Question 1: What’s the story with Alumina (AWC)?  A humongous dividend yield of almost 10% is set against a relatively modest decline in the past 12 months. On the face of it, it seems a good deal. Do you agree?

Answer: A great question! Alumina (AWC) is a bit of an unloved stock. It is the 40% owner of the AWAC joint venture, and tends to get knocked around with the performance of Alcoa in the USA. There is some concern about the price of alumina (it has been in a downward trend), and specifically, AWC’s growth prospects.

According to FNArena, the brokers analysts have a target price of $2.53 on the stock (range $2.10 to $3.10). This is 5.4% higher than the last closing price of $2.40. There is 1 buy recommendation and 4 neutral recommendations.

It is trading on a multiple of 10.1 times FY19 earnings and 10.4 times FY 20 earnings, with a forecast dividend yield of 9.2% for FY19 and 9.3% for FY20. These should be fully franked!

But AWC is a price taker and has no control over the prices it receives. It also has limited control over its input costs. So there is considerable risk relating to its earnings and the ability to pay that dividend.

Question 2: It looks like I may be in for a bit of a win on some shares I brought, as the price continues to grow. If I sell a portion of them, can I put the profit through my super instead of tacking it on to my yearly income where I will pay higher tax?

Answer: Congratulations on the win…but no, if you have made a  profit, you may need to pay any capital gains tax. You can’t “put it through your super” and change the legal entities.

Two points to note:

1. If you have taken any capital losses, you can apply these to offset the capital gain; and
2. If you’re eligible to make a contribution to super, you can of course put any of the sale proceeds into your super.

Question 3:  My wife and I are both retired, over 60, and each of us is taking a pension from our SMSF. Our balances are around a million dollars each, with a combination of tax-free and taxable components. We have non-lapsing binding death binding nominations in favour of each other. What is best option in case one of us dies, for the surviving member after winding up the SMSF, to avoid going over the $1.6 million cap and also not pay tax?

Answer (by Graeme Colley, Executive Manager, Super Concepts): There is no one ‘best option’, however, there are a number of things you could consider depending on the circumstances.  Here are some possibilities:

1. If the surviving spouse wished to maximise the amount in super, it would be possible to retain the whole amount in the SMSF.  This could be done by using the amount of the death benefit to commence a death benefit pension in the fund with the estimated value of $1 million.  If we assume the pension being paid to the surviving spouse at the time of their partner’s death has a value of $1 million, they could commute (transfer) $400,000 to accumulation phase and the value of the pensions would remain within the $1.6 million Transfer Balance Cap (TBC).  This means the surviving spouse would have pensions with a value for TBC purposes of $1 million and $600,000 and an amount of $400,000 in accumulation phase.
2. The surviving spouse may wish to continue their pension with a value of $1 million and commence a death benefit pension of up to $600,000 and withdraw the remainder of the death benefit from the fund as a lump sum.
3. The surviving spouse may wish to continue their pension with the value of $1 million and withdraw all of the partner’s death benefit as a lump sum.

There may be many variations on the three options available, depending on other personal considerations of the surviving spouse after the partner’s death.  This can only be determined at the time.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regard to your circumstances.