Day: 28 November 2022

The Pilbara Minerals Ltd (ASX: PLS) share price is edging higher on Monday morning.

At the time of writing, the lithium miner’s shares are up 1.5% to $4.54.

Why is the Pilbara Minerals share price rising?

Today’s gain appears to have been driven by the announcement of a joint venture with clean technology company Calix Ltd (ASX: CXL).

According to the release, Pilbara Minerals and Calix have executed a joint venture agreement for the development of a mid-stream demonstration plant at the Pilgangoora Project.

The demonstration plant has the aim of producing lithium salts via an “innovative midstream value added refining process” that utilises Calix’s patented calcination technology.

Furthermore, the company notes that the objective of demonstration plant project is to deliver a superior value-added lithium product enabling lower product cost, reduced carbon energy intensity, and reduction of waste product logistics.

Pilbara Minerals will own 55% of the joint venture, with Calix owning the balance. Each party will be funding their share of operating and capital costs and Calix will license their patented technology and calcination knowhow into the joint venture.

Management also highlights that a successful demonstration of the calcination technology via the demonstration plant may then lead to its commercialisation with the joint venture licensing the technology to the global spodumene processing industry.

‘A game changer’

Pilbara Minerals’ managing director and CEO, Dale Henderson, commented:

It’s a great privilege to enter this JV partnership with Calix. The Mid-stream project has the potential to be a game changer for our industry. If successful, we will be able to deliver a superior chemical intermediary product to market compared to spodumene concentrate.

This intermediate product offers a higher concentration in lithium and less impurities whilst being produced through a new process that reduces CO2 emissions compared to the traditional process route for hard rock spodumene chemical conversion. This is world-first Australian technology, being developed by two great Australian companies on Australian soil, with the support of the Australian Government – this is an exceptional opportunity for all of us.

Interestingly, unlike the Pilbara Minerals share price, the Calix share price is trading lower on the news.

The post Pilbara Minerals share price higher on ‘game changer’ project with Calix appeared first on The Motley Fool Australia.

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More reading

• Why is the Allkem share price diving 8% today?
• Here are the 3 most heavily traded ASX 200 shares on Friday
• Why City Chic, Deep Yellow, Objective Corp, and Pilbara Minerals shares are falling
• What could be sending the Pilbara Minerals share price 7% lower today?
• Here’s why ASX 200 lithium shares are ending the week with a fizzle

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 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 Scott Phillips.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

You probably don’t need the reminder, but this has been an abysmal year for Wall Street professionals and everyday investors, alike. Since hitting their all-time highs between mid-November 2021 and the first couple of days of January, the ageless Dow Jones Industrial Average (DJINDICES: ^DJI), benchmark S&P 500 (SNPINDEX: ^GSPC), and growth-driven Nasdaq Composite (NASDAQINDEX: ^IXIC) have respectively plummeted by as much as 22%, 28%, and 38%. That put all three — at least briefly in the case of the Dow Jones — firmly in a bear market.

Over the past six weeks (or a bit longer for the Dow), all three indexes have given optimists a reprieve. In fact, the Dow Jones is now considerably closer to an all-time high than a fresh year-to-date low. But in spite of this bounce, one billionaire money manager is sounding the warning on Wall Street.

This highly successful billionaire’s actions speak louder than words

Approximately two weeks ago on Nov. 14, money managers and wealthy individuals with more than $100 million in assets under management were required to file Form 13F with the Securities and Exchange Commission. A 13F provides a snapshot of what the brightest minds on Wall Street held in their portfolios at the end of the most recent quarter. It also sheds light on what they’ve been buying and selling.

The standout 13F for the third quarter wasn’t Berkshire Hathaway‘s Warren Buffett. Rather, it was billionaire hedge-fund manager David Tepper of Appaloosa Management. Tepper, who owns the NFL’s Carolina Panthers franchise, is estimated to be worth $18.5 billion, making him one of the world’s richest people.

