Day: November 27, 2022

Want growing dividend income? I think this ASX share could be a future dividend king

Woman wearing chicken mask drawing money out at ATM

Woman wearing chicken mask drawing money out at ATM

Collins Foods Ltd (ASX: CKF) shares have the potential to deliver significant dividend income in my opinion.

Many of ASX’s biggest companies are also the biggest dividend payers, such as Commonwealth Bank of Australia (ASX: CBA) and BHP Group Ltd (ASX: BHP). But, a long time ago, these behemoths were a lot smaller.

While I’m not predicting that Collins Foods is going to become as big as those two, I do think it has plenty of growth potential.

There are three main areas to the business – KFC Australia, KFC Europe and Taco Bell Australia. It is a large franchisee of KFCs and Taco Bells in Australia.

At the end of FY22, it had 261 KFC restaurants in Australia after opening 10 more during the year.

KFC Europe has operations in both the Netherlands and Germany. It recently commenced a Netherlands corporate franchise agreement (CFA) which gives Collins Foods primary operational control over the entire market and incentives for market development, with a target of up to 130 net new restaurants over the next 10 years. At the end of FY22, it had 45 restaurants in the Netherlands.

Collins Foods is also responsible for Taco Bell in Australia. In FY22 it had 23 locations around Australia. FY22 saw Taco Bell’s revenue rise by 27.5% to $35.8 million.

Let’s now look at the dividend.

FY22 dividend

In FY22, the business paid a total fully franked dividend per share of 27 cents per share. That represented an increase of 17.4%.

This came after a 25% increase in underlying net profit after tax (NPAT) from continuing operations to $59.7 million. Statutory net profit jumped 47.2% to $54.8 million for the ASX share.

It has increased its dividend each year since 2014.

Future dividend expectations

It’s expected to pay an annual dividend of 30.9 cents in FY24 according to Commsec. This would be a grossed-up dividend yield of 4.4%.

The business is planning to open another 20 to 29 new restaurants in FY23 alone, with nine to 12 for KFC Australia, two to five for KFC Europe and nine to 12 Taco Bells.

The Collins Foods managing director and CEO Drew O’Malley said:

Collins Foods possesses the key ingredients to weather turbulent times – a strong balance sheet, world-class brands, and a passionate and dedicated team of experienced operators. We continue to monitor the landscape for acquisition opportunities that fit our portfolio and capabilities. And ultimately, we believe that by staying focused on providing unmatched experiences for our customers and people, our long-term prospects are as bright as ever.

I think that Collins Foods is capable of producing dividend growth of an average of more than 10% per annum over the next decade through a combination of same-store sales growth, store network rollout and potentially more acquisitions.

If the business can keep growing its underlying earnings per share (EPS) at an attractive rate, then this can continue funding bigger dividends over time.

Collins Foods share price snapshot

Collins Foods shares have dropped 26% in 2022 to date. But, over the last month, it has risen around 10%.

The post Want growing dividend income? I think this ASX share could be a future dividend king appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Collins Foods Limited. The Motley Fool Australia has recommended Collins Foods Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Top brokers name 3 ASX shares to buy next week

Broker written in white with a man drawing a yellow underline.

Broker written in white with a man drawing a yellow underline.

Last week saw a number of broker notes hitting the wires once again. Three buy ratings that investors might want to be aware of are summarised below.

Here’s why brokers think investors ought to buy them next week:

Lovisa Holdings Ltd (ASX: LOV)

According to a note out of UBS, its analysts have upgraded this fashion jewellery retailer’s shares to a buy rating with an increased price target of $29.00. UBS was impressed with Lovisa’s trading update and points out that it is outperforming its peers. The broker also highlights that the company’s global expansion continues to gather pace with several new markets about to be entered. Combined, the broker has lifted its earnings estimates and valuation accordingly. The Lovisa share price was fetching $23.50 at Friday’s close.

