Stock Pick

  • My 3 high-yield ASX dividend shares to buy now

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    The ASX dividend share game has changed in 2020 – markedly so. This time last year, we were likely discussing which ASX banks had the largest dividend yield, or how safe Transurban Group‘s (ASX: TCL) payouts are.

    Fast forward to 2020 and we’re now asking which ASX bank will pay a dividend this year, or how low Transurban’s payouts will be.

    So here are 3 ASX shares that I think are great choices for strong dividend income within this new paradigm.

    The resources dividend giant

    BHP Group Ltd (ASX: BHP) is an ASX mining behemoth. It would be our largest ASX company if it wasn’t for its multiple listings across London and New York. BHP has massive global operations across 4 key commodities: copper, oil, iron ore and coal. It’s this diverse earnings base that I think lends strength to BHP by enabling it to balance commodity pricing swings in any one area.

    On current prices, BHP is offering a trailing dividend yield of 5.97% – or 8.53% grossed-up with full franking. I think this dividend is well funded today, and could even increase if iron ore prices stay above US$100 a tonne for an extended time. Either way, I think BHP is a top contender for a strong dividend in 2020.

    The listed investment company

    WAM Capital Limited (ASX: WAM) is a listed investment company (LIC) that has been around since 1999. Since that time, it has handily delivered investors outperforming returns, which stand at an average of 15.7% per annum. WAM’s focus is normally on growth-orientated, mid-cap ASX shares, which are bought when the company identifies a ‘growth catalyst’.

    On current prices, WAM shares are offering a dividend yield of 8.42%, 12.03% grossed up with full franking. However, this LIC’s profit reserves are looking a little bare. It’s possible this dividend won’t be maintained at its current level moving forward.

    The dark horse ASX bank

    Commonwealth Bank of Australia (ASX: CBA) is our final dividend pick – and a long-shot. I, for one, don’t have massive expectations on the bank’s final dividend for 2020, due to be paid in September. However, I also don’t think CBA will follow its banking compatriots Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) and ditch the dividend entirely.

    Although the ASX banking sector is facing a number of headwinds as a whole, CommBank is unquestionably our strongest bank and therefore the most likely to return to its former glory as a dividend kingpin, in my view. Thus, I think on current pricing, you could be picking up a great deal for a long-term dividend share winner.

    For some more ASX shares you might to check out, take a look at the report below!

    3 “Double Down” Stocks To Ride The Bull Market

    Motley Fool resident tech stock expert Dr. Anirban Mahanti has stumbled upon three under-the-radar stock picks he believes could be some of the greatest discoveries of his investing career.

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    More reading

    Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Transurban Group. 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 My 3 high-yield ASX dividend shares to buy now appeared first on Motley Fool Australia.

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  • Dell Plots $50 BIllion More of Financial Finessing