Based on Appaloosa’s 13F filing, the fund ended the third quarter with stakes in 22 securities. Tepper’s hedge fund completely sold out of eight holdings and reduced its stake in another 12 remaining positions.

Meanwhile, Tepper didn’t buy one share of a single stock or warrant in the September-ended quarter. That’s $1.36 billion in assets under management and not one penny deployed to buy equities at a seemingly reduced valuation. 

In an October interview with CNBC, Tepper was asked whether he liked the risk-versus-reward for stocks, given the current interest-rate environment. Tepper bluntly replied, “I don’t think there’s any great asset classes right now.” He also went on to claim:

I don’t love stocks. I don’t love bonds. I don’t love junk bonds.

Although Tepper echoed Buffett’s sentiment that stocks are a great tool for long-term wealth building, he was quite clear nothing appears attractive, given interest-rate uncertainty, for the time being. 

Effective Federal Funds Rate data by YCharts.

A multitude of metrics suggest the stock market will head lower

Tepper’s very clear warning for Wall Street jives with a number of metrics and historic data points that would seem to suggest the broader market has yet to hit bottom. For example, Federal Reserve monetary policy has, to some degree, foretold market bottoms — but probably not in the way you might think.

Whereas a lot of investors are looking forward to an eventual Fed “pivot” and easing of interest rates, bear markets over the past quarter of a century show that stock market bottoms tend to occur well after rate-easing begins. Following the beginning of rate-easing cycles during the dot-com bubble (2001), financial crisis (2007), and prior to the COVID-19 pandemic (2019), it respectively took 645 calendar days, 538 calendar days, and 236 calendar days for the S&P 500 to bottom. This would suggest there’s a long way to go until stocks find their trough.

A couple of valuation-based metrics spell trouble for Wall Street, as well.

The S&P 500 Shiller price-to-earnings (P/E) ratio (also known as the cyclically adjusted price-to-earnings ratio, or CAPE ratio) is front and center on the warning list. All five instances where the S&P Shiller P/E has crossed above 30 during a bull market rally since 1870 have eventually resulted in a decline of at least 20% for the S&P 500. Further, over the past 25 years, the S&P Shiller P/E ratio has bottomed out during most corrections and bear markets around 22. The Shiller P/E was 29.5, as of Nov. 23, 2022.

The S&P 500’s forward-year P/E ratio is another concern. With the exception of the Great Recession, the broad-based index has bottomed with a forward P/E of 13 to 14 on numerous occasions since 1995. Its forward P/E on November 23 was 17.5.

Even outstanding margin debt, which I’ve previously expounded on in greater detail, suggests the bear market bottom isn’t in.

Take Tepper’s advice… all of it

If this multitude of metrics and historic data points are accurate, the short-term pain for investors may well extend into 2023 and validate David Tepper’s cautious tone. But it’s important to digest everything Tepper had to say about the stock market in his interview with CNBC.

Even though the successful billionaire was clear with both his actions and words that there’s nothing worth buying at the moment, he noted on multiple occasions the value of buying equities for the long term. This bit of sage advice has never been wrong — at least when examining the major indexes.

According to data provided by sell-side consultancy firm Yardeni Research, there have been 39 separate declines of at least 10% in the S&P 500 since the beginning of 1950.  Every single last one of these crashes, corrections, and bear markets were eventually cleared away by a bull market rally. This holds true for the Dow Jones Industrial Average and Nasdaq Composite, too.

What’s more, timing the stock market has proved far less important than how much time you spend in the market. A study by Crestmont Research found that if an investor were to have hypothetically purchased an S&P 500 tracking index at any point from 1900 onwards and held that position for at least 20 years, they would have generated a positive total return, including dividends paid, every single time! Crestmont found that the rolling 20-year total returns averaged 10.9% or higher on an annual basis in more than 40% of the 103 ending years it examined (1919 through 2021). 

In other words, even though things appear bleak now, it’s as good a time as any to put your money to work if you have a long-term mindset and companies on your radar that are continuing to execute their strategies and visions. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post One of the world’s richest investors just sounded a big-time warning for Wall Street appeared first on The Motley Fool Australia.

