Day: December 25, 2020

Why I’d buy and hold cheap dividend stocks for more than just a passive income

Millionaire and Wealthy man with money raining down, cheap stocks

Many investors may view today’s cheap dividend stocks solely from a passive income perspective. In other words, their high yields provide a generous income return and little else.

However, undervalued income stocks could deliver impressive capital returns alongside a passive income. Their low prices may equate to capital growth potential – especially as low income returns available on other mainstream assets push investors towards dividend shares.

Capital growth opportunities from cheap dividend stocks

Despite the 2020 stock market rally, there are a wide range of cheap dividend stocks available to purchase today. In many cases, they face challenging operating conditions in the short run that have caused investors to demand a wide margin of safety.

While this may limit their scope to deliver capital growth in the short term, over the long run they could benefit from improving operating conditions as part of a global economic recovery.

Therefore, buying them now while they trade at a discount to their intrinsic values could be a shrewd move. It may enable a long-term investor to lock-in low valuations across the stock market for high-quality businesses that have the financial capacity to survive further operating challenges.

Over time, today’s cheap stocks could experience stronger financial performances and improving investor sentiment that leads to high capital returns for investors.

A lack of passive income appeal elsewhere

Cheap dividend stocks offer a significantly more attractive passive income opportunity than other mainstream assets at the present time. For example, obtaining an income return that is positive on an after-inflation basis has become more difficult over the past year for bondholders and savers. They may even experience a loss of spending power should interest rates remain low and inflation rise in the coming years.

Meanwhile, property investment may produce disappointing income returns over the next few years. High house prices and a struggling economy may produce low yields that fail to improve significantly.

This may increase the appeal of cheap dividend stocks, thereby raising demand for income shares. The end result could be rising share prices – especially if interest rates remain at low levels. Since policymakers seem to be more concerned about the economy’s outlook rather than maintaining modest levels of inflation, it would be unsurprising for a loose monetary policy to remain in place over the coming years.

Reducing risk from undervalued dividend shares

Of course, cheap dividend stocks may experience further difficulties in the short run. Their operating conditions could deteriorate further in the coming months. As such, it is important to buy those companies with solid financial positions and affordable dividends.

Doing so may reduce risk and lead to a higher passive income, as well as a larger capital return in a likely stock market rally over the long term.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

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Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Leading fund manager names the ASX dividend shares to buy in 2021

ASX dividend shares represented by cash in jeans back pocket

While the probability of a rate increase by the Reserve Bank of Australia in 2021 is incredibly low, income investors need not worry.

That’s because the Managing Director of Plato Investment Management, Dr Don Hamson, revealed that the income-focused investment firm is entering 2021 with a relatively bullish outlook for yield from Australian equities.

Plato Investment Management, the company behind Plato Income Maximiser Ltd (ASX: PL8), is particularly positive on miners with exposure to iron ore.

Dr Hamson commented: “We been getting exceptional yield from Iron Ore miners for some time now and we think this continues into 2021, even if we do see some short-term volatility. COVID-19 economic stimulus across the globe is continuing to evolve from income support to infrastructure spending, led by China, and this is a strong tailwind for demand.”

“There is some concern about the impact of trade wars, but the reality is Chinese steel mills have few options outside of Australia. Brazil being the other major Iron Ore exporter, but all the data indicates Brazil alone can’t provide China with what they need. China is hitting the exports it can get from other countries, like beef, barley, wine and now it seems coal,” he added.

Plato’s picks for dividends in this space are BHP Group Ltd (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG), and Rio Tinto Limited (ASX: RIO).

What are the other dividend options for 2021?

It isn’t just the iron ore miners that Plato Investment Management sees as dividend options next year. The investment company expects to find strong yields in select domestically focused retailers in 2021.

Dr Hamson explained: “You can’t travel abroad, so if you think about the number of additional Australians who’ll be spending the holiday season at home, buying groceries from supermarkets, buying gifts and taking advantage of post-Christmas sales, we think this is significant. It bodes well for continuing strength from consumer staples stocks and select consumer discretionary.”

In light of this, Plato is expecting good yields from the likes of Coles Group Ltd (ASX: COL), JB Hi-Fi Limited (ASX: JBH), Super Retail Group Ltd (ASX: SUL), and Wesfarmers Ltd (ASX: WES).

And with APRA removing dividend payout limits on the banks, Dr Hamson is also expecting upside in bank dividends.

