ASX dividend shares are a great place to find a good source of income in my opinion. 

Bank interest is now very low. People may want their money to work harder, particularly if income is the goal.

Growth shares can create solid returns with the compounding of earnings. However, growth shares can be risky because they may be overpriced and the growth may not go according to plan. 

Dividends from ASX shares can be an attractive way to be rewarded each year. Share prices are volatile, whereas dividends can be consistent. Dividends are decided by the boards of companies, so businesses have more control of the dividend income for shareholders.

I think that dividend payments are a good sign of business profitability. It also shows that the leadership are thinking about their shareholders. You don’t want a CEO with an empire-building mindset who may lose a lot of money with risky acquisitions.

What type of ASX shares are good for dividends?

Do you want a mix of growth and income? Are you looking for the highest income? Is dividend growth your main concern?

High yield

The yield from an ASX dividend share is a big consideration. There are both positives and negatives to consider when thinking about high yield dividend shares.

If a business is paying out most of its profit each year as a dividend then there is little left for re-investment. It’s the re-investing for growth that is one of the key factors for long-term growth of the business.

But maybe you don’t want a lot of capital growth from your ASX dividend share. Perhaps a high level of income is all you want. In that case then shares like WAM Research Limited (ASX: WAX), Challenger Ltd (ASX: CGF) and Medibank Private Limited (ASX: MPL) could be decent ideas with their current yields.

Franking credits can really add to the yield on offer with the boost to the after-tax returns.

A healthy mix of income and growth

Some ASX dividend shares may not have grossed-up yields that are around 8% or over. They may be closer to the 5% level.

I like these types of income ideas the most because they may offer a good mix of long-term growth, whilst also paying solid dividends in the short-term.

If a dividend isn’t growing then it’s more likely to face a potential cut in the future. If a business isn’t moving forward then its competition is probably catching up. It’s the businesses with strong economic moats that can keep growing and fend off competition. I don’t think stagnant businesses are worth investing in for the long-term. Shares like banks aren’t attractive dividend ideas to me. 

Some ASX dividend shares that offer solid yields now, with good growth potential, are: Brickworks Limited (ASX: BKW), Arena REIT No 1 (ASX: ARF), APA Group (ASX: APA), Amcor Plc (ASX: AMC), Invocare Limited (ASX: IVC), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) Service Stream Limited (ASX: SSM).

Fast-growth income shares

There’s also the option of going for shares that seem as though their dividend income will grow at a fast pace.

For example, a dividend yield starting at 3% doesn’t sound like much. But if the dividend payment grows by say 10% a year then it compounds into a much larger number over time. After several years the 3% yield could pay more in dollar terms than the high yield dividend share, plus it may come with pleasing capital growth.

In this area I’m thinking about shares like Magellan High Conviction Trust (ASX: MHH), Propel Funeral Partners Ltd (ASX: PFP) and TechnologyOne Ltd (ASX: TNE).

ASX dividend shares that I’m going for

There is a lot of uncertainty at the moment with COVID-19 and with the US, particularly as it’s an election year.

If I had to pick some of the ASX dividend shares that I’ve named in this article for my portfolio I’d go for Washington H. Soul Pattinson, Brickworks, Magellan High Conviction Trust and Propel. They all offer decent starting yields and I think they are all trading at good value with good future growth prospects.  

More reading

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• Forget bank interest, try these ASX 200 dividend shares!
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• ASX 200 jumps almost 4%, Webjet share price soars

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Amcor Limited, Brickworks, Challenger Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of APA Group. The Motley Fool Australia has recommended InvoCare Limited, Propel Funeral Partners Ltd, and Service Stream 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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Investors looking for buy ideas that’s off the beaten path might be keen to put these ASX stocks on their watchlist.

These often overlooked stocks are the latest “buy” recommendations outside of the S&P/ASX 200 Index (Index:^AXJO) by leading brokers.

Little risk of dividend cut

The first is the APN Convenience Retail REIT (ASX: ARQ) share price, which jumped 4.5% to $3.50 on Thursday.

Morgans reiterated its “add” recommendation on the stock after the property trust completed its $50 million placement.

APN is looking to raise another $5 million to strengthen its balance sheet and fund the recently announced acquisition of Coles Express outlets.

Management is promising that its FY21 dividend will be no less than the current financial year. That will be music to investors’ ears given that the property sector is at risk of cutting dividends, as highlighted in my article yesterday.

Upcoming catalyst

“The main tenant remains Puma Energy Australia (c58% of income), however in December 2019 Chevron entered into a conditional agreement to acquire its Australian fuel business,” said Morgans.

“In our view, completion of this deal would be a near term positive catalyst as it would further strengthen the credit quality of a key tenant.”

