Author: therawinformant

Since peaking at a 52-week intraday high of $5.24 back in late July, shares in software market darling Whispir Ltd (ASX:WSP) have tumbled 35% lower. At the time of writing, the Whisper share price is trading up 1.47% at $3.45.

Let’s take a look at the factors driving the decline and try to assess whether the company is still a good investment.

What does Whispir do?

Whispir operates a software as a service (SaaS) business model. It develops a centralised platform where its corporate customers can create high quality, customisable templates for email, web and social media communications, as well as manage communications workflows and drive insightful reporting.

Its share price really took off during the early stage of the COVID-19 crisis. Whispir achieved record growth in customer numbers throughout the second half of FY20 and managed to materially outperform most of its revenue and earnings targets.

Use of its platform accelerated during lockdowns, as companies sought greater control over business-critical communications workflows. Whispir even developed a number of standardised templates to assist its clients meet their communications obligations with staff and customers.

Why has the share price declined?

Whispir reported strong results across the board in FY20. Revenues were up almost 26% year-on-year to $39.1 million, beating its prospectus forecast of $37.8 million. Prudent cost management also saw operating expenses come in lower than forecast at $31.7 million. And the company ended the year with a little over $15 million in cash sitting on its balance sheet.

But, despite these numbers, the Whispir share price has trended lower since the results announcement.

Even solid first quarter FY21 results couldn’t do much to stop the decline. Whispir announced that during the three months’ ended September 30, 2020, it had added a record 35 new customers and brought in $10.5 million in cash receipts. But the company’s share price still dropped almost 10% on the day of the release.

What do our Fools say?

Whispir still remains a favourite of our analysts here at Motley who have added it to their list of Extreme Opportunities not once, but twice – most recently back in July. They believe that, while COVID-19 did accelerate the company’s growth, there are still more opportunities on the horizon for this young company.

Our Foolish analysts were particularly impressed by Whispir’s high revenue retention rates, as well as the company’s ability to respond in times of crisis. By quickly developing COVID-19 communications templates, Whispir increased the customer use cases on its platform. As an example of the company’s potential, the Victoria State government’s Department of Health and Human Services has been using the platform to manage its COVID-19 contact tracing communications.

Despite the recent pullback in its share price, Whispir’s versatile, scalable business model means our analysts recommend it as a buy.

More reading

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• Is Temple & Webster Group Ltd (ASX:TPW) still a buy?

Rhys Brock owns shares of Whispir Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Whispir Ltd. The Motley Fool Australia has recommended Whispir Ltd. 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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In early afternoon trade the S&P/ASX 200 Index (ASX: XJO) is on course to finish the week on a disappointing note. The benchmark index is currently down 0.5% to 6,386.8 points.

Four shares that have not let that hold them back are listed below. Here’s why they are charging higher:

Elders Ltd (ASX: ELD)

The Elders share price has climbed 2% to $11.61. This appears to have been driven by optimism that the agribusiness company is going to deliver a strong full year result next week. One broker that is tipping Elders to achieve this is Goldman Sachs. This morning its analysts suggested Elders could deliver earnings per share 8% ahead of the Bloomberg consensus estimate. It expects this to be driven partly by the execution of the backward integration strategy and the integration of the AIRR acquisition.

Jumbo Interactive Ltd (ASX: JIN)

The Jumbo share price has jumped 7.5% to $13.76. Investors have been buying the online lottery ticket seller’s shares after it confirmed that it has signed an agreement with the Western Australian state government-owned and operated, Lotterywest. This deal will see the company provide its online software platform and services to Lotterywest for the next 10 years.

Northern Star Resources Ltd (ASX: NST)

The Northern Star share price is up a sizeable 7% to $15.07. Investors have been buying Northern Star and other gold miners following a solid rebound in the gold price overnight. This has led to the S&P/ASX All Ordinaries Gold index surging an impressive 4.3% higher in afternoon trade.

PolyNovo Ltd (ASX: PNV)

The PolyNovo share price is storming 5% higher to $2.95. This morning the medical device company revealed that the US FDA has approved its pivotal trial investigation device exemption. This approval means PolyNovo can begin patient recruitment once the various hospital independent review boards grant approval. It expects recruitment to begin in 2021 and conclude around the end of 2023. The clinical program is supported by BARDA funding of US$15 million.