QBE Insurance Group Ltd (ASX: QBE)

A note out of Citi reveals that its analysts have retained their buy rating and lifted their price target on this insurance giant’s shares to $15.40. The broker wasn’t overly surprised with QBE’s recent trading update. And while it sees a modest risk in QBE’s upcoming reinsurance renewal, it doesn’t appear overly concerned given the supportive premium rate environment and the exit running yield of 3.7% on fixed income investments. All in all, while the broker has reduced its earnings estimates for FY 2022, higher yields has led to an increase in earnings beyond this. The QBE share price ended the week at $13.02.

Qantas Airways Limited (ASX: QAN)

Another note out of UBS reveals that its analysts have retained their buy rating and lifted their price target on this airline operator’s shares to $7.60. This follows the release of a trading update last week which revealed a stronger than expected profit and lower net debt for the first half of FY 2023. UBS was pleased with the update and expects the strong form to continue into FY 2024. The Qantas share price was fetching $6.06 on Friday.

The post Top brokers name 3 ASX shares to buy next week appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Lovisa Holdings Ltd. The Motley Fool Australia has recommended Lovisa Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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74% of Warren Buffet’s portfolio is in these 5 stocks. Could this help guide which ASX shares to buy?

Five guys in suits wearing brightly coloured masks, they are corporate superheroes.

Five guys in suits wearing brightly coloured masks, they are corporate superheroes.

Most investors know that the legendary Warren Buffett is considered one of the best investors of all time, if not the best. Most investors will also know that Buffett heads the famous investing conglomerate known as Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B).

After taking over Berkshire in the mid-1960s, Buffett transformed the textiles company into a diverse powerhouse, owning many businesses outright and with significant investments in many other public companies.

Buffett’s love of his investments is also well known. He even likes to remind shareholders of his commitment to the Coca-Cola Co (NYSE: KO) by typically sporting a can or a bottle at Berkshire’s annual general meeting every year.

Berkshire Hathaway’s massive portfolio

Berkshire owns stakes in more than 50 different publically-traded shares. But it might surprise investors to learn that almost 74% of Berkshire Hathaway’s public investing portfolio is concentrated in just five companies. That’s according to the company’s latest 10Q filing, which is accurate as of 30 September.

Some famous names appear in Berkshire’s list. There’s Amazon.com Inc (NASDAQ: AMZN), Johnson & Johnson (NYSE: JNJ) and Visa Inc (NYSE: V). Buffett also owns chunks of Activision Blizzard Inc (NASDAQ: ATVI), Chinese electric vehicle manufacturer BYD Co Ltd and the relatively new-to-the-markets Snowflake Inc (NYSE: SNOW).

But none of these companies even come close to Buffett’s top five holdings.

They are (from largest):

  1. Apple Inc (NASDAQ: AAPL)
  2. Bank of America Corp (NYSE: BAC)
  3. Chevron Corporation (NYSE: CVX)
  4. Coca-Cola Co
  5. American Express Inc (NYSE: AXP)

So what can we learn from this?

What can we learn from Warren Buffett?

Well, a few things to point out. Some of these holdings, namely Coca-Cola and AmEx, are old Buffett favourites. Buffett first bought Coca-Cola shares back in the 1980s. His investment in American Express goes back even further to the 1960s.

But others are far newer. Apple is by far Berkshire’s largest investment. The company has more than US$128 billion worth of Apple shares, which carves out a whopping 39.7% of Buffett’s entire public portfolio. Yet Buffett only began buying Apple shares back in 2016. His Chevron stake is even newer, with Berkshire picking up its first shares in the midst of COVID-ravaged 2020.

So Buffett is clearly an investor that holds onto his favourite shares through thick and thin. American Express is a company that has had many, many ups and downs since Buffett first bought in back in the ’60s. Yet Buffett has always stayed the course. Ditto with Coca-Cola.

But he is also an investor who knows how to jump on a trend. Buffett clearly saw the post-COVID collapse in global oil prices as an incredible opportunity.

It only took him two years to build Chevron into Berkshire’s third-largest position – one worth US$31.2 billion today. And Apple has gone from absent to Berkshire’s largest holding in just a few years as well.

