The share prices of the 3 major ASX gold miners below were higher on Monday following a lift in the gold price. Additionally, they were boosted by reports that the wealthy have been buying up gold, which could suggest a strong rally is coming. Lately, the gold price has also been supported by the decision of the US federal reserve to continue its quantitative easing as the world economy works through the current recession. 

If your bullish on gold prices, gold mining companies are a great way to gain exposure. As the gold price moves higher they generally see an increase in sale prices of the precious metal. This boosts profits for shareholders.

Newcrest Mining Limited (ASX: NCM)  

The Newcrest Mining share price was up 3.69% on Monday. Newcrest has operations in Australia, Canada, Ecuador and Papua New Guinea. In Q3 of the 2020 financial year, Newcrest produced 519,000 ounces of gold. Its margin on this production was $742 per ounce. Since the end of March, the gold price has recovered more than 15%. This means that we can expect the margins that Newcrest receive to be significantly higher in the current period. 

The Newcrest mining share price has recovered almost 50% from its 52 week low of $20.70. It is up 3.25% since the beginning of the year. 

Saracen Mineral Holdings Limited (ASX: SAR)

The Saracen Mineral Holdings share price is up 8.47% on Monday. Saracen is a reliable gold producer and has an impressive 7-year track record of meeting or beating its production guidance. Its production guidance for the 2021 financial year is 600,000 ounces or more. If higher gold prices remain this will fetch over $1.5 billion in revenue for the miner. 

The Saracen Minerals share price is up 84% from its 52 week low of $2.81. Since June 2015, the Saracen Minerals share price has increased more than 10 fold from $0.45 cents to $5.17 on Monday. 

St Barbara Ltd (ASX: SBM)

The St Barbara share price was up 5.96% on Monday. This comes as investors rush into shares offering exposure to the precious metal. St Barbara has operations in Australia, Canada and Papua New Guinea. When St Barbara presented to analysts in May, it forecast that it would produce 385,000 ounces of gold in the 2020 financial year. This is lower than its usual production over the last 5 years and if the miner can boost production at a higher gold price, it could see significantly higher profits for shareholders.

 The St Barbara share price is up 98% from its 52 week low of $1.615. It has returned 17.2% since the beginning of January.

More reading

• A $73m boost sends the Austal share price to the top of the ASX 200 today
• ASX 200 Weekly Wrap: ASX back in the green
• 5 things to watch on the ASX 200 on Monday
• Where to invest for reliable dividend shares
• 5 things to watch on the ASX 200 on Friday

Motley Fool contributor Chris Chitty 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.

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If you’re looking for a source of income in this low interest rate environment, then I think the dividend shares listed below could be quality options.

Here’s why I think income investors ought to consider buying them:

Australia and New Zealand Banking GrpLtd (ASX: ANZ)

I think ANZ would be worth considering right now. At around 13x estimated FY 2021 earnings and 0.9% FY 2021 book value, I think the banking giant’s shares are trading at a very attractive level. Especially for income investors. I expect the bank to pay a partially franked dividend of $1.05 per share in FY 2021. If this proves accurate, it means that ANZ’s shares currently offer investors a very generous 5.5% yield at present.

SPDR S&P/ASX 200 Fund (ASX: STW)

This exchange traded fund (ETF) gives investors exposure to all of the 200 companies listed on the S&P/ASX 200 Index (ASX: XJO) through just a single investment. This diverse group of shares includes the likes of the big four banks, mining giants, and countless REITs. While predicting what the yield will be in FY 2021 is difficult because of dividend deferrals and cuts, traditionally it is around 4% to 4.5%. I think this makes it a good option for income investors that don’t have enough funds to maintain a truly diverse portfolio.

Wesfarmers Ltd (ASX: WES)

Another top dividend share to consider buying is this conglomerate. I’m a big fan of the conglomerate due to the quality and diversity of its portfolio of businesses. I feel the majority of these businesses are well-positioned to deliver solid long term earnings growth. Combined with potential earnings accretive acquisitions in the near term, I think Wesfarmers could grow its dividend materially over the next decade. For now, I estimate that its shares offer investors a fully franked ~3.6% FY 2021 dividend yield.