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More reading

• Why is the Bank of Queensland share price sinking over 6% today?
• 3 ASX 200 shares that announced supersized dividends in November
• Here are the 10 most shorted ASX shares
• Where will Fortescue shares be in 5 years?
• The Flight Centre share price has collapsed 20% in the last 6 months, but have the fundamentals improved?

Sean Williams 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 Berkshire Hathaway (B shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended 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.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Bank of Queensland Ltd (ASX: BOQ) share price is falling heavily on Monday.

In morning trade, the regional bank’s shares are down over 6% to $7.07.

Why is the Bank of Queensland share price sinking?

The weakness in the Bank of Queensland share price on Monday has been driven by surprise news that the bank’s CEO is stepping down from the role with immediate effect.

According to the release, a domestic and international executive search for a new managing director and CEO is commencing to find a replacement for George Frazis, who leaves the company effective today and without comment.

The bank explained that it felt that now was the right time for a change of leadership.

What now?

Bank of Queensland’s chair, Patrick Allaway, has taken on the role of executive chairman for the period of the executive search.

The bank notes that appointing Mr Allaway as executive chairman is designed to retain stability and will ensure that the executive leadership team can stay focused on their current roles and responsibilities.

Current non-executive director, Karen Penrose, will be the lead independent director during this period.

‘Different leadership is now required’

Bank of Queensland’s executive chairman revealed that the board decided that a change of leadership was required to take the bank forward. Allaway commented:

George Frazis joined BOQ in September 2019 and has overseen a return to growth in all key channels across the Bank, the successful acquisition and integration of ME Bank, as well as achieving strong progress in the Bank’s technology transformation.

However, the Board has formed a view that different leadership is now required to ensure BOQ can continue to build a stronger and more resilient bank through future cycles. We thank George for his significant contribution to BOQ over the past three years.

The executive search is expected to take upwards of nine months.

The post Why is the Bank of Queensland share price sinking over 6% today? appeared first on The Motley Fool Australia.

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More reading

• The Bank of Queensland upsized dividend is being paid out today. Here’s the lowdown
• ASX 200 bank shares: fundie picks winners and losers of the big four
• Top fund manager sounds alarm bells for bank shares
• Are Bank of Queensland shares worth buying in November?
• Experts name 2 ASX 200 dividend shares to buy next week

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 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 Scott Phillips.

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This month has been good to S&P/ASX 200 Index (ASX: XJO) investors, as have these ASX 200 dividend shares.

The index has lifted nearly 6% since the final close of October. Meanwhile, these three stocks each grew their payouts by up to 80% in November.

So, which ASX 200 shares have sent their dividend-focused investors jumping for joy recently? Let’s take a look.

3 ASX 200 shares bolstering their dividends this month

First off the bat was CSR Limited (ASX: CSR). The ASX 200 industrial company released its half-year earnings on 4 November.

Within them, it revealed a 27% jump in after-tax profits, coming in at $110 million, and a 14% increase in revenue, reaching $1.3 billion.

CSR also posted a 16.5 cent interim dividend – marking a 22% year-on-year lift. That’s certainly nothing to scoff at.

Next up was GrainCorp Ltd (ASX: GNC). The company is, of course, in the grains business and that business appears to have been going well.

GrainCorp’s earnings before interest, tax, depreciation, and amortisation (EBITDA) more than doubled to $703 million last financial year. Its after-tax profit also jumped 174% to $380 million.

Meanwhile, the company declared a 16 cent per share final dividend – an 80% year-on-year increase. That also brought its total annual dividend to 54 cents – a 200% jump on the prior year’s 18 cents.

The final share to up its dividends was ASX 200 software giant TechnologyOne Ltd (ASX: TNE). It posted a 10.82 cent final dividend last Tuesday – marking an 8% year-on-year increase.