He commented: “We’ve been underweight banks for most of the year but have become much more optimistic on banks dividends in recent months. We don’t expect bank dividends to go back to where they were two years ago, but we’re confident they will increase in 2021 and begin moving back towards normal payout ratios of between 70-90%.”

“Rising property prices and continued government support for small business are both key factors that strengthen the case for a recovery in the banks,” he concluded.

The Plato Australian Shares income fund is targeting a 7% yield over the coming 12 months.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Super Retail Group Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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2 blue chip ASX shares to buy next week

There are a large number of blue chip ASX shares to choose from on the Australian share market.

So many, it can be hard to decide which ones to buy ahead of others.

To help narrow things down, I have picked out two blue chips which have been tipped as buys:

Australia and New Zealand Banking GrpLtd (ASX: ANZ)

The first blue chip to consider is ANZ. Although the banks still have COVID headwinds and low interest rates to battle, trading conditions certainly are improving. This was evident in recent decisions to relax responsible lending rules and dividend restrictions.

So with the ANZ share price still trading materially lower than its previous highs, now could be an opportune time to make a patient investment.

Morgans certainly appears to believe this is the case. It has recently reiterated its add rating and lifted its price target on the company’s shares to $26.00.

The broker is also forecasting fully franked dividends of $1.27 per share in FY 2021 and $1.50 per share in FY 2022. Based on the current ANZ share price, this represents 5.5% and 6.5% dividend yields, respectively.

Cochlear Limited (ASX: COH)

Another blue chip to look at is Cochlear. It is a leading medical device company with a portfolio of cochlear implantable devices and other hearing solutions.

It has been a very positive performer over the last decade and delivered consistently strong sales and profit growth. The good news is that Cochlear appears well-positioned to continue this trend over the next decade.

This is thanks to its strong market position, leading technology, and its exposure to the ageing populations tailwind. In respect to the latter, by 2050 there are forecast to be 1.5 billion people over the aged of 65. This will be almost triple the number of over 65s in 2010. 

Analysts at Macquarie are bullish on the company’s prospects and believe Cochlear is winning market share in the United States. They currently have an outperform rating and $241.00 price target on its shares.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

More reading

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 2 blue chip ASX shares to buy next week appeared first on The Motley Fool Australia.

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2 ASX dividend shares to solve your income needs

fingers walking up piles of coins towards bag of cash signifying asx dividend shares

Are you looking to boost your portfolio with some income options when the market reopens?

Then you might want to take a look at the ASX dividend shares listed below. Here’s what you need to know about them:

BWP Trust (ASX: BWP)

BWP Trust is the owner of 68 Bunnings Warehouse sites across Australia. Given the quality of the Bunnings business and its strong performance during the pandemic, BWP has been able to collect its rent largely as normal this year. This, combined with an increase in the fair value of its assets, led to the company reporting an impressive 24.4% increase in full year profit to $210.6 million in FY 2020.

This strong form also allowed the BWP board to increase its distribution to 18.29 cents per unit. Based on the current BWP share price, this represents a trailing 4% yield for investors. Management advised that a similar dividend is expected in FY 2021.

Rural Funds Group (ASX: RFF)

Rural Funds is a real estate investment trust (REIT) that owns a diversified portfolio of high quality Australian agricultural assets. These assets are leased to some of the most experienced agricultural operators in the country.

At the end of the last financial year, the company owned a total of 61 properties with a combined value of $1 billion and a weighted average lease expiry (WALE) of 10.9 years. From these properties it was generating adjusted funds from operations (AFFO) of 11.7 cents per share, which allowed its board to increase its full year distribution to 10.8 cents per share.

Pleasingly, another dividend increase is coming this year. Thanks to its long leases and rental increases, the company intends to lift this distribution by its 4% per annum growth rate target in FY 2021. This will mean a 11.28 cents per share distribution for shareholders. Based on the current Rural Funds share price, this works out to be a 4.35% yield.

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Our team of investors think these 3 dividend stocks should be a ‘must consider’ for any savvy dividend investor. But more importantly, could potentially make Australian investors a heap of passive income.

Don’t miss out! Simply click the link below to grab your free copy and discover these 3 high conviction stocks now.

Returns As of 6th October 2020

More reading

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post 2 ASX dividend shares to solve your income needs appeared first on The Motley Fool Australia.

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