Stock Pick

  • Should ASX 200 investors want share buybacks or dividends?

    Man choosing between two options with arrows

    Warren Buffett has long been an advocate of buying back his own stock rather than paying a dividend to shareholders. The reason why? He believes that he can invest the funds better than individual shareholders and, thus, compound their wealth quicker.

    That is Buffett and predominantly US shareholders though. He has an amazing track record of allocating capital and creating outperformance for shareholders. Australian investors are much hungrier for and more used to dividends making up a significant portion of their share market investment returns versus their US counterparts.

    The argument for dividends

    What do Malta, New Zealand and Australia have in common? A full imputation credit system, i.e. franking credits. We are lucky enough to receive a tax credit for income taxes paid by the companies we own shares in. This is a significant benefit and under current law can even lead to a tax refund, depending upon your circumstances.

    Dividends also allow investors the choice of where to invest their new capital. This can help with increasing diversification or improving investment returns by redeploying capital into your best idea at the time. Many companies offer dividend reinvestment plans (DRIP) giving you the option (without brokerage) to buy more of the company’s shares, if that’s your best idea.

    Dividends are a great way to increase your cash flow. Many retirees hold a diversified portfolio of dividend-paying shares, the income of which they live off.

    Another reason dividends may be preferred over buybacks is that management teams often mistime buybacks, buying at high share prices and conserving cash at depressed share prices.

    Some great dividend shares include Jumbo Interactive Ltd (ASX: JIN) and Macquarie Group (ASX: MQG).

    The arguments for buybacks

    Buybacks reduce the number of outstanding shares on the market, meaning that all future earnings are greater on a per-share basis. Theoretically, investors should see greater share price appreciation if everything else was consistent.

    Cash is a drag on your investment returns. The same can be said for companies. Buying back shares is a way of reducing cash drag and improving returns. A perfect example of this is Apple Inc. (NASDAQ: AAPL) which has a mountain of cash.

    So why didn’t Buffett buy Berkshire during the bear market?

    When Berkshire Hathaway Inc. (NYSE: BRK.B) reported its March quarter activity, many investors were shocked to see that Warren Buffett had not put more of his massive cash pile to work. Buffett didn’t make any meaningful buys, including buying back Berkshire’s own stock. This is despite Berkshire trading at a price-to-book value below Buffett’s previously touted buy zone of 1.2 times.

    A couple of potential reasons for Buffett not buying back more of his own shares are:

    1. Berkshire’s investment portfolio includes a number of wholly-owned businesses, as well as a number of consumer-facing share investments. Buffett has more information about these businesses than anyone else. This would suggest he knows the true economic impacts on these businesses and thinks that the share price is out of line with the business fundamentals.
    2. The buy-back program is at the full discretion of Buffett and Munger, vice chairman of Berkshire. A price-to-book valuation isn’t ideal and so in recent times, they have looked more to earnings multiples to value Berkshire.

    Foolish bottom line

    Both buybacks and dividends can be great for investors when implemented well by management. ASX investors should buy shares in companies with great management teams.

    Here are some great dividend paying stocks if you want more franking credits.

    NEW: Expert names top dividend stock for 2020 (free report)

    When our resident dividend expert Edward Vesely has a stock tip, it can pay to listen. After all, he’s the investing genius that runs Motley Fool Dividend Investor, the newsletter service that has picked huge winners like Dicker Data (+92%), SDI Limited (+53%) and National Storage (+35%).*

    Edward has just named what he believes is the number one ASX dividend stock to buy for 2020.

    This fully franked “under the radar” company is currently trading more than 24% below its all-time high and paying a 6.7% grossed-up dividend.

    The name of this dividend dynamo and the full investment case is revealed in this brand new free report.

    But you will have to hurry — history has shown it can pay dividends to get in early to some of Edward’s stock picks, and this dividend stock is already on the move.

