Author: openjargon

The Commonwealth Bank of Australia (ASX: CBA) share price may be materially overvalued according to one leading broker.

As the chart below shows, CBA shares have risen by 17% in the past six months. However, UBS thinks the rise is unwarranted.

The ASX bank share recently reported its FY24 third-quarter result, which UBS provided commentary on to reach its conclusion on where the CBA share price could end up in a year.

Weakening profit

CBA reported cash net profit after tax (NPAT) of $2.4 billion for the FY24 third-quarter, which was down 2% quarter over quarter and down 6% year over year.

UBS noted the net interest income (NII) was largely flat, with a decline of 0.4% with volume growth offset by lower margins from ongoing competitive pressure in deposits and customers switching to higher-yielding deposits.

Non-net interest income was down 6% quarter over quarter, driven by lower markets and dividend income. Operating expenditure increased by around 3% in the quarter, reflecting higher amortisation and staff costs.

The loan impairment charge was $191 million, representing 8 basis points (0.08%) of its lending portfolio, though arrears are increasing.

UBS is expecting further increases in arrears because of continued pressure on real household disposable income.

But, on the positive side, UBS said the CBA FY24 funding position remains “sound” with around $20 billion of new long-term wholesale funding issued in the 2024 financial year to date.

Around $750 million of the previously announced $1 billion on-market share buyback is remaining.

Is the CBA share price headed to $100?

UBS notes that defending the profitability of its existing loan book remains a “key imperative for management.” The bank is using its “proprietary distribution channels to defend and drive volume growth in mortgages,” which has seen CBA grow its loan book at 0.7x the system. In other words, it’s slightly losing market share.

The broker suggests that the FY24 fourth quarter could be softer on the revenue side, though the bank is showing “good cost discipline and management.”

UBS points out that CBA shares are trading at around 2.5x FY25’s estimated book value, which is elevated for the banking sector.

The broker’s price target for the CBA share price is $105, which implies a possible fall of around 10% from where it is today.

At the current valuation, the CBA share price is trading at 21x FY25’s estimated earnings, which is far higher than the price/earnings (P/E) ratio of other major ASX bank shares.

The post Is the CBA share price heading back to $100? appeared first on The Motley Fool Australia.

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• Here’s the CBA dividend forecast through to 2026
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

There are a number of ways I could aim to turn a spare $8,000 into a $1,151 monthly passive income stream.

But I believe my best path to success here is by investing that money into ASX dividend shares.

Now, I’ll need to be realistic here.

An $1,151 monthly passive income equates to $13,812 a year. A very tidy sum!

But, barring an investing miracle, I won’t achieve this goal overnight with an $8,000 investment today.

With that said, here’s how I’d aim to build that passive income stream to $1,151 a month over time.

Tapping ASX dividend stocks for passive income

With $8,000 I could invest in four or maybe even eight ASX dividend stocks without brokerage fees taking too big of a bite.

In this case, I’d aim for companies paying franked dividends. That should enable me to keep more of my passive income at tax time.

I’d also invest in a range of stocks operating across various sectors and ideally geographic locations. This kind of diversity will help lower the overall risk to my ASX income portfolio if any one company or sector hits a tough patch.

Of course, this will require a good bit of research on my time.

Instead, I could get instant diversity and a juicy yield from a single investment.

Namely, the BetaShares Australian Dividend Harvester Fund (ASX: HVST).

I can buy and sell shares in the ASX exchange traded fund (ETF) just like I would any other ASX dividend stock. Though I’ll need to bear in mind the annual 0.72% management fees.

HVST holds anywhere from 40 to 60 blue-chip ASX dividend shares at any given time, providing more diversity than I could get with just eight stocks.

The ETF’s top ten holdings include BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), CSL Ltd (ASX: CSL) and National Australia Bank Ltd (ASX: NAB).

All of these S&P/ASX 200 Index (ASX: XJO) companies pay fully franked dividends. And they all have long track records of making reliable passive income payouts.

