemade Dividends Are Trending in 2025
The investment landscape in 2025 is markedly different from a decade ago. Several factors are pushing Australians to consider homemade dividends:
- Dividend Compression: ASX stalwarts like CBA and Telstra have announced more conservative payout ratios, reflecting the need for capital retention in an uncertain economy.
- Growth Focus: The rise of tech and healthcare shares on the ASX means more companies are reinvesting profits for expansion, not paying out cash.
- Tax Law Updates: The 2024-25 Federal Budget introduced tweaks to franking credit eligibility, reducing the tax advantages of chasing high-dividend shares for some investors.
- Retirement Trends: More Australians are entering retirement with superannuation balances invested in growth assets, needing to craft their own drawdown strategies.
For retirees and accumulators alike, homemade dividends offer control and flexibility. Instead of being at the mercy of corporate boardrooms, investors can decide when and how much to withdraw.
How to Build Homemade Dividends—Without Derailing Your Portfolio
While the concept is simple, effective execution requires planning. Here’s how to implement homemade dividends in your investment strategy:
- Determine Your Income Needs: Calculate your required annual cash flow. Consider living expenses, tax implications, and any other income sources (like rental income or superannuation).
- Set a Sustainable Withdrawal Rate: Financial planners often suggest a 4% annual withdrawal rate, but in 2025, with bond yields rising and equities more volatile, some experts recommend 3.5%–4% for Australians. Monitor market conditions and adjust as needed.
- Automate or Schedule Sales: Many brokers and super funds allow you to set up regular sales of ETFs or shares. For example, if you hold Vanguard’s VAS ETF, you can sell a set dollar amount each quarter to create cash flow.
- Consider Capital Gains Tax (CGT): Selling investments may trigger CGT. Take advantage of the 50% discount for assets held over 12 months, and offset gains with any capital losses if possible. The 2025 ATO guidance encourages careful record-keeping and strategic selling.
- Review Portfolio Rebalancing: Every sale affects your asset allocation. Revisit your mix of growth and defensive assets annually to ensure your risk profile remains appropriate.
Real-World Example: Sarah, a 67-year-old retiree from Melbourne, holds $400,000 in diversified ETFs. Rather than relying solely on the 2.8% yield from her portfolio, she sells $16,000 worth of units each year (4%), ensuring a steady income. In 2025, she times her sales to minimise CGT and maintain her target asset allocation.
Homemade Dividends vs. Traditional Income Investing
Homemade dividends aren’t a one-size-fits-all solution. Here’s how they compare to classic dividend investing:
| Aspect | Traditional Dividends | Homemade Dividends |
|---|---|---|
| Control | Company decides | You decide |
| Tax Efficiency | Franking credits (may be reduced) | CGT management required |
| Flexibility | Limited to payout schedule | Withdraw as needed |
| Portfolio Impact | No asset sale required | Asset base gradually drawn down |
| Suitability | Best for income-focused portfolios | Ideal for growth or blended portfolios |
With the 2025 market environment, a blended approach—using both traditional dividends and homemade dividends—can help smooth income and manage tax outcomes.
Key Takeaways for Australian Investors
- Homemade dividends provide flexibility and control in a shifting dividend landscape.
- Smart use of this strategy requires attention to tax, market cycles, and withdrawal rates.
- The 2025 updates to franking credits and superannuation rules make homemade dividends even more relevant for retirees and accumulators alike.