Not only that, but the tech stock also offered investors a 2-cent special dividend – bringing its total payout a notable 27% higher than that of the corresponding period.

The company also saw its revenue grow 18% to $369 million in financial year 2022 while its after-tax profit lifted 22% to $88.8 million.

TechnologyOne has now declared 17.02 cents of dividends per share in 2022. That’s 22% more than 2021’s 13.91 cents.  

The post 3 ASX 200 shares that announced supersized dividends in November appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
• If you bought $20,000 worth of Fortescue shares this year, here’s how much dividend income you’d have
• Here are the top 10 ASX 200 shares today
• Why did ASX 200 retail shares lead the market to fresh 25-week highs today?
• Why is the Allkem share price diving 8% today?

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended TechnologyOne 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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At the start of each week, I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Betmakers Technology Group Ltd (ASX: BET) continues to be the most shorted share on the Australian share market with short interest of 15.2%. This is down week on week. Short sellers appear concerned with competitive pressures in the betting industry.
• Flight Centre Travel Group Ltd (ASX: FLT) has seen its short interest rise slightly to 14.7%. Short sellers have been adding to their positions after the recent release of a disappointing trading update.
• Block Inc (ASX: SQ2) has seen its short interest rise to 12.5%. Australian short sellers certainly are more bearish than US investors. This short interest is almost triple the short interest of Block’s NYSE listed shares.
• Domino’s Pizza Enterprises Ltd (ASX: DMP) has short interest of 11.4%, which is flat week on week. Short sellers have been targeting this pizza chain operator’s shares due to its soft performance in FY 2023 because of inflationary pressures.
• Megaport Ltd (ASX: MP1) has seen its short interest ease for a second week in a row to 10.4%. Some short sellers may believe that this network as a service operator’s shares are close to bottoming.
• Sayona Mining Ltd (ASX: SYA) has jumped into the top ten with short interest of 9.55%. This lithium developer may have been targeted due to valuation concerns.
• Perpetual Limited (ASX: PPT) has seen its short interest ease to 9.4%. This fund manager’s shares have come under pressure this month after the courts pressured the company into completing its acquisition of Pendal Group Ltd (ASX: PDL). This appears to rule out its own takeover by private equity.
• Nanosonics Ltd (ASX: NAN) has short interest of 9.1%, which is flat week on week. Upbeat brokers notes last week in response to its trading update led to this infection prevention company’s shares leaping higher, much to the dismay of short sellers.
• Breville Group Ltd (ASX: BRG) has seen its short interest slide again to 8.4%. Short sellers continue to close positions following the release of the appliance manufacturer’s solid first quarter update.
• Lake Resources N.L. (ASX: LKE) has returned to the top ten with short interest of 8.3%. Short sellers have doubts over the company’s ability to produce battery grade lithium from its operation.

The post Here are the 10 most shorted ASX shares appeared first on The Motley Fool Australia.

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More reading

• The Flight Centre share price has collapsed 20% in the last 6 months, but have the fundamentals improved?
• ‘Over 100% gain next year’: Expert picks 3 best ASX shares for 2023
• Skin in the game: The ASX share in my portfolio I’m most excited about
• Here are the top 10 ASX 200 shares today
• Why Nanosonics, Nick Scali, NRW, and Tyro shares are charging higher

Motley Fool contributor James Mickleboro has positions in Dominos Pizza Enterprises Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Betmakers Technology Group Ltd, Block, Inc., MEGAPORT FPO, and Nanosonics Limited. The Motley Fool Australia has positions in and has recommended Block, Inc. and Nanosonics Limited. The Motley Fool Australia has recommended Betmakers Technology Group Ltd, Dominos Pizza Enterprises Limited, Flight Centre Travel Group Limited, and MEGAPORT FPO. 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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Fortescue Metals Group Limited (ASX: FMG) shares are a sizeable position in my portfolio. Certainly, I like where the business is headed over the next five years and beyond.

Its weighting in my portfolio is a bit bigger after the 18% rise in the Fortescue share price over the last month.