Atop NAB, CSL, BHP and CBA, HVST also holds a range of ASX 200 stocks in the consumer discretionary, energy and industrial sectors, among others.

As for that passive income, the ETF makes monthly payments, which can be handy.

As at 30 April, the fund’s 12-month dividend yield was 6.5% a share, franked at 78.7%. That brings its grossed-up dividend yield to 8.7% a share.

Adding in those dividends, the BetaShares Australian Dividend Harvester Fund has delivered 15.7% in gross returns after fees over six months and 10.3% over a year.

I don’t think the past six-month performance is sustainable over the long-term. But with history as my guide along with the high-quality ASX dividend shares held by the ETF, I believe 10% a year is realistic.

So, how long will it take me to garner my $1,151 a month, or $13,812 a year in passive income from my $8,000 investment today?

To the maths!

As mentioned up top, I’m going to need some patience before I can start drawing down my investment portfolio and enjoying that passive income stream.

But that’s okay.

Investing is a long game.

Working with the grossed-up yield of 8.7%, I’ll need $158,699 before I can start drawing down $1,151 a month in passive income without impacting that capital.

By reinvesting HVST’s dividends over time and making use of the magic of compounding, I’ll have achieved may passive income goal in 30 years.

The post $8,000 in savings? Here’s how I’d aim to turn that into $1,151 in monthly passive income appeared first on The Motley Fool Australia.

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• 1 magnificent ASX stock down 10% to buy and hold forever
• Inherited a substantial sum of money? Here’s how I’d spend it (including the ASX stocks I’d buy)

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Three of the biggest ASX 200 real estate investment trusts (REITs) are shopping centre specialists.

The No 2. ASX REIT by market capitalisation is Scentre Group (ASX: SCG), which owns 42 Westfield malls in Australia and New Zealand. Scentre shares closed at $3.12 yesterday, up 9.86% over the past year.

The No. 3 ASX REIT is Stockland shopping centre owner, Stockland Corporation Ltd (ASX: SGP). Stockland is one of the largest retail property owners, developers and managers in Australia. It owns Stockland malls in many metro suburban and regional locations and also operates in the residential and logistics sectors.

Stockland shares closed at $4.54 yesterday, up 0.44% over the past 12 months.

The fourth-largest ASX REIT is Vicinity Centres (ASX: VCX). It owns 57 retail assets including Chadstone in Melbourne, the Queen Victoria Building and Chatswood Chase in Sydney, and QueensPlaza in Brisbane.

Shares in Australia’s second-largest listed retail property manager closed at $1.91 apiece yesterday and are down 6.83% over the past 12 months.

CBRE tips rising rents and demand for retail spaces

CBRE, a global leader in commercial real estate services and investment, says there is a “resurgence in demand” for Australian shopping centres currently underway.

Despite the growth in e-commerce, CBRE forecasts that shopping centre investment volumes will grow by about 50% from $4.2 billion in 2023 to an estimated $6.3 billion in 2025.

CBRE Pacific Head of Retail Capital Markets, Simon Rooney, said Asian investors and European Pension Funds are interested in investing in Australian shopping centres because, “Australia offers a rapidly growing population, with rising incomes, which is unique in an OECD context.”   

CBRE says Australian shopping centres are a “lucrative investment” due to resilient retail spending, a tight supply of land to build new centres, and low vacancy rates due to demand for space from retailers.

This would likely lead to higher rents and capital growth.

Retail spending in 2023 totalled almost $425 billion, 60% higher than a decade ago, said CBRE.

Despite high inflation, retail turnover increased by 0.8% over the 12 months to December 2023, according to the Australian Bureau of Statistics.

CBRE says the “triple boost” of strong population growth, low unemployment, and meaningful wage growth would drive retail spending to a forecast $500 billion per annum by the end of this decade.

There is also a supply squeeze for shopping centre space, which could lead to rising shop rents.

CBRE estimates there will be 0.78 million square metres of future shopping centre supply available from 2024 to 2028. It says this is less than half the historical average, and vacancy rates within centres are low.