More reading

• Why Morgans is urging investors to buy ASX big bank stocks today
• Here are 3 Australian share market trends to watch this week
• ASX share price winners and losers of last week
• ASX 200 Weekly Wrap: ASX back in the green
• Which shares to buy if the ASX tumbles

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Wesfarmers 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.

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Is the Challenger Ltd (ASX: CGF) share price a buy?

Investors were thrown a curve ball today after the annuity business announced a capital raising.

The capital raising part of the announcement

Here are the details of the raising. 

The first part of the raising comprises a fully underwritten institutional placement of $270 million. The second part is a non-underwritten share purchase plan (SPP) which is looking to raise up to $30 million.

The placement will be conducted at a fixed price of $4.89 per new share, which represents an 8.1% discount to the last traded price of $5.32 and a 5.7% discount to the volume weighted average price (VWAP) of Challenger shares traded on the ASX during the five days leading up to 19 June 2020.

The placement will mean 55 million new shares will be issued. This is approximately 9% of Challenger’s existing shares on issue.

Eligible retail shareholders can apply for up to $30,000 of new Challenger shares. The price will either be the Challenger placement share price of $4.89 or a 2% discount to the weighted average share price in the five days up to the closing date of the share purchase plan (being 21 July 2020).

According to reporting by the Australian Financial Review, the $270 million placement was covered by institutional investors by early afternoon.

MS&AD, Challenger’s major shareholder and strategic partner, has said that it won’t be participating in the capital raising. The investor said it supports the raising and remains committed to its strategic relationship and will remain a major shareholder.

I think it’s a shame this raising is being done at a much lower share price compared to a few months ago. This is the case for many businesses doing capital raisings during this period. 

The dividend part of the announcement

As part of the capital raising, Challenger said: “Given the uncertain economic conditions, investment market volatility and intention to maintain a strong capital position while optimising earnings, the board’s intention is that no final FY20 dividend will be paid by Challenger in September 2020.”

This is very disappointing. Of course, it wouldn’t make sense to do a capital raising and then pay out a large dividend a few months later. That would be dilutive for shareholders and the Challenger share price. 

However, before this announcement, Challenger had a reliable dividend record that went back further than the GFC with no cuts. This decision ends that streak. 

Challenger may well bring back a pleasing dividend in FY21. But I don’t think it can be called a reliable dividend share any more.

What will Challenger do with the raised capital?

The equity raise will strengthen Challenger Life’s capital position during this period of market uncertainty, with $300 million to be used as common equity tier 1 (CET1) regulatory capital.

Challenger said that investment grade fixed income asset risk premiums have widened significantly following the COVID-19 pandemic market sell-off. The annuity company thinks that there is a significant opportunity to generate pre-tax return on equity (ROE) returns of more than 20% on the capital backing the investments. The capital will be progressively deployed and expected to be ROE accretive once fully deployed.

Is Challenger a buy at this share price?

The company is expecting normalised profit before tax to be at the bottom end of its $500 million to $550 million guidance range. However, the statutory net profit after tax (NPAT) is expected to be impacted by the market sell-off. At the end of May 2020, it’s showing a loss of $483 million for FY20 to date.

I see why Challenger is doing the capital raising, particularly for boosting Challenger Life’s CET1 ratio. The prospect of earning strong ROE returns is also alluring.

The capital raising price does look attractive for eligible shareholders and Challenger may be cheap. But the cancellation of the final FY20 dividend makes Challenger less appealing to me now. Will a solid dividend return? Investors will have to hope that Challenger is able to utilise the new funds in a very effective manner to make up for the lost dividend income. The last couple of years have been disappointing for Challenger shareholders.

More reading

• Why Challenger is launching a $300 million equity raising
• 3 long-term ASX 200 shares I’d buy right now
• What are the best ASX shares for dividends?
• ASX 200 jumps almost 4%, Webjet share price soars
• 2 unloved ASX shares that could stage a big turnaround

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger 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.

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