    See the top dividend stock for 2020

    More reading

    Lloyd Prout has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Apple, Berkshire Hathaway (B shares), and Jumbo Interactive Limited and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Apple, Berkshire Hathaway (B shares), and Jumbo Interactive Limited. 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 Should ASX 200 investors want share buybacks or dividends? appeared first on Motley Fool Australia.

    from Motley Fool Australia https://ift.tt/2Zy9YPr

  • Alibaba Drops After Projecting Slowing Growth in Uncertain Times

    Alibaba Drops After Projecting Slowing Growth in Uncertain Times(Bloomberg) — Alibaba Group Holding Ltd. slid after projecting revenue growth will slow this year, reflecting post-Covid 19 economic uncertainty at home as well as the potential for U.S.-Chinese tensions to disrupt its business.Its stock slid as much as 4% in Hong Kong Monday, after a drop of almost 6% in New York before the weekend. The e-commerce giant forecast sales growth this year of at least 27.5% to more than 650 billion yuan ($91 billion), down from 35% previously and slightly below analysts’ estimates. While it posted a better-than-expected 22% rise in March quarter revenue of 114.3 billion yuan, that marked its slowest pace of expansion on record.Online shopping began to bounce back from March, executives said Friday. But the tepid outlook demonstrates the world’s second-largest economy has yet to fully shake off Covid-19, with consumers still hesitant about spending on big-ticket items. Asia’s most valuable corporation is tackling also the rise of rivals such as ByteDance Ltd. and Pinduoduo Inc. And the Tmall operator is going head-to-head with Tencent Holdings Ltd. for internet leadership in everything from online media to payments and cloud computing. JD.com Inc., the No. 2 Chinese online retailer, forecast better-than-expected revenue this quarter.“The market is a bit disappointed despite the strength given 2Q guidance of 20-30% YoY growth for JD and 99% GMV growth in 1Q20 for PDD,” CICC analyst Natalie Wu wrote. “We regard Alibaba’s advantage as a market leader as intact and unchanged in the longer run, though it may take several quarters for market sentiment to swing back.”Read more: Alibaba Sales Growth Plumbs New Lows While Uncertainty EscalatesAlibaba has lost more than $70 billion of market value since the coronavirus first erupted in January, and now has to grapple with not just an uncertain global economic environment but also any potential fallout from U.S.-Chinese financial tensions. On Friday, executives sought to assuage concerns about a U.S. bill that mandates much closer accounting scrutiny of U.S.-listed Chinese companies and may bar them from American bourses.Chief Financial Officer Maggie Wu said Friday Alibaba’s financial statements have been consistently prepared in accordance with U.S. GAAP accounting measures and were beyond reproach. “The integrity of Alibaba’s financial statements speak for itself, we have been an SEC filer since 2014 and hold ourselves to the highest standard,” she told analysts on a conference call. “We will endeavor to comply with any legislation whose aim is to protect and bring transparency to investors who buy securities on U.S. stock exchanges.”The bigger short-term challenge is in reviving growth: Alibaba’s bread-and-butter customer management or marketing business grew just 3% in the March quarter. Much of that stems from weaker consumer sentiment during the coronavirus-stricken quarter, when total Chinese e-commerce rose just 5.9% or at less than a third of 2019’s pace, according to government data. Jefferies analysts led by Thomas Chong wrote that Alibaba’s guidance was in fact a positive when viewed against an array of uncertainties gripping the post-Covid 19 global economic environment.What Bloomberg Intelligence SaysUser engagement and transaction volume have rebounded in April and May to precrisis levels, which bodes well for normalized sales growth ahead, especially as merchant-support measures are gradually rolled back.\- Vey-Sern Ling and Tiffany Tam, analystsClick here for the research.Rival PDD posted a revenue rise of 44% on Friday, down sharply from 91% in the previous quarter but ahead of expectations. Its sales and marketing expenses jumped 49%. PDD’s shares climbed 15% Friday.Alibaba’s March-quarter net income was 3.2 billion yuan, down 88% from a year ago when it booked an 18.7 billion yuan one-time gain on investments. In February, Alibaba declared a waiver of some service fees for merchants struggling financially during the outbreak on its main direct-to-consumer Tmall platform. In April, the company rolled out a new 10-billion-yuan subsidy program for Tmall users to buy electronics, encroaching on JD.com’s traditional turf. These initiatives may further compress margins for the June quarter.“The challenging part is for them to achieve the same amount of growth this year,” said Steven Zhu, a Shanghai-based analyst with Pacific Epoch. “Just because they are too big, for the same amount of growth, they need to spend much more effort.”But executives were confident in a gradual e-commerce recovery over the year. Beyond its main business, younger divisions such as its cloud computing arm should buoy the bottom line. That division’s revenue jumped 58% in the quarter.“Despite a challenging quarter due to reduced economic activities in light of the COVID-19 pandemic in China, we achieved our annual revenue guidance,” Wu said in a statement. “Although the pandemic negatively impacted most of our domestic core commerce businesses starting in late January, we have seen a steady recovery since March.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