    Dell Plots $50 BIllion More of Financial Finessing(Bloomberg Opinion) — Dell Technologies Inc.’s magical merry-go-round of financial engineering is spinning once again.The corporate computing giant is examining options for its majority stake in software-company VMware Inc. that include a spinoff of the holdings, the Wall Street Journal reported late Tuesday. VMware shares soared roughly 10% on the news in after-market trading, valuing Dell’s 81% stake at around $55 billion. To understand why Dell would contemplate a transaction like this, you only have to look at Dell’s own market value, which despite a rise of its own on the news of the possible spinoff amounted to only about $40 billion. Put another way, Dell isn’t getting full value for either its ownership of VMware or its own computing and data-storage business that took in around $80 billion of revenue in the most recent fiscal year. And it wants to remedy that. But for all of shareholders’ early enthusiasm, a spinoff of the VMware stake would appear to be just a superficial fix for the complexity that’s long weighed on the value of Dell’s various businesses. Dell acquired its stake in VMware through the $67 billion buyout of EMC Corp. in 2016. As part of that transaction, the company created a tracking stock that was meant to mirror the value of VMware, which remained independent and publicly traded. It didn’t work very well. The tracking stock lagged substantially behind the price of VMware shares. Meanwhile, Dell’s massive debt load and complicated capital structure made a traditional IPO process difficult when founder Michael Dell and private-equity firm Silver Lake wanted to try to reintroduce the company to the public markets following a 2013 buyout. So in 2018, Dell decided to simplify things by buying out the tracking stock. A protracted battle ensued with shareholders of the tracking stock — including P. Schoenfeld Asset Management and Carl Icahn — who felt they were being low-balled, but eventually a deal got done. In hindsight, owners of the tracking stock were right to push for more cash and a complicated equity-collar mechanism, seeing as the Class C stock that made up the remainder of the takeover bid hasn’t fared as well on the public market as Dell might have hoped. Which brings us back to the present. If you kept up through that long, winding tale of financial engineering, you might be wondering why Dell went through the process of unraveling the VMware tracking stock if it was just going to recreate the general idea several years later, as this latest spinoff plan would seem to suggest. The exact structure of a spinoff of the VMware stake is unclear and the Journal reports that talks are at a very early stage and may not go anywhere. Potentially, a spinoff would confer more direct ownership of the VMware business to shareholders than the tracking stock previously did, helping to simplify the valuation process. But it’s hard not to shake the feeling that we’ve been here before.An alternative option that Dell is considering is a buyout of the VMware shares it doesn’t already own, the Journal reported. But that would add to its still mammoth debt load and doesn’t really do much on its own to address the fact that Dell shareholders aren’t inclined to give the company credit for the VMware stake it already holds. Ultimately, a buyout of the rest of VMware, followed by a spinoff of the whole thing, makes the most sense but would take a long time and is easier said than done. Recall that Dell initially tried to bring VMware further into the fold as part of the negotiations that ultimately led to the tracking stock deal, but both management and shareholders of the target company balked.Is this latest finessing going to make Dell a better-run company? Doubtful. Is it going to boost the company’s stock price over the long run? Maybe. But if after years and years of financial engineering, you’re still not seeing the kind of equity valuation you want, perhaps its the financial engineering that’s the problem.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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  • Why this fund manager believes PolyNovo shares are undervalued

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    The PolyNovo Ltd (ASX: PNV) share price may have jumped 56% over the last 12 months, but one fund manager believes it can still go higher.

    Who is bullish on PolyNovo?

    According to a recent update by the DNR Capital Australian Emerging Companies Fund, it has recently initiated a position in PolyNovo.

    PolyNovo is the medical device company behind the NovoSorb technology, which was developed by CSIRO following the Bali bombings.

    NovoSorb is a biodegradable material that can be used to aid the repair of bone fractures and damaged cartilage, and in skin grafts.

    The key product in its portfolio is the NovoSorb Biodegradable Temporising Matrix (BTM) product. NovoSorb BTM is a wound dressing intended for treatment of full-thickness wounds and burns where the dermal structure has been lost to trauma, or damaged requiring surgical removal.

    Why is PolyNovo undervalued?

    DNR Capital believes that PolyNovo is undervalued based on its future cash flows.

    It commented: “We believe Polynovo shares are undervalued based on our assessment of long-term cash flows. The company has a leading product that is in the early phase of its penetration into a large addressable market of $1.5b.”

    It’s worth noting that DNR Capital isn’t including other markets that the company has its eyes on. Adding these into the equation would increase its addressable market opportunity to an estimated $7.5 billion per year according to management.

    DNR Capital explained: “We don’t ascribe value to the hernia and breast opportunities given the limited visibility on cash flows, as these products need to pass certain milestones before they become commercial.”

    In addition to this, the fund manager notes that PolyNovo’s earnings growth potential is very strong and its outlook is increasingly positive.

    “With the business now at a cash-flow break even run-rate, we expect significant earnings growth as it penetrates a large addressable market estimated at $1.5b. The business generates attractive gross margins of 90%, which will lead to high returns on invested capital.”

    “The company continues to reinvest into research and development with a number of new products to be launched targeting the hernia and breast market, with the combined opportunity valued at $6b,” it added.

    Should you invest?

    I think DNR Capital makes some great points and PolyNovo could be well worth considering with a long term view. Though, given the premium that its shares trade at, you might want to consider limiting an investment to just a small part of your portfolio.

    And here are more exciting shares which could be stars of the future…

    5 ASX stocks under $5

    One trick to potentially generating life-changing wealth from the stock market is to buy early-stage growth companies when their share prices still look dirt cheap.

    Motley Fool’s resident tech stock expert Dr. Anirban Mahanti has identified 5 stocks he thinks are screaming buys. And you can buy them now for less than $5 a share!

    Learn More

    *Extreme Opportunities returns as of June 5th 2020

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    Motley Fool contributor James Mickleboro 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 Why this fund manager believes PolyNovo shares are undervalued appeared first on Motley Fool Australia.

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