So Warren Buffett is clearly an investor who likes to hold his favourite shares forever. But he is also one that isn’t afraid to jump on a trend or a new idea and quickly build it into a sizeable position.

Perhaps above all, Buffett’s Berkshire portfolio shows that he is just fine with having 40% of his portfolio in his favourite company: Apple. There are more than a few lessons we mere mortals can take away today.

The post 74% of Warren Buffet’s portfolio is in these 5 stocks. Could this help guide which ASX shares to buy? appeared first on The Motley Fool Australia.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool company. American Express is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Sebastian Bowen has positions in Amazon, American Express, Apple, Berkshire Hathaway (B shares), Coca-Cola, Johnson & Johnson, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Activision Blizzard, Amazon, Apple, Berkshire Hathaway (B shares), Snowflake Inc., and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Johnson & Johnson and has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), long January 2024 $47.50 calls on Coca-Cola, long March 2023 $120 calls on Apple, short January 2023 $200 puts on Berkshire Hathaway (B shares), short January 2023 $265 calls on Berkshire Hathaway (B shares), and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Activision Blizzard, Amazon, Apple, and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Skin in the game: The ASX share in my portfolio I’m most excited about

Two men cheering at laptopTwo men cheering at laptop

According to Oxford Languages, ‘motley’ means “incongruously varied in appearance or character”. But in relation to our Foolish writers, it means they vary greatly with regard to age, risk tolerance, and stage of life as well as investing budget, timeframe, and expectations.

Despite their many differences, a passion for investing in ASX shares is something all our writers definitely have in common.

So when we asked them to let us know which of the ASX companies they own shares in that they are feeling particularly upbeat about right now, they leapt at the chance to share their thoughts.

Here’s what they had to say:

8 of their own ASX shares our writers are especially pumped about (smallest to largest)

  • Bailador Technology Investments Ltd (ASX: BTI), $185.59 million
  • Alcidion Group Ltd (ASX: ALC), $199.72 million
  • VanEck Morningstar Wide Moat ETF (ASX: MOAT), $454.32 million
  • Vulcan Energy Resources Ltd (ASX: VUL), $1.01 billion
  • Elders Ltd (ASX: ELD), $1.59 billion
  • Telix Pharmaceuticals Ltd (ASX: TLX), $2.324 billion
  • Domino’s Pizza Enterprises Ltd (ASX: DMP), $5.70 billion
  • Fortescue Metals Group Limited (ASX: FMG), $58.32 billion

(Market capitalisations as of market close on 25 November 2022)

Why these ASX shares set our writers’ hearts aflutter

Bailador Technology Investments Ltd

What it does: Bailador exposes investors to a “portfolio of information technology companies with global addressable markets”. It generally makes initial investments of between $5 million and $20 million in businesses in the ‘expansion stage’. Some of the sectors that Bailador looks for are subscription-based internet businesses, online marketplaces, software, e-commerce, high-value data, online education, telco applications, and services. Siteminder Ltd (ASX: SDR) is currently one of its biggest investments.

By Tristan Harrison: The typical characteristics that Bailador looks for in a business to invest in are attractive to me. These include companies that are run by founders and have a “proven” business model with attractive unit economics, international revenue generation, “huge market opportunity”, and the “ability to generate repeat revenue”.

In the current climate of economic uncertainty, I think this sort of discerning approach could help this  ASX financial share excel over the long term. Yet, the Bailador share price is down 20% since the end of August.

Almost half the company’s portfolio value is cash after Bailador recently sold its Instaclustr and SMI stakes for a combined $138 million. Due to those sales, $119 million of Bailador’s total $246.8 million portfolio value is cash, providing protection and a hunting fund in these volatile times.

Motley Fool contributor Tristan Harrison owns shares in Bailador Technology Investments Ltd.

Alcidion Group Ltd

What it does: Alcidion is a healthcare informatics company that provides a range of software solutions to hospitals and healthcare professionals. Think everything from patient flow and bed management to real-time analytics, theatre management, waiting lists, and registrations.