    from Yahoo Finance https://ift.tt/2A2eqLU

  • 2 ASX shares in the fight against coronavirus

    coronavirus positioned on stock market graph, asx shares

    The potential for a vaccine for coronavirus has flooded news headlines recently, causing some ASX shares to rally. The rush to find a ‘silver bullet’ cure for the pandemic has resulted in a slew of listed companies announcing their intentions to undertake research around a possible cure. 

    Despite the optimism and enthusiasm for a vaccine, many scientists have indicated that a well-trialled and tested vaccine for COVID-19 could take much longer than 18 months to develop. The vast majority of vaccines fail somewhere between Phase 1 and Phase 2 trials.

    Given the nature of COVID-19 and the trial processes involved in vaccine development, companies that have joined the race to find a cure could face a long and costly journey. As a result, the focus has also turned to alternative methods of treating and testing for COVID-19.

    Here are 2 ASX biotechnology companies that have joined the fight against COVID-19.   

    2 ASX shares involved the fight against coronavirus

    Mesoblast limited (ASX: MSB)

    Mesoblast is a world leader in developing regenerative medicines for inflammatory diseases and prides itself on innovation surrounding stem cell research. The company made headlines late last month after announcing promising results for its remestemcel-L treatment for COVID-19. In a US trial, Mesoblast recorded an 83% survival rate in ventilator-dependent COVID-19 patients, while 75% of patients had successfully come off ventilator support within 10 days.

    Mesoblast’s remestemcel-L product acts by counteracting the inflammatory processes caused by COVID-19. The company is currently undertaking a $46 million Phase 2/3 trial in the US in order to attain approval from the US Food and Drug Administration.

    The promising results from its US trials has seen the Mesoblast share price surge more than 250% from its lows in mid-March.  The company recently completed a $138 million capital raising in order to scale-up manufacturing of its products and is also in the process of conducting clinical trials in Australia.

    CSL Limited (ASX: CSL)

    CSL is not actively participating in the race to develop a vaccine for COVID-19. The biotechnology giant is, however, working hard to develop a plasma product that may assist in the recovery of patients battling the disease. In collaboration with the Australian Red Cross Lifeblood Service, CSL is collecting plasma from patients who have recovered from COVID-19. The collected plasma, which contains antibodies, will then be used to support a clinical trial aimed at improving the condition of COVID-19 patients and reducing their need for ventilation.  

    Should you buy these ASX shares?

    Despite the optimism surrounding a coronavirus vaccine, the reality is that a successful solution will not happen overnight. Biotech companies have to undergo arduous and costly approval processes and clinical trails before actually getting a product to market.

    As a result, I think investors should exercise caution when companies announce their intentions to fight COVID-19. In my opinion, if you’re keen on investing in the sector, tried and tested performers like CSL would be the best, long-term option as they offer greater risk protection.

    If you’re not liking the look of these 2 ASX biotech shares, check out this report for more blue-chip performers like CSL.

    The Motley Fool AU Announces Top 3 Dividend Shares To Buy For 2020

    When Edward Vesely — The Motley Fool Australia’s resident dividend expert — has a stock tip, it can pay to listen. With huge winners like Dicker Data (up 92%) and SDI Limited (up 53%) under his belt, Edward is building an enviable following amongst investors that are planning for retirement.

    In a brand new report, Edward has just revealed what he believes are the 3 best dividend stocks for income-hungry investors to buy now. All 3 stocks are paying growing fully franked dividends giving you the opportunity to combine capital appreciation with attractive dividend yields.

    Best of all, Edward’s “Top 3 Dividend Shares To Buy For 2020” report is totally free to all Motley Fool readers.

    As of 7/4/2020

    Click here now to access this free report.

    More reading

    Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. 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 2 ASX shares in the fight against coronavirus appeared first on Motley Fool Australia.

    from Motley Fool Australia https://ift.tt/2A2bfDZ

The Latest

Sorry, but nothing was found. Please try a search with different keywords.