In a recent report, CBRE said:

We see scope for rents to continue to grow as vacancy tightens and shopping centres continue to generate foot traffic.

Australian shopping centre vacancy is currently sub 5% and we anticipate further vacancy rate compression as city centre performance improves.

CBRE noted that the types of retailers wanting shop space are changing from specialty stores to mini-major retailers. Examples of mini-major tenants include Chemist Warehouse, Cotton-On, JB Hi-Fi owned by JB Hi-Fi Ltd (ASX: JBH), and Rebel Sport owned by Super Retail Group Ltd (ASX: SUL).

ASX REITs see improved re-leasing spreads

CBRE says retail occupancy costs in regional and sub-regional shopping centres have declined over the past three to five years due to reduced rents and higher retail sales growth.

CBRE said:

We view this as a favourable outcome, providing scope for rents to re-grow over time.

Between 2017 and 2023, retail REITs witnessed an enhancement in re-leasing spreads after facing significant declines associated with the disruptions caused by the COVID-19 pandemic.

In the February earnings season, ASX REITs Vicinity Centres and Scentre reported increased earnings.

Vicinity Centres reported a statutory net profit after tax (NPAT) of $223.5 million for 1H FY24. That was up 27% from H1 FY23, with increased occupancy to 99.1%.

Scentre reported a 16.7% lift in profit after tax to $1,069 million for full-year FY23, with occupancy of 99.2%. Scentre completed 3,273 leasing deals that included 307 new brands.

Average specialty rents increased 7.5% and new lease spreads improved to +3.1%. The ASX REIT collected $2,723 million of gross rent during the year, up $131 million compared to 2022.

Scentre Group CEO Elliott Rusanow said:

Customer visitation to our 42 Westfield destinations for the year was 512 million, up 32 million or 6.7% on 2022. This was underpinned by our activation program which included new strategic partnerships with leading brands Disney, Live Nation and Netball Australia.

As a result, our business partners achieved $28.4 billion in sales, an increase of $1.7 billion or
6.4% compared to 2022 and representing a record across our Westfield platform.

How shopping centres are changing

Sheree Griff, CBRE Pacific’s Head of Retail Property Management and Leasing, said customers were increasingly using online stores for research before attending physical stores to ‘try before they buy’.

She said:

E-commerce is not a threat to shopping centre investment; more importantly it is the other way around.

Retailers find the e-commerce engagement for their products is higher when they have a physical store in a shopping centre.

Consumers research products online then enter the store well-educated and knowing what they are looking for.  

The in-store experience is about validating the product and ensuring it’s at the quality, sizing, and colour that the consumer expects.

Shopping centres are changing their look and feel and trying to create leisure and recreation experiences alongside shopping.

Griff said:

Retailers are now creating in-store experiences to attract the consumer to stay longer and purchase more. Engagement shopping could be cooking schools, a basketball court within a sports store, or premium customer service where the consumer feels special.

Brokers say buy ASX REITs

Barrenjoey raised its rating on Vicinity Centres shares to overweight a fortnight ago. It has a 12-month share price target of $2.20 on the ASX REIT, implying a potential 15% upside.

Citi has a buy rating on Stockland shares with a 12-month price target of $5.20, implying a potential 14.5% upside.

The consensus rating on Scentre shares among analysts on the CBA platform is a moderate buy.

The post Will the ‘resurgence in demand’ for shopping centres boost ASX REITs? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Super Retail Group. The Motley Fool Australia has recommended Jb Hi-Fi. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Having a few blue chip ASX 200 shares in your portfolio can be a good thing.

Especially given how blue chips are usually lower risk options due to their strong and established business models, experienced management teams, and robust cash flows.

But which blue chips could be top options for investors in May? Five that brokers have named as buys recently are listed below. Here’s what sort of returns could be on the cards for investors buying at today’s prices:

CSL Ltd (ASX: CSL)

The first ASX 200 blue chip share for investors to look at is biotechnology giant CSL.