More reading

• Jumbo (ASX:JIN) share price on watch following signed Lotterywest agreement
• 5 things to watch on the ASX 200 on Friday
• ASX 200 up 1.3%: CBA Q1 update, tech shares rebound, JB Hi-Fi sinks
• 5 things to watch on the ASX 200 on Wednesday
• 2 ASX mid cap shares that are growing strongly

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of POLYNOVO FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Jumbo Interactive Limited. The Motley Fool Australia owns shares of and has recommended Jumbo Interactive Limited. The Motley Fool Australia has recommended Elders 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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At lunch on Friday the S&P/ASX 200 Index (ASX: XJO) is on course to end the week with a decline. The benchmark index is currently down 0.35% to 6,395 points.

Here’s what is happening on the market today:

Ramsay Q1 update.

The Ramsay Health Care Limited (ASX: RHC) share price has dropped lower following the release of its first quarter update. That update revealed that Ramsay Australia reported a 1.5% increase in total revenue during the first quarter. This reflects a 1.7% increase in surgical admissions and lower non-surgical activity. However, its earnings have fallen due to restricted surgical activity in Victoria, increased costs, and reduced procurement benefits as a result of operating in a COVID safe environment.

NEXTDC annual general meeting.

The NEXTDC Ltd (ASX: NXT) share price is trading lower following the release of its annual general meeting update. At the meeting, the data centre operator reaffirmed its guidance for FY 2021. NEXTDC expects data centre services revenue of $242 million to $250 million and underlying EBITDA of $125 million to $130 million. This will be up 21% to 25% and 20% to 24% year on year, respectively. Management also revealed that it is looking to expand into Singapore and Japan.

Gold miners surge higher.

Gold miners including Evolution Mining Ltd (ASX: EVN) and Saracen Mineral Holdings Limited (ASX: SAR) are surging higher on Friday after a solid rebound in the gold price overnight. The buying has been so strong today that the S&P/ASX All Ordinaries Gold index is up 3.8% at lunch. The price of the precious metal increased amid concerns over the impact that rising COVID-19 cases could have on the global economy.

Best and worst ASX 200 performers.

The GrainCorp Ltd (ASX: GNC) share price is the best performer on the ASX 200 today with a gain of almost 8%. This follows a positive response to yesterday’s full year results by brokers this morning. Morgans has upgraded its shares to an add rating with a $4.79 price target. The worst performer on the ASX 200 has been the Vicinity Centres (ASX: VCX) share price with a 3.5% decline. This comes the day after the shopping centre operator’s annual general meeting.

More reading

• NEXTDC (ASX:NXT) share price edges higher on AGM update
• Ramsay Health Care (ASX:RHC) share price on watch after Q1 update
• 5 things to watch on the ASX 200 on Friday
• The ASX 200 fell 0.5% on Thursday
• After 8 months, ASX 200 shares are finally out of correction territory

Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia has recommended Ramsay Health Care 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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The DroneShield Ltd (ASX: DRO) share price is climbing higher after announcing a new research & development (R&D) contract today.

In mid-morning trade, shares in the defence contractor shot up 10.5% to a high of 21 cents, before retreating slightly to 20 cents at the time of writing. In comparison, the All Ordinaries Index (ASX: XAO) is flat at 6,617 points.

Let’s take a look at what exactly is fuelling the DroneShield share price rise.

New contract win

DroneShield advised that it received an R&D contract related to its artificial intelligence/machine learning algorithms.

The company did not reveal which country placed the order, but said that it was from a defence department of a ‘Five Eyes’ country. The term ‘Five Eyes’ relates to a signals alliance between the United States, Canada, Australia, the United Kingdom, and New Zealand.

The deal is expected to be worth approximately $600,000 with a performance period that runs through to mid 2021. In the contract, defence applications include artificial intelligence capabilities providing a military advantage to adversaries.

DroneShield said the order did not include any of its counter-drone technology.

What did the CEO say?

Commenting on the contract, DroneShield CEO Oleg Vornik said:

This ground-breaking contract expands DroneShield beyond being a pioneer and global leader in the C-UAS domain, and into the artificial intelligence/machine learning space within the defence sector.

The contract leverages off the cutting-edge AI capabilities that DroneShield has developed within its C-UAS products, applying it to wider defence applications. Further, this contract creates a trusted dialogue with this specific high-profile defence customer, allowing us to more deeply understand their requirements and provide them with solutions to address their needs.

What does this mean for the DroneShield share price?

Most recently, the DroneShield share price has been gaