Do you have $20,000? There are some ASX shares that I’d love to buy for my portfolio to take advantage of the market selloff.

The ASX has fell quite hard over Thursday and Friday. Yesterday the S&P/ASX 200 Index (ASX: XJO) dropped by 1.9%. In morning trading it was down over 3%. Ouch.

This second selloff seems to have been caused by the comments made by US Federal Reserve boss Jerome Powell. He suggested that the US economy is going to take a while to recover. Some people may not be able to find jobs as quickly as they’d like to.

I think that the market declining is throwing up another opportunity to buy ASX shares at cheaper prices again. If I had $20,000 to invest, I’d go for these ASX shares:

Magellan Global Trust (ASX: MGG) – $6,000

I think Magellan Global Trust is one of the best listed investment businesses on the ASX. It aims for companies it thinks are the highest-quality in the world. These are businesses with excellent economic moats, coronavirus-resistant business models and strong balance sheets. It’s rare to find ASX shares that are as large and powerful as the businesses this listed investment trust (LIT) goes for.  

Some of the shares that it owns are: Alibaba, Alphabet, Microsoft, Tencent, Facebook, Visa, Mastercard, Reckitt Benckiser and Novartis. Many of these names offer digital services which can still be used even during lockdowns. A business like Reckitt Benckiser is a great idea today because it owns cleaning product brands like Dettol and Lysol.

The Aussie dollar is quite strong right now, making it cheaper to buy international shares. Magellan Global Trust is currently priced at a 5% discount to its net asset value (NAV).

Pushpay Holdings Ltd (ASX: PPH) – $4,000

Pushpay is one of my favourite small cap ASX shares. It’s an electronic donation business. Digital giving is in higher demand these days, particularly because of COVID-19 social distancing. We can see this change in demand from the growth that Pushpay is reporting. The fact that Pushpay offers a livestreaming option is very useful for its US church client base.

In the recent FY20 result Pushpay reported that its operating revenue increased by 28% to US$123.1 million, which excludes the Church Community Builder acquisition.

One of the most attractive things to me about this ASX share is that it continues to see improvement with its gross margin. FY20 saw an increase of five percentage points from 60% to 65% for the gross margin. This means that more of the revenue turns into profit for Pushpay.

In FY21 the company is expecting to approximately double its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) to between US$48 million to US$52 million.

Over the long-term Pushpay is targeting a market share of over 50% of the medium and large US church segments, which the company thinks is an annual revenue opportunity of more than US$1 billion. I think this ASX share has a long growth runway.

Future Generation Global Invstmnt Co Ltd (ASX: FGG) – $6,000

Future Generation Global is one of my favourite listed investment companies (LIC). It doesn’t charge any management fees or performance fees.

It invests in the funds of Australian fund managers who invest in overseas shares. These fund managers work for free. Why? So that the LIC can donate 1% of its net assets to youth mental health charities each year.

The LIC’s gross investment performance has beaten its MSCI AC World Index (AUD) benchmark over the past year, three years and since inception in September 2015. Some of the fund managers delivering this performance include Magellan Financial Group Ltd (ASX: MFG), Cooper Investing and Marsico Capital Management.

At the moment we can buy this ASX share at a 22% discount to the net tangible assets (NTA) at 31 May 2020.

Bubs Australia Ltd (ASX: BUB) – $4,000

Bubs is another exciting small cap ASX share in my opinion.

It has a range of goat milk products which are proving popular with consumers. Woolworths Group Ltd (ASX: WOW), Coles Group Limited (ASX: COL) and Baby Bunting Group Ltd (ASX: BBN) have all recently expanded their distribution footprint of Bubs products.

In the third quarter of FY20 Bubs achieved revenue of $19.7 million. This was 36% higher than the December 2019 quarter and 67% better than the March 2019 quarter.

The ASX share achieved a positive operating cashflow of $2.3 million last quarter and ended with a solid cash balance of $36.4 million. Positive operating cashflow makes Bubs a safer choice in my opinion. 

I think Bubs is definitely one to watch for its international growth. The last quarter showed Chinese revenue rose by 104%. It’s also growing strongly in Vietnam.

Foolish takeaway

I believe all four of these ASX shares can beat the ASX 200 over the next three to five years. I like the diversification that Magellan Global Trust and Future Generation Global bring. But I also think that Pushpay and Bubs are two of the brightest prospects on the ASX today.

More reading

• 3 ASX shares I’d buy if the market hits 23 March levels again
• Leading fund manager names 4 ASX stocks set to benefit from a faster re-opening of the Australian economy
• ASX 200 falls 1.9%, big 4 ASX banks retreat
• Down 20% in 7 trading hours… Worse to come?
• 3 fantastic ASX shares to buy and hold to make you wealthy

Tristan Harrison owns shares of MAGLOBTRST UNITS. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BUBS AUST FPO and PUSHPAY FPO NZX. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool Australia has recommended BUBS AUST FPO and PUSHPAY FPO NZX. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Got $20,000? These are the ASX shares I’d buy during COVID-19 appeared first on Motley Fool Australia.

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We’re nearing 30 June, which means it could be time to invest in your super. The Federal Government may make a co-contribution to your retirement account up to a maximum amount of $500.

It may sound too good to be true, but it’s really not. Here’s how to receive a handy boost to your retirement accounts today.

How to invest in super and receive $500

The basic premise of the scheme is to encourage Aussies to support their own retirement. More self-funded retirees are good for the government as it reduces the burden on Australia’s social security.