The broker is forecasting a FY20 dividend of 21.8 cents a share, which increases slightly to 21.9 cents next year.

This puts the stock on a yield of 6.3% and Morgan’s price target on the stock is $3.75 a share.

Digging itself out of a hole

Another ASX small cap to put on your buy list is the Imdex Limited (ASX: IMD) share price, according to UBS.

The drilling services company is impacted by the COVID-19 shutdowns, particularly in South America. You only need to look at Brazil to see what I mean.

UBS estimates that Imdex’s June quarter revenue will crash by around 41% over the same period last year due to the lockdowns.

What’s more, the broker doesn’t see a V-shape recovery for Imdex with the way South America is going, but is convinced the stock looks cheap for those willing to look through the coronavirus crisis.

Looking cheap over medium-term

“While near-term earnings provide little support for IMD’s valuation, we view IMD’s FY22E EBIT multiple of 7.5x EV/EBIT as attractive and representative of more normalised EBIT,” said UBS.

“We see risks skewed to the upside from a faster recovery, underpinned by a favourable commodity price backdrop, and faster adoption of IMD’s new products.”

UBS reiterated its “buy” recommendation on Imdex with a price target of $1.30 a share.

More reading

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• Top brokers name 3 ASX 200 shares to sell today
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Motley Fool contributor Brendon Lau 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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The Turners Automotive Group Ltd (ASX: TRA) share price was a standout performer on the ASX today. Turners shares finished 28.24% higher at $2.18 after the group released its full-year FY20 results for the year ending 31 March 2020.

Turners Automotive Group is an integrated financial services group that, as its name suggests, primarily operates in the automotive sector. The group has three main business segments: automotive retail, finance and insurance, and debt management systems. 

Alongside the cornerstone Turners business, the group has a number of brands under its banner, including Oxford Finance, Autosure, and EC Credit Control.

Headline results

Starting from the top line, FY20 group revenue declined by 1% to NZ$333 million. Turners noted that trading towards the back end of the financial year was impacted by the early effects of COVID-19.

Nonetheless, the group delivered an 11% increase in underlying net profit before tax (NPBT), which rose from NZ$26 million in FY19 to NZ$28.8 million in FY20.

The group attributed this growth to gains made in the insurance, finance and credit divisions, which were partially offset by a drop in auto retail due to COVID-19.

Reported NPBT came in at NZ$29.1 million, in line with the group’s guidance range of NZ$28 million to NZ$30 million and flat on FY19 NPBT of NZ$29 million.

Automotive retail

Turners observed a softening of the used car market throughout FY20 due to reduced consumer confidence. Unsurprisingly, this decline was exacerbated during late February and March in the wake of the coronavirus pandemic.

The group highlighted a cyclical reduction in consignment vehicles in FY20. However, this was partially offset by an increase in the sales of owned inventory, with average gross profits per unit up 12% to $529.

Overall, the group’s automotive retail segment delivered revenue of NZ$224.9 million and underlying profit of NZ$13.3 million.

Other segment performance

The group’s finance business, Oxford Finance, delivered marginal revenue growth of 4% to come in at NZ$45.7 million. Operating profit also jumped 10% to NZ$12.2 million. Turners attributed this improvement to writing higher quality new business and the resulting improved arrears performance.

Meanwhile, the group’s insurance arm, Autosure, recorded a 9% drop in revenue as a result of market conditions and focusing on lower risk portfolios and vehicles. Operating profit saw a steeper decline, falling 25% to NZ$6.2 million.

Finally, credit management business EC Credit Control booked in a 1% drop in revenue, while operating profit increased by 3%.

What next?

Looking forward, Turners noted its auto retail business is fully operational, with sales stronger than expected.

The finance segment is seeing arrears performing well, while new insurance policy claims are recovering, with claims tracking below expectations.

On the whole, the group stated that trading in April and May has been “significantly better than what we expected”. This comes as New Zealand moved through its COVID-19 alert levels and the benefits of cost reductions, rent reductions and wage subsidies materialised.

At the end of FY20, the group had net debt of NZ$317.6 million, comprising NZ$32.8 million cash and NZ$350.4 million debt. Turners has an additional NZ$78 million of undrawn funding.

After today’s strong gains, the Turners Automotive share price is down 3.11% year-to-date.

More reading

• I would buy and hold Kogan and these ASX shares until 2030
• Has Warren Buffett lost his magic?
• Diversify your portfolio with 3 top ASX 200 shares from 3 sectors
• 3 ASX shares I’d buy because of the online sales boom
• What are the best ASX shares for dividends?

Motley Fool contributor Cathryn Goh 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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