But I’m not particularly concerned about short-term movements. It could go up or down 10% and that wouldn’t motivate me to do anything – I wouldn’t buy or sell.

In five years, I think the business can achieve a lot and make progress towards its key goals. Here are the things I’m expecting from the business:

Operational cost savings through decarbonising

One of the main things that Fortescue is working on is a US$6.2 billion capital investment plan to decarbonise its business by 2030.

This includes the deployment of an additional 2GW to 3GW of renewable energy generation and battery storage, as well as the estimated incremental costs related to a green mining fleet and locomotives.

It’s expecting to achieve net operating cost savings of US$818 million per year from 2030 (at energy prices at the time of the announcement in September 2022). This will save the business a total of US$3 billion by 2030 and the payback of capital will occur by 2034.

Spending on this plan starts getting serious in FY24 and is expected to be largely finished by FY28 so in five years, I think a lot of Fortescue’s activity will be completed or getting fairly close to being finished.

Ramping up green hydrogen production

The biggest impact on Fortescue shares could be its plans to produce green energy in the coming years. It wants to be making 15mt of green hydrogen per year by 2030. But that production won’t all come online at once.

The first place where Fortescue could start production is at the Gibson Island ammonia facility owned by Incitec Pivot Ltd (ASX: IPL). The two businesses have commenced the front-end engineering design.

The Fortescue Future Industries (FFI) CEO Mark Hutchison said that he’s hoping production will start in 2024 or 2025. Time will tell which projects will come next after that but I expect several will be in the works in five years, if not before.

Diversification of resources

Fortescue is best known for its large iron ore operations.

But, the company is on the hunt for other resources. While iron ore will continue to play a major part in the company’s long-term success, it’s also trying to find lithium in Western Australia, South America, and Portugal.

The idea is that Fortescue could supply the future-facing resources that Fortescue Future Industries will need in large scale to build and supply its green aspirations.

Lithium is a key focus for the business. But, it could also find cobalt, graphite, and copper.

Uncertainty about iron

I’m not sure what the iron ore price will be in the future, particularly in five years from now.

There are potential positives and negatives.

China could be sourcing more iron ore from different locations, such as Africa. However, Fortescue is also looking into developing a large iron ore project in Africa.

Fortescue is reportedly looking at supplying green iron ore for making green steel in Asia and perhaps in Europe. If it is successful with these endeavours, Fortescue won’t be as dependent on selling iron ore to China. This would be good diversification of its customer base if it can achieve that in the next five years.

Foolish takeaway

While I don’t know what Fortescue shares are going to do in the next few years, I am optimistic about the company’s plans for green energy and decarbonising heavy machinery.

The post Where will Fortescue shares be in 5 years? appeared first on The Motley Fool Australia.

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More reading

• If you bought $20,000 worth of Fortescue shares this year, here’s how much dividend income you’d have
• Skin in the game: The ASX share in my portfolio I’m most excited about
• Does an investment in Fortescue shares provide the ‘healthiest’ ASX exposure to iron ore?
• 3 reasons this fundie is still bullish on ASX mining shares
• Could this put a dent in Fortescue’s green hydrogen dreams?

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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 Scott Phillips.

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The Flight Centre Travel Group Ltd (ASX: FLT) share price has been a significant underperformer over the past six months. It’s down by around 25%. That compares to a decline of just 0.4% for the S&P/ASX 200 Index (ASX: XJO).

It’s an interesting time for ASX travel shares. Demand for travel is very high, though share price performance has been varied. The Corporate Travel Management Ltd (ASX: CTD) share price has dropped 24% in the last six months, though the Webjet Limited (ASX: WEB) share price is up around 1%.

What’s the latest that could have impacted Flight Centre shares?

The business held its annual general meeting (AGM) a couple of weeks ago.

Flight Centre said that there is “considerable pent-up demand yet to flow through”

The company said that there is resilience of global travel market and there is a greater need for expert assistance given the “current complexity” of the travel situation, but this “plays to Flight Centre’s strengths in both leisure and corporate”.

