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:

Aristocrat Leisure Limited (ASX: ALL)

According to a note out of Citi, its analysts have retained their buy rating and $41.20 price target on this gaming technology company’s shares. Citi has been looking at Aristocrat’s digital business again/ And while it feels that February was a flat month for the industry, it notes that Aristocrat’s titles continued to outperform. Overall, the broker remains bullish and is forecasting strong earnings growth in the coming years. The Aristocrat share price ended the week at $34.71.

Qantas Airways Limited (ASX: QAN)

A note out of Goldman Sachs reveals that its analysts have retained their conviction buy rating and $8.30 price target on this airline operator’s shares. The broker continues to believe that the market is undervaluing Qantas, noting that its share price does not reflect the company’s improved earnings capacity. Goldman also advised that it expects Qantas’ capital management to continue in FY 2024, with another $800 million share buyback. The Qantas share price was fetching $6.47 at Friday’s close.

Woolworths Group Ltd (ASX: WOW)

Another note out of Citi reveals that its analysts have retained their buy rating and $42.20 price target on this retail giant’s shares. The broker feels relatively positive on consumer spending and has boosted its earnings estimates to reflect this. This means that Citi is now forecasting earnings per share growth of approximately 14% in both FY 2023 and FY 2024. The Woolworths share price ended the week at $37.06.

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

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More reading

• Buy these ASX growth shares now: analysts
• What’s with the Qantas share price on Thursday?
• 7 ASX shares flying under the radar to buy now: Goldman Sachs
• 5 things to watch on the ASX 200 on Wednesday
• Leading brokers name 3 ASX shares to buy today

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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Dividends from ASX shares are a beautiful thing – representing real cash flow from your capital in your pocket. And a large dividend from an ASX share, well, that’s even better.

But the higher a share’s dividend, the more investors have to lose. See, the market isn’t silly. If it’s pricing an ASX share with a high dividend yield (yes, the two are directly correlated), there’s probably a reason why.

So you should be very careful when you see an ASX share with a dividend yield of 8, 9 or even 10% or greater. You could be the victim of a dividend trap.

A dividend trap is set off when an investor buys an ASX share with the expectation of a high dividend continuing. When it doesn’t, we often see that share fall in value, reflecting the weakness that is obviously affecting said company. Thus, the investor is ‘trapped’ in a capital loss, with far less income than what was expected to keep them company.

So let’s discuss three ASX dividend shares that are offering high yields today, but that might be dividend traps.

3 ASX shares that could be a dividend trap

Magellan Financial Group Ltd (ASX: MFG)

ASX 200 fund manager Magellan has a truly monstrous dividend yield on display today — 14.31%. That comes from the $1.16 in fully-franked dividends per share this financial services company has paid out over the past 12 months. But here’s the problem.

Magellan shares have been in freefall for almost three years now. This company is bleeding funds under management almost every month. It has gone from managing more than $100 billion a few years ago to less than $50 billion today.

Magellan only makes money off of its funds under management, so if this continues to fall, the company will only be able to afford smaller and smaller dividends. As such, I think Magellan is a classic dividend trap.

Adairs Ltd (ASX: ADH)

Adairs is another ASX 200 dividend share that looks like a trap. It currently offers a dividend yield of 8.11%, hailing from the fully-franked 18 cents per share it has paid out over the past year.

As an ASX 200 consumer discretionary retailer, this is the kind of company that investors hate to own in an environment of rising interest rates, which explains its low share price.

However, I don’t think Adairs is a dividend trap, far from it. It has recently declared an interim dividend of 8 cents per share, matching last year’s payout. And Adairs just reported sales growth of 34.1% and an increase in net profit after tax of 23.9% to $21.8 million. This indicates its business model is growing healthily, which means the dividends should keep flowing.

WAM Capital Ltd (ASX: WAM)

Popular ASX listed investment company (LIC) WAM Capital is our last share worth a look at. This LIC has a trailing dividend yield of 9.39% right now, fully franked. This comes from WAM Capital’s 15.5 cents per share paid out over the past year.

However, this also looks like a dividend trap to me. For one, the WAM Capital share price has lost almost 33% of its value over the past five years. So although it’s paid out high dividends to its investors, they are paying for those out of the company’s poorly performing share price.

But this company’s dividends are looking shaky too. WAM Capital has paid out 15.5 cents per share for years now. Yet its latest report showed that, as of 28 February, it only held 14.7 cents per share in its profit reserves. That’s not even enough to cover the next 12 months of dividends at their current level. As such, this is another ASX dividend share I would be staying away from.

The post Is it a trap? 3 ASX shares with ultra-high dividend yields appeared first on The Motley Fool Australia.