The team at UBS is feeling very bullish on the company’s outlook and thinks its shares are great value at currently levels. It has a buy rating and $330.00 price target on its shares. This implies potential upside of 18% from where they trade today.

Flight Centre Travel Group Ltd (ASX: FLT)

Another ASX 200 blue chip share that could be a buy is Flight Centre. It is a travel agent giant with operations across the world.

Morgans thinks its shares are seriously undervalued and has named it on its best ideas list. The broker has an add rating and $27.27 price target on its shares. This suggests potential upside of 32% is possible over the next 12 months.

Goodman Group (ASX: GMG)

This integrated industrial property company could be an ASX 200 blue chip share to buy in May. Especially given its recent quarterly update, which revealed another guidance upgrade for FY 2024. This is being driven by the insatiable demand for industrial property.

Morgan Stanley responded very positively and put an overweight rating and $36.65 price target on its shares. This implies potential upside of almost 10% for investors from current levels.

Qantas Airways Limited (ASX: QAN)

The team at Goldman Sachs thinks that this airline operator’s shares are undervalued despite a recent rebound. This is especially the case given its structurally stronger earnings following a post-COVID transformation.

The broker has a buy rating and $8.05 price target on its shares. This would mean approximately 30% upside for investors over the next 12 months.

Treasury Wine Estates Ltd (ASX: TWE)

Finally, this wine giant could be an ASX 200 blue chip share to buy right now. Especially given that China has just removed its tariffs from Australian wine. This opens up the lucrative market to Treasury Wine’s popular brands again.

This news went down well with analysts at UBS. So much so, they believe the company’s shares now deserve to trade on higher multiples. The broker has a buy rating and $15.25 price target on them, which suggests that upside of 32% is possible over the next 12 months.

The post These ASX 200 blue chip shares could rise 10% to 30% appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in CSL and Treasury Wine Estates. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goldman Sachs Group, and Goodman Group. The Motley Fool Australia has recommended CSL, Flight Centre Travel Group, Goodman Group, and Treasury Wine Estates. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

If you’re looking for some dividend stocks to buy, then it could be worth considering the ASX 200 dividend giants listed below.

That’s because they have been named as best buys by leading brokers this month. Here’s what they are saying about them:

Woodside Energy Group Ltd (ASX: WDS)

The first ASX 200 dividend giant that could be a top option for income investors is Woodside Energy.

It is of course Australia’s largest energy producer with a world class portfolio of operations and projects.

The team at Morgans believes its shares are cheap at current levels. So much so, the broker recently named them on its best ideas list with an add rating and $36.00 price target. It said:

A tier 1 upstream oil and gas operator with high-quality earnings that we see as likely to continue pursuing an opportunistic acquisition strategy. WDS’s share price has been under pressure in recent months from a combination of oil price volatility and approval issues at Scarborough, its key offshore growth project. With both of those factors now having moderated, with the pullback in oil prices moderating and work at Scarborough back underway, we see now as a good time to add to positions. Increasing our conviction in our call is the progress WDS is making through the current capex phase, while maintaining a healthy balance sheet and healthy dividend profile.

Speaking of dividends, the broker is forecasting fully franked dividends of $1.25 per share in FY 2024 and $1.57 per share in FY 2025. Based on the current Woodside share price of $28.15, this equates to 4.5% and 5.5% dividend yields, respectively.

Woolworths Limited (ASX: WOW)

Another ASX 200 dividend giant that is highly rated by analysts is Woolworths. It is the owner of the eponymous supermarket chain, BWS, and has a growing pet care business.

Goldman Sachs is a very big fan of the company. It currently has its shares on its coveted conviction list with a buy rating and $39.40 price target. The broker feels that Woolworths is undervalued at current levels. It said:

WOW is the largest supermarket chain in Australia with an additional presence in NZ, as well as selling general merchandise retail via Big W. We are Buy rated on the stock as we believe the business has among the highest consumer stickiness and loyalty among peers, and hence has strong ability to drive market share gains via its omni-channel advantage, as well as its ability to pass through any cost inflation to protect its margins, beyond market expectations. The stock is trading below its historical average (since 2018), and we see this as a value entry level for a high-quality and defensive stock.