Alcidion has an established foothold in Australia, New Zealand, and the United Kingdom, with its technology being used to manage more than 65,000 beds across 400 hospitals.

By Cathryn Goh: Although the digital transformation of business, in general, has been in train for some time, the healthcare sector has been somewhat of a laggard. Many hospitals are rooted in old-world systems. Others have embraced digital but use a variety of disparate systems that don’t talk to each other.

This is where Alcidion enters the fray, offering hospitals everything from a fully-fledged electronic patient record (EPR) solution to individual software modules that play nice with existing technology investments.

Put simply, Alcidion is a mission-critical, scalable software business that’s experiencing strong business momentum and has tipped into cash flow and earnings before interest, tax, depreciation and amortisation (EBITDA) positive territory.

With a newly-transformed offering and stiff industry tailwinds at its back, it’s a small-cap ASX share I think holds plenty of promise.

Motley Fool contributor Cathryn Goh owns shares in Alcidion Group Ltd.

VanEck Morningstar Wide Moat ETF

What it does: This exchange-traded fund (ETF) holds a small portfolio of US shares that are deemed to show characteristics of Warren Buffett’s famous ‘economic moat’. In other words, intrinsic and durable competitive advantages.

By Sebastian Bowen: The VanEck Wide Moat ETF invests in a relatively small portfolio of quality US companies. The holdings are selected for their ability to demonstrate an economic moat. Types of moats can include an exceptionally strong brand, pricing power in a particular sector, or selling a product that many customers have no alternative for, to name a few.

This ETF has proven its approach works. The VanEck Wide Moat ETF has outperformed its benchmark S&P 500 Index (SP: .INX) over the past five years and since its inception in June 2015.

Since inception, the fund has averaged a return of 14.48% per annum (as of 31 October). This is more than enough to earn the VanEck Wide Moat ETF pride of place in my ASX share portfolio.

Motley Fool contributor Sebastian Bowen owns units in the VanEck Vectors Wide Moat ETF.

Vulcan Energy Resources Ltd

What it does: Vulcan Energy is an ASX lithium company working to develop its flagship Zero-Carbon Lithium Project, a German lithium brine resource. The project is expected to power its production using renewable energy from the brine’s geothermal properties.

By Brooke Cooper: For me, my most exciting investment is one that also carries plenty of risk.

Vulcan Energy is working to develop a world-first zero-carbon lithium project. Thus, there’s lots of scope for potentially-significant upside, but also the risk of error and misfortune along the way. Being in my 20s and having a long investment horizon, I’m okay with taking on this risk. 

Beyond the company itself, unprofitable resource shares are typically particularly susceptible to shifting market sentiment, as I’ve delved into previously. That’s arguably one contributing factor to Vulcan’s 34% year-to-date share price tumble.

However, I remain excited about the Zero-Carbon Lithium Project’s potential, as well as the company’s work in the geothermal power space.

Motley Fool contributor Brooke Cooper owns shares in Vulcan Energy Resources Ltd.

Elders Ltd

What it does: Since its founding in 1839, Elders has taken many forms over its 183-year lifespan. Today, the company derives most of its gross profits from its agricultural chemicals operations and agency services. Elders’ agricultural industry involvement has also permeated into other areas such as fertilisers, animal health, and rural real estate.

By Mitchell Lawler: Upon releasing its FY22 full-year results last week, the market responded with a hefty sell-down of the agribusiness’s shares. The Elders share price was demolished by nearly 23% in a single session despite sales revenue and underlying profit increasing by 35% and 42%, respectively.

News of the company’s CEO, Mark Allison, retiring likely played a significant role in the shifting sentiment. Allison, without a doubt, was instrumental in conducting one of the greatest turnaround stories in Australia’s corporate history.

While it will be a loss to the company, I believe Elders is strongly positioned to continue its growth. The company has made many acquisitions recently, bringing the trusted Elders brand to more locations and potential customers than ever before.