It’s important to note that this co-contribution is only available for ‘low or middle-income earners’ who invest in super. That’s a little bit vague, so let’s dive into exactly who fits this category.

To be eligible for the contribution, you must have made at least 1 after-tax super contribution during the financial year (i.e. 23 before June), be less than 71 years old, not hold a temporary visa, lodge your tax return and have a total superannuation balance less than $1.6 million.

There’s also the income test which is key to this. To be eligible for a co-contribution, you must have total income (i.e. all income before salary packaging) of less than $53,464.

If you earn less than $38,564 and invest $1,000 in super, you may be eligible for a 50% match or $500. According to the ATO, “if your total income is between the two thresholds, your maximum entitlement will reduce progressively as your income rises.”

That means a $1,000 investment could get matched with an instant $500. It’s hard to beat an instant 50% return on investment right now.

What’s the catch?

There really is no catch to this if you want to invest in super. Of course, that money is locked away until the preservation age and is subject to potential liquidity or regulatory issues.

If you really want to invest in Afterpay Ltd (ASX: APT) shares or other ASX shares then maybe the co-contribution scheme isn’t for you.

However, savvy investors could do well to invest in super and cash in on the Federal Government’s retirement boost.

More reading

• 3 ASX shares I’d buy if the market hits 23 March levels again
• ASX 200 falls 1.9%, big 4 ASX banks retreat
• Tech shares! Should we even invest in anything else?
• S&P quarterly rebalance: A2 Milk added to ASX 50 & NEXTDC in the ASX 100
• All Technology Index sees stunning comeback

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Here’s how you invest in super to get a free $500 appeared first on Motley Fool Australia.

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Investing in high yield dividend shares has both pros and cons.

The Reserve Bank of Australia (RBA) interest rate is now very low at just 0.25%. I think ASX dividend shares are the best way to solve this income problem. But are high yield dividend shares a good idea? To answer that, I’m going to tell you about franking credits first.

Franking credits

Australia gives dividend investors a unique advantage compared to the rest of the world. The Australian taxation system generates franking credits for companies.

According to the ATO: “dividends paid to shareholders by Australian resident companies are taxed under a system known as imputation. This is where the tax the company pays is imputed, or attributed, to the shareholders. The tax paid by the company is allocated to shareholders as franking credits attached to the dividends they receive.”

This is really helpful in making the high yield dividend share’s yield even bigger.

For example, a large company could generate $100 of net profit. The ATO will tax it at rate of 30%. Then there’s $70 left in the company’s hands and $30 in tax is paid to the ATO. If the company pays out that $70 as a dividend it will attach the $30 as franking credits for the shareholder.

Franking credits can turn a fully franked dividend yield of 7% into a grossed-up dividend yield of 10%.

The pros of high yield dividend shares

Get more income from your capital 

We only have so much money at our disposal. Depending on your needs, you may want to generate a certain amount of investment income each year. High yield dividend shares could allow you to achieve the required income from a smaller capital balance. For example, a 10% grossed-up dividend yield would generate $10,000 of income from $100,000 of capital. You’d need $200,000 of capital to make $10,000 with a 5% yield.

Don’t have to sell shares to be rewarded 

Some shares like Berkshire Hathaway are famous for not paying a dividend. However, if you need money to live then you’d have to sell shares to get money. I wouldn’t want to be worrying about when I should be selling shares. High yield dividend shares allow you to regularly benefit from the profit they’re making as they pay out those nice dividends.

The cons of high yield dividend shares

Tax

If you’re earning income from your work you’re probably paying tax. Dividends count as taxable income. The more you receive in dividends the more you have to pay in tax.

If you’re in one of the highest tax brackets then high yield dividend shares could mean handing over a lot of your annual return over to the ATO each year.

Low re-investment

If a business makes $10 million of profit and pays out $9 million of it as a dividend then it’s only retaining 10% to re-invest back into the business. It might be better for the long-term returns of the business to keep $2 million or even $5 million to re-invest.

We should want our shares to invest back into the business if it’s possible to earn a decent return on that money. Dividends are important, but capital growth is also an important part of total returns.

A high yield could indicate a risky share

Some high yield dividend shares have a yield simply because they pay out most of their profit each year.

However, other shares could have a high yield because the market doesn’t price the company’s earnings very highly.

For example, two businesses could have the same dividend payout ratio of 50%. One could have a price/earnings (p/e) ratio of 10, which would equate to a dividend yield of 5%. The other could have a p/e ratio of 20, which would equate to a dividend yield of 2.5%.

The lower p/e business may be valued lower because it’s riskier and there may be more of a chance of a dividend cut. Dividends are not safe like term deposits. We’ve already seen some dividend cuts in this COVID-19 era. 

Foolish takeaway

High yield dividend shares can be a good way of getting more income for your money. However, I’d only be interested in some of the more reliable dividend shares out there like WAM Research Limited (ASX: WAX), Naos Emerging Opportunities Company Ltd (ASX: NCC) and Rural Funds Group (ASX: RFF).

More reading

• 12 top ASX dividend shares to buy in June 2020
• 3 ASX shares I’d buy if the market hits 23 March levels again
• Get paid huge amounts of cash to own these ASX dividend shares
• 3 high yield ASX dividend shares for income
• Not keen on Westpac? Then buy these top ASX dividend shares instead

Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post The pros and cons of investing in high yield dividend shares appeared first on Motley Fool Australia.

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