Management believe there is upside potential as normal travel patterns resume.

Year on year, the business had seen a lot of growth for the four months to 31 October 2022. The total transaction value (TTV) had grown by 246% to $6.8 billion, with revenue growth of 248% to $667 million.

It also reported that in those four months it had made $61 million of underlying earnings before interest, tax, depreciation and amortisation (EBITDA) – up from a loss of $137 million – and that it was breakeven at the underlying profit before tax (PBT) level, up from a loss of $194 in the prior corresponding period.

The company’s outlook and guidance for FY23 was one of a recovery and improvement.

FY23 commentary

Flight Centre said it expects to generate stronger profit growth in the months ahead, thanks to “ongoing solid demand and margin improvement trajectory”.

In the first half of FY23 it’s targeting $70 million to $90 million of underlying EBITDA. Further recovery is expected as the year progresses, with a more rapid improvement during the second half – usually 60% to 70% of profit is generated during this period.

The company’s revenue margin is “likely to remain below pre-COVID highs” because of “ongoing and planned business mix changes, cyclical factors and lower supplier margins in some countries and sectors.

However, the impact of lower revenue margins is expected to be offset by cost margin improvements – the cost base is “fundamentally and structurally lower than pre-COVID” times.

It’s targeting a 2% profit before tax margin by 2025.

However, it noted that lack of airline capacity and competition is still hampering a recovery in Australia, though the outlook is “slowly improving”. It’s expected to be back to 70% of pre-COVID levels by the end of the first half.

The business is monitoring economic challenges, such as inflation and higher interest rates, but there is “no noticeable impact on demand as yet”.

Flight Centre also said that its balance sheet is “solid” and that key assets are either in-tact or strengthened.

Foolish takeaway

It is curious that the Flight Centre share price has gone backwards while its recovery has continued. Time will tell whether investors are right to send it backwards or whether the ASX travel share is a bargain opportunity if investors are being too pessimistic.

The post The Flight Centre share price has collapsed 20% in the last 6 months, but have the fundamentals improved? appeared first on The Motley Fool Australia.

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More reading

• 5 ASX 200 shares with founders steering the ship
• Macquarie is cooling off on its outlook for BHP shares. Should you?
• Will ASX 200 shares bottom before the year is out? Here’s Macquarie’s ‘best guess’
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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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended Corporate Travel Management Limited, Flight Centre Travel Group Limited, and Webjet 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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One of the most underrated ASX dividend shares, in my opinion, is Nick Scali Limited (ASX: NCK). I also think that legendary investor Warren Buffett would want to invest in Nick Scali shares if he were focused on ASX shares.

For readers who haven’t heard of Nick Scali before, it’s a business that sells “quality furniture”. It’s also been operating for more than 60 years. The business sources its products from around the world and directly from “some of the largest and most respected manufacturers globally”.

In fact, it imports 12,000 containers of furniture per year, showing the scale of this ASX dividend share. The more it imports, the more scale advantages can benefit the business.

I think there are a number of reasons why Nick Scali shares would be attractive to Warren Buffett right now.

Better valuation

For starters, I think the legendary investor likes to find a bargain. Or, at least he likes to find great businesses at fair prices.

The Nick Scali share price has dropped 29% in 2022 to date, though it was lower earlier in the year.

I think the prospect of potentially lower profit due to higher interest rates and inflation explains a lot of the decline.

However, declining by around a third certainly makes up for the uncertain conditions in my opinion. Remember, a share price is meant to take into account the long-term prospects of the business, not just the next year or two. But, short-term trading continues to perform well, despite the conditions.

I think the Nick Scali share price looks better value because of its growth plans and the fact that it’s priced at 13 times FY24’s estimated earnings, according to Commsec.

Profit growth plans

There are a number of different ways that Nick Scali can boost its profit generation in the coming years.

