In a media release today, Allan Gray Chief Investment Officer, Simon Mawhinney made a prediction for ASX share dividend yields.

He said the yields for the majority of ASX listed companies could soon be zero or near zero. According to the release, “Allan Gray is progressing on the basis that dividend yields will be close to zero in the near future for the majority of ASX-listed companies.”

The fund manager also stated that APRA had written to banks and insurers in April requesting a reduction in dividends.

This has likely contributed to the dividend cuts from Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC),  Australia and New Zealand Banking GrpLtd (ASX: ANZ) and National Australia Bank Ltd. (ASX; NAB). CommBank, Westpac and ANZ have suspended their dividends entirely while NAB has cut its dividend significantly.

The diamonds in the rough

However, not all news regarding ASX share prospects was negative in the release. The fund manager pointed out that some companies have benefited from the wave of events brought on by the coronavirus and were in a position to lift their dividends. The examples provided included Woolworths Group Ltd (ASX: WOW) and Coles Group Ltd (ASX: COL). These staples have benefited from both panic buying and the coronavirus shutdowns. 

Additionally, the fund manager pointed out there is a significant gap between defensive shares cyclical shares. For instance, healthcare and utilities versus materials and banks. According to the release, the April market rally saw defensive companies that had performed well prior to COVID-19 favoured against cyclical companies. If the announcement is correct, this disparity will not continue.

Mr Mahwinney said:

“This divergence can’t continue indefinitely and it is important not to forget what might already be priced into cyclical company share prices. Everything has a price and a momentum shift into cyclically-depressed shares seems well overdue”.

An example of a defensive company fitting this description is Ansell Limited (ASX: ANN). Ansell rallied close to pre-coronavirus prices in April and has since reached new record highs. 

If the fund manager is correct, cyclical companies that may rally include BHP Group Ltd (ASX: BHP), Woodside Petroleum Limited (ASX: WPL) and Bank of Queensland Limited (ASX: BOQ). Each are now trading at significantly lower share prices than sold for prior to the coronavirus pandemic.  

The opportunities

The release also spoke to ASX share opportunities, “Despite earnings and dividend headwinds, we believe investors with a firm focus on the fundamentals and the long term will benefit from mispricing opportunities currently in the market.

“These opportunities are in those companies that typically have strong balance sheets and excellent asset bases, but which can be bought at extremely depressed prices given earnings headwinds”.

One example of a company that may meet Simon Mawhinney ‘s dividend opportunity suggestion is Treasury Wine Estates Ltd (ASX: TWE). Treasury Wine has a strong balance sheet and an excellent asset base of high-quality brands. Currently, the Treasury Wine share price is significantly depressed and it is down 44% from its 52-week high of $19.47. While Treasury earnings could face headwinds from the coronavirus, we can likely see its yield recover in the long term.

More reading

• The CBA share price is down 13% this year. Is it a cheap buy?
• Top brokers name 3 ASX 200 shares to buy today
• Is the Woolworths share price a secret buy?
• My 3 high-yield ASX dividend shares to buy now
• Coronavirus second wave potential could drive investment portfolio changes

Motley Fool contributor Chris Chitty has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia has recommended Ansell Ltd. 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.

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The Newcrest Mining Limited (ASX: NCM) share price is trading at $31.14 at the time of writing, which is down around 30% from its all-time high seen in November 2010. During the same period, the S&P/ASX 200 Index (ASX: XJO) is up more than 20%. However, the ASX gold miner has been closing the performance gap and has outperformed the ASX 200 by almost 15% over the last 52 weeks.

Can the Newcrest share price continue to outperform and climb back to its all-time highs?

Enter the knight in golden armour

Central banks globally had expanded their balance sheets at an unprecedented pace following the global financial crisis (GFC). They had only barely managed to start reducing them when COVID-19 struck. Now the pace of balance sheet expansion makes the GFC run look like a child’s play.

So, what has this got to do with Newcrest? A lot. Like all mining companies, its financial performance is directly linked to the price of the product it mines and sells – gold. And gold is an asset with strong linkages to inflation as it is considered an inflation-hedge. So, if the central bank balance sheet expansions lead to an uptick in inflation, gold price would be going up as well.

However, contrary to what many expected, central bank actions, post-GFC, have not led to any inflation spike, to date. In fact, what we have seen is quite the opposite. Inflation has continuously fallen the world over. So, could this time be different?