As for income, the broker is forecasting fully franked dividends per share of $1.08 in FY 2024 and then $1.14 in FY 2025. Based on the current Woolworths share price of $31.13, this equates to dividend yields of 3.5% and 3.7%, respectively.

The post 2 of the best ASX 200 dividend giants to buy in May appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Wednesday
• Is the Woodside share price at a stretched valuation right now?
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Motley Fool contributor James Mickleboro has positions in Woodside Energy Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Established in 1817, Westpac Banking Corp (ASX: WBC) is Australia’s oldest bank and a firm favourite in many an ASX investor’s portfolio.

And Westpac shares are enjoying a fruitful first half of 2024, hitting a new 52-week high of $28.05 mid-last week. Despite partially retreating to $26.55 as of Tuesday’s close, the stock is still up by around 15% year to date.

As such, passive income investors considering buying into the ASX 200 banking stock right now might question whether Westpac presents decent value.

Let’s take a closer look at the dividends on offer from the big four bank and see exactly how much juicy passive income could be coming your way if you’re the proud owner of 1,000 Westpac shares.

What’s the current Westpac dividend yield?

Westpac has a long history as a high-quality ASX dividend stock. It typically pays two fully-franked dividends to its shareholders each year.

Westpac’s last annual dividend was $1.42 per share, representing a trailing yield of 5.3%, at the time of writing.

It’s worth noting, however, that Westpac did declare a 90 cents per share interim dividend in its latest half-year results earlier this month.

This will consist of an ordinary dividend of 75 cents per share and a special dividend of 15 cents per share, thanks to the bank’s strong cash position. It will be paid on 25 June.

Because this dividend hasn’t officially been paid yet, I have based the trailing yield on the last two payments that have already been made.

Looking ahead, analysts at Goldman Sachs project dividends of $1.50 per share from Westpac in FY 2025. The broker expects another $1.50 per share payout the year after as well. This represents a forward dividend yield of 5.6% at the current Westpac share price.

But what does this mean in terms of cold hard cash in your pocket?

How much income would I receive if buying Westpac shares today?

If one were to buy 1,000 shares of Westpac at the current market value of $26.55 apiece, they would lay down an investment of $26,500.

Those 1,000 shares would produce $1,484 in annual dividend income ($26,500 x 5.6% = $1,484), exclusive of franking credits.

To continue generating this amount of annual income, obviously, Westpac would need to keep paying the $1.50 per share in dividends into perpetuity. If the dividend amount drops, naturally, so will the yield.

What do brokers think?

Following Westpac’s half-year results, Goldman Sachs made no changes to its neutral rating on the bank’s shares.

It retained a $24.10 price target, representing around 9% potential downside from the current Westpac share price.

Meanwhile, according to reporting from The Australian, Morgan Stanley estimates that revenue growth for the ASX banking sector will be soft this year.

Despite the neutral view, Westpac shares have decisively outperformed the S&P/ASX 200 Banks Index (ASX: XBK), which is up around 9% so far in 2024, compared to Westpac’s gains of 15%. But as we know, past performance is no guarantee of future results.

So, while I think Westpac is a reputable company with a strong balance sheet and, therefore, a solid choice for ASX passive income investors, for me personally, I would rather hold off buying in the hope of achieving a slightly higher yield.

The post If I buy 1,000 Westpac shares, how much passive income will I receive? appeared first on The Motley Fool Australia.

More reading

• Here’s the Westpac dividend forecast through to 2027
• Top ASX shares to buy for your superannuation fund in May 2024
• Here are 2 top ASX 200 shares I’d buy now for passive income
• It was huge week for ASX 200 bank shares. Here’s why
• Why Baby Bunting, JB Hi-Fi, Temple & Webster, and Westpac shares are falling today

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.