It recently bought the Plush-Think Sofas business. Under Nick Scali’s ownership, there has been an improvement of 240 basis points (2.4%) of the gross profit margin for Plush to 54.8%. This has occurred while also achieving cost “synergies”. It expects Plush to reach an annualised gross profit margin of 59% before the end of FY23.

The acquisition of Plush expanded its store network by 46 stores – Nick Scali now has a combined store network of 108 stores. It has a long-term target of at least 85 Nick Scali stores and 90 to 100 Plush stores. A network of at least 175 stores would represent growth of more than 60%. I think this could be a big boost for the Nick Scali share price over time as it grows scale and, hopefully, profit.

In FY23, the business intends to open a minimum of two new Nick Scali stores and four new Plush stores.

It’s also planning to own more of its retail stores. The company also recently bought a multi-purpose site in Townsville so it can relocate its showroom and provide a new distribution centre to support growth of both brands in regional Queensland.

Online sales growth could also lead to profit improvement for the business.

I think that Warren Buffett would like all of the above factors that could influence profit growth.

Aligned management

The current leader of the business is Anthony Scali, who is the company’s managing director. He joined the business in 1982 and has almost 40 years of experience in furniture retailing. The company continues to be managed by the founding family.

Anthony Scali is also the biggest shareholder of the business — his ownership entity owns 11.04 million shares.

At the current Nick Scali share price, that means he holds $121.3 million of Nick Scali shares. He’s very aligned with ordinary, smaller shareholders and he has a huge financial incentive to achieve attractive shareholder returns because he’d benefit as well.

Big dividend

Nick Scali typically pays a large amount of its profit out as a dividend. Indeed, it has a high dividend payout ratio.

The relatively low price/earnings (p/e) ratio also lends to Nick Scali having a large dividend yield.

According to the estimates on Commsec, at the current Nick Scali share price, it could pay a grossed-up dividend yield of 9.3% in FY23 and 8.4% in FY24.

Foolish takeaway

Putting all these elements together – lower price, growth plans, aligned management, and large yield – means the business could be pretty compelling to Warren Buffett in my opinion.

The post Why I think Warren Buffett would love this ASX dividend share appeared first on The Motley Fool Australia.

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More reading

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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 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 Scott Phillips.

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There aren’t too many S&P/ASX 200 Index (ASX: XJO) dividend shares that grew their dividends during COVID-19. But the two I’m about to reveal actually grew their shareholder payouts during the pandemic.

Inflation and higher interest rates are hurting the valuations of many businesses at the moment. It’s also important to note here that a business isn’t guaranteed to increase its dividend every single year. Indeed, it may not even pay one.

But I think even in the current environment, the two ASX 200 dividend shares in this article are capable of continuing to deliver solid dividends, representing a good dividend yield at current valuations.

Charter Hall Long WALE REIT (ASX: CLW)

This business is a real estate investment trust (REIT) that owns a diversified portfolio of properties across a variety of sectors. The factor that links them is that they have long-term rental agreements, which is shown in the weighted average lease expiry (WALE) figure.

The WALE was 12 years at the last disclosure which, as the business said, provides portfolio income security. I think this is attractive in uncertain economic times.

Its properties are spread across the following sectors: long WALE retail, industrial and logistics, office, social infrastructure, and agri-logistics.

Charter Hall Long WALE says that 99% of its tenants are blue chip, being either government, ASX-listed, multinational, or national companies. Some of its main tenants include Australian government entities, Telstra Corporation Ltd (ASX: TLS), BP, and Endeavour Group Ltd (ASX: EDV).

The ASX 200 dividend share recently bought a 25% share of the Geoscience Australia property in Canberra on a 7.4% initial dividend yield with 3% fixed annual rent increases.

Charter Hall Long WALE is also expecting to generate 28 cents of operating earnings per security (EPS) and a distribution per security of 28 cents. This translates into a forward distribution yield of 6.3%.

I think the 18% fall in the share price since the end of April is enough to reflect the higher interest rate environment. Don’t forget, the rental income continues to rise as well. Certainly, the rental income linked to CPI inflation is getting a large boost.