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More reading

• 2 ASX 300 shares trading ex-dividend on Monday
• Buy 8,333 shares in this ASX growth stock for $1,500 in annual dividends
• Investing as little as $25 a week could help me retire with $104,000 a year in passive income!
• Magellan share price slumps 5% to 10-year low
• The highest-paying term deposit right now offers 4.5% interest. Here are 3 ASX dividend shares paying way more

Motley Fool contributor Sebastian Bowen has positions in Adairs. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Adairs. The Motley Fool Australia has positions in and has recommended Adairs. 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 popular exchange traded funds (ETFs) on the Australian share market is the Vanguard Australian Shares Index ETF (ASX: VAS).

This ETF aims to track the return of the S&P/ASX 300 Index before taking into account fees, expenses, and tax.

This means that when you buy this ETF, you will be buying a slice of a diverse group of ASX shares including giants like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), and Woolworths Group Ltd (ASX: WOW), as well as smaller names such as Dicker Data Ltd (ASX: DDR) and Myer Holdings Ltd (ASX: MYR).

Earning income from the Vanguard Australian Shares Index ETF

The Australian share market is one of the more generous markets, with a high proportion of companies sharing their profits with investors.

The good news is that there are plenty of dividend payers in the Vanguard Australian Shares Index ETF, which explains why it is a popular option for income investors.

In fact, according to Vanguard, at present the ETF provides investors with a 4.4% dividend yield.

This means it would be possible for investors to generate a monthly income of $300 per month from its units.

The only issue, though, is that it pays its dividends in quarterly instalments. So, investors would have to be disciplined and distribute their dividends evenly each month.

With that in mind, if you wanted to generate $300 of passive income from the Vanguard Australian Shares Index ETF, you would need to receive total dividends of $3,600 a year.

Based on its current yield, investors would need to own approximately $82,000 worth of units. This equates to 937 units at current prices.

The post How to generate $300 of monthly income from the Vanguard Australian Shares Index ETF appeared first on The Motley Fool Australia.

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More reading

• 3 reasons the Vanguard Australian Shares Index ETF (VAS) could be worth buying today
• Here’s how I would secure monthly dividends in the 2024 financial year with these ASX stocks
• Does the Vanguard Australian Shares Index ETF (VAS) hold the ticket to building long-term wealth?
• Top ASX ETFs to buy in March 2023
• Dividend dessert: Which ASX ETFs are the sweetest for a passive income?

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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APA Group (ASX: APA) is an S&P/ASX 200 Index (ASX: XJO) stock that can deliver strong monthly passive income to investors.

APA is an energy infrastructure player that owns very large gas pipelines around Australia. It also owns or has stakes in a number of gas assets, including gas storage and gas-powered energy generation.

The company is also expanding its electricity transmission and renewable energy portfolio. It’s involved in solar panel farms and recently acquired the Basslink – an electricity cable that connects Tasmania with the mainland.

How much dividend income will ASX 200 stock pay?

APA has been steadily growing its dividend payments each year for more than a decade and a half. It has funded these increases with growing cash flow from its asset portfolio.

In FY23, the company expects to pay a full-year distribution of 55 cents per security, which would represent an increase of 3.8% compared to FY22.

Receiving $400 per month would equate to $4,800 per year. Keep in mind that APA doesn’t pay every month, it’s just that investors need to translate that annual figure into 12 equal parts.

To gain $4,800 per year, we’d need 8,728 APA shares.

To buy 8,728 APA shares, we’re currently talking about a total cost of around $89,000 after the 6% fall of the APA share price over the last month.

The ASX 200 stock is expected to pay an annual distribution per security of 62 cents in FY25, according to Commsec. With that payment, we’d only need 7,742 APA shares for the passive income target.

What is the yield of APA shares?

Thanks to the ongoing dividend growth and the reduction of the APA share price, the FY23 dividend yield is expected to be 5.4%. That’s solid passive income.

If the distribution does grow to 62 cents per security by FY25, then this would translate into a dividend yield of 6.1%.

This is a stronger yield from the ASX 200 stock than what people can get from savings accounts or term deposits while also offering growth.

APA continues to invest in new pipelines, as well as renewable projects, that could unlock further cash flow for the business. It’s also exploring the possibility of using its pipelines for hydrogen, which could lead to a greener future.

APA share price snapshot

Since the start of 2023, the APA share price has fallen by 3%.

The post $400 in monthly passive income, buy 8,728 shares of this ASX 200 stock appeared first on The Motley Fool Australia.

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More reading

• Here are the 3 most heavily traded ASX 200 shares on Friday
• 2 ASX 200 directors buying up their company shares this week
• 5 things to watch on the ASX 200 on Friday
• What’s with the Qantas share price on Thursday?
• Here are the 3 most heavily traded ASX 200 shares on Thursday

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 Apa Group. 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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