With a price-to-earnings (P/E) ratio of around 9.7, I believe this long-standing S&P/ASX 200 Index (ASX: XJO) share looks acutely underappreciated and undervalued.

Motley Fool contributor Mitchell Lawler owns shares in Elders Ltd.

Telix Pharmaceuticals Ltd

What it does: Telix is a pharmaceutical company that makes cancer diagnostic and treatment products.
The business is currently transitioning from a pre-revenue phase to a growth stage. In April, Telix commercially launched prostate cancer diagnostic tool Illuccix into the US market. The pharma also has other cancer products in the pipeline.

By Tony Yoo: Many experts are bullish on healthcare as Australia and the world head into an economic slowdown. The sector has defensive characteristics because consumers will still spend money on their health while cutting other costs.

I believe Telix combines this defensive streak with the potential for explosive growth as it develops new products for release into an aging population. The share price is down 10.3% year to date, still presenting an attractive entry point for those willing to hold long-term.

Motley Fool contributor Tony Yoo owns shares in Telix Pharmaceuticals Ltd.

Domino’s Pizza Enterprises Ltd

What it does: Domino’s Pizza Enterprises holds exclusive master franchise rights for the Domino’s brand and network in Australia and several international markets such as New Zealand, France, and Japan.

By James Mickleboro: I recently took advantage of the significant weakness in the Domino’s share price in 2022 to pick up some shares. I made the move on the belief that the pizza chain operator’s shares are currently trading at a compelling level for a long-term investment.

While trading conditions are proving difficult for Domino’s at present due largely to inflationary pressures, these headwinds will inevitably ease in time. In light of this, I think investors should look beyond this and focus on the long term, which remains very positive thanks to the company’s store expansion plans.

Domino’s aims to more than double its store footprint over the next decade. Combined with its same-store sales growth target of 3% to 6% per annum, I believe this bodes well for its growth.

Motley Fool contributor James Mickleboro owns shares in Domino’s Pizza Enterprises Ltd.

Fortescue Metals Group Limited

What it does: Fortescue is the largest, pure-play iron ore miner on the ASX. It has multiple mining operations in the Pilbara region of Western Australia. It now has a subsidiary called Fortescue Future Industries (FFI), which is a green energy and technology business.

By Bronwyn Allen: I like investing in founder-led companies because I think there is inherently more passion and drive at the management level to keep the company growing and evolving.

Fortescue founder Andrew ‘Twiggy’ Forrest is one of Australia’s pre-eminent business leaders and, I believe, an incredible innovator who gives the miner a significant edge.

Fortescue is one of the world’s lowest-cost iron ore producers because Forrest has invested in infrastructure and technology, including robotics and artificial intelligence, like nobody else. I also think he’s way ahead on what may be the biggest investment thematic of my generation – climate change.

Forrest spent much of COVID-19 travelling the world, establishing business and government partnerships to develop green hydrogen and other renewable energy technologies under the FFI banner. His goal is to transition Fortescue from an iron ore miner to a ‘global green energy and resources company’.

I’m excited to see a leader in a ‘dirty’ industry like mining embracing climate change as an opportunity for business expansion, not a burden to core operations.

Motley Fool contributor Bronwyn Allen owns shares in Fortescue Metals Group Limited.

The post Skin in the game: The ASX share in my portfolio I’m most excited about appeared first on The Motley Fool Australia.

FREE Investing Guide for Beginners

Despite what some people may say – we believe investing in shares doesn’t have to be overwhelming or complicated…

For over a decade, we’ve been helping everyday Aussies get started on their journey.

And to help even more people cut through some of the confusion “experts” seem to want to perpetuate – we’ve created a brand-new “how to” guide.

Yes, Claim my FREE copy!
*Returns as of November 7 2022

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alcidion Group Ltd, Bailador Technology Investments Limited, and SiteMinder Limited. The Motley Fool Australia has recommended Alcidion Group Ltd, Bailador Technology Investments Limited, Dominos Pizza Enterprises Limited, Elders Limited, and VanEck Vectors Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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