Bapcor Ltd (ASX: BAP)

This is a business focused on auto parts. Its key Burson business sells parts to mechanics while Autobarn and Autopro are two large retail chains providing auto parts to the public.

The company has a number of wholesale businesses relating to heavy truck parts, light truck parts, electrical parts, and so on.

The ASX 200 dividend share also has service businesses like Midas and ABS.

During tougher economic times, it’s understandable there will be fewer new car purchases. People are logically more likely to buy a second-hand car or try to make their current car last longer. I think this means that demand for car parts could increase during a recession. Certainly, if a part on my car were to break, I’d rather replace it than buy another car.

Time will tell whether Bapcor can keep growing its profit over the next couple of financial years, but I think there’s a good chance the dividend growth streak can continue. Indeed, it has grown every year since 2015.

I’m also positive about the company’s plans to expand into Asia, where it has a small but growing Burson network.

According to Commsec, it could pay an annual dividend per share of 22.6 cents per share in FY23, which translates into a grossed-up dividend yield of 4.7%.

The post These 2 ASX 200 shares could be a lifeline in a recession 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 no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Corporation Limited. The Motley Fool Australia has recommended Bapcor. 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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Woodside Energy Group Ltd (ASX: WDS) shares are under scrutiny as the oil and gas ASX share faces questions about why potential customers are ignoring a key project.

The business is working on a significant development called Scarborough in Western Australia although it’s not all smooth sailing.

What’s Scarborough?

Woodside describes the project as a natural gas resource 385km off the Western Australian coast. It says the project will “play a key role in helping neighbouring Asian countries take action on emissions reduction and meet increasing energy demand”.

According to the company, the cash flow generated by the project will help fund a “range of new energy opportunities and thrive through the energy transition”. For Woodside’s liquified natural gas (LNG) target markets, those countries have “committed to net zero” and are replacing coal or are firming up renewables with LNG.

The idea is that Scarborough will produce 8mt per annum of LNG at capacity with a target for the first LNG cargo in 2026.

There will be new offshore facilities connected by approximately 430km of pipeline to a second LNG train (Pluto Train 2) at the existing Pluto LNG onshore facility.

Why are Woodside shares getting attention because of Scarborough?

According to reporting by various media, including the Australian Financial Review, the largest-ever long-term LNG sales contract has been signed between China and Qatar. It covers a period of 27 years and will be supplied from Qatar’s planned North Field expansion. This will help Qatar become one of the world’s most significant LNG exporters.

But it also raises the question about why Woodside is yet to secure a partner for its Scarborough project.

The AFR reported that Woodside CEO Meg O’Neill has outlined that partnership talks are ongoing, but the company wants to do a deal for the right value. O’Neill told the newspaper:

We continue to talk to a number of players…Our goal with Scarborough is to bring in the right partner at the right price. When we look at what’s happening in the LNG market today it really reinforces the value of Scarborough. There’s not a lot of other new LNG supply coming to market that’s as close to Asian customers as Scarborough is, so it’s a very attractive opportunity and we want to make sure we get the right partner and we get that fair value.

My 2 cents

My guess is that Woodside is just waiting in a bid to get the best price. Indeed, the CEO referenced price and value multiple times in that quote.

It makes sense that the management wants to try to sell now because energy prices are so high. But potential buyers are unlikely to want to pay top dollar during this period while LNG prices are so high.

So, it might be a stalemate, depending on how motivated a buyer is. The production for Scarborough is still a while away, so the LNG price and revenue may not be as strong in the future as they could be if the project were operating today.

Despite that, Woodside shares continue to generate strong cash flow and pay dividends thanks to high energy prices.

The post Would this side of Woodside put you off buying its shares? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
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• Crude down, stocks up: Here’s what happened to Woodside shares the last time this occurred
• Markets are nervous. Why waiting to buy these ASX 200 shares could prove expensive
• 5 things to watch on the ASX 200 on Wednesday

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 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 Scott Phillips.

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