In my opinion, yes, because of the following reasons:

• To deal with the massive socio-economic disruption caused by COVID-19, governments the world over have also entered the fray aggressively with their fiscal policies. We might soon see their central banks directly monetising the government debt. If that were to happen, inflation would soon be knocking at our doors.
• During the GFC, the bailouts had been passed through banks and large corporates. Directly or indirectly, much of that ended up being invested in assets like equities and property, which caused asset price inflation across the globe. During the current COVID-19 crisis, many of the bailouts have resulted in funds directly reaching the public at large. Their expenditure pattern is going to be different and largely on consumables like daily essentials. This might cause inflation to show up at retail level instead of in asset markets like it did during the GFC.
• COVID-19 has caused severe supply chain disruptions and I believe we are yet to see its impact fully in our daily lives. Sharp reduction in demand because of global lockdowns and pre-COVID inventory is not going to last forever. I believe supply will not be able to keep up with demand (even a reduced demand) as the lockdowns ease. And a higher demand than supply scenario will see a rise in inflation as customers bid up the prices of goods and services.

If inflation were to raise its head, one of the most direct beneficiaries would be gold and gold mining companies like Newcrest.

This golden sword cuts both ways

Even if it is deflation and not inflation that we get down the road, deflation is bound to adversely impact asset prices including equities down the line. And gold also happens to be a safe-haven asset – it generally rises in price when equity markets are falling. For instance, in the week ending 12 June, the Newcrest share price rose by 3.6%, while the ASX 200 declined by 2.5%, resulting in an outperformance of 6.1%.

Apart from the above 2 scenarios, gold also does well during periods of geo-political uncertainty. Geo-political fault lines are coming under increased pressure at various points globally and any flare up would be good for gold and Newcrest shares.

Thus, an investment in a gold mining company like Newcrest could do well under multiple scenarios and provide your investment portfolio with much-needed genuine diversification. Its current market capitalisation is $25.41 billion. Newcrest shares are trading at a price-to-earnings ratio of 29.32 with a dividend yield of 1.05%.

More reading

• Here’s why I think the Link share price has a huge growth opportunity ahead
• The CBA share price is down 13% this year. Is it a cheap buy?
• Why the CSR share price is falling today
• Bull market! Avoid these 3 ASX mistakes if you don’t want to lose money
• Top brokers name 3 ASX 200 shares to buy today

Motley Fool contributor Arpan Ranka has no position in any of the stocks mentioned. 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 Can the Newcrest share price crest to new highs? appeared first on Motley Fool Australia.

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The Afterpay Ltd (ASX: APT) share price has hit yet another all-time high today, breaching the $62 mark for the first time ever and printing a new record at $62.33.

It’s been a truly incredible run for Afterpay shares over the past 3 months. Exactly 3 months and 1 day ago, Afterpay had just closed at $8.90 per share. Today, any investors who were lucky enough to pick up the company’s shares at that time would be sitting on a 600% gain as at this morning’s new high watermark. Not bad for 3 months work.

Why the Afterpay share price is hitting the roof today

Afterpay has been in investors’ good books ever since the company revealed that use of its platform has exploded during the coronavirus pandemic and associated economic shutdowns. When the COVID-19 crisis began, investors initially feared the buy now, pay later (BNPL) leader would be swamped with a wave of defaults and credit crunches. Exactly the opposite has occurred, which has resulted in Afterpay’s massive market re-rating over the past 3 months.

But Afterpay’s share price is now far above the levels it was commanding even before the coronavirus pandemic hit. So what’s new?

Well, this morning the company announced that Clearpay (Afterpay’s United Kingdom business) now has over 1 million active customers after just one year in the market. It also told us that its new UK customers are using the BNPL platform more than 8 times per year on average. That compares very well with the 6 times per year its United States customers were using Afterpay in its first year of American operations.

Still time to buy Afterpay shares?

No doubt there will be investors (this writer included) watching the Afterpay share price’s performance with just a twinge of FOMO (fear of missing out). But is there still a case for a buy today, given the stock’s recent run?

Well, it depends on your outlook for this company. Right now, Afterpay is being valued at approximately $16.1 billion. If you think Afterpay has what it takes to go up against the behemoths in this space – US companies like Visa, Mastercard and American Express – then its shares are still cheap. Remember, Visa has a market capitalisation of approximately US$421.5 billion, Mastercard US$308 billion and Amex US$80 billion.

Having said that, there is still a big ‘if’. Conversely, if you’re not that confident, then perhaps the current Afterpay share price isn’t one you should be buying into. It’s still very hard in my view to value Afterpay as it’s not yet profitable. So keep that in mind when you’re looking at its current share price. Afterpay has also displayed significant volatility in the past, so you might still get a chance to buy in when the company isn’t at record highs.

But at the end of the day, it’s your call.

More reading

• Bull market! Avoid these 3 ASX mistakes if you don’t want to lose money
• How to get rich by investing in ASX shares
• ASX 200 down 0.2%: Afterpay hits record high, TPG Telecom merger vote
• Why Afterpay, APA, Evolution, & Sonic shares are storming higher
• Coronavirus second wave potential could drive investment portfolio changes

Sebastian Bowen owns shares of American Express, Mastercard, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Mastercard and Visa. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Mastercard. 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 Why the Afterpay share price hit another all-time high today appeared first on Motley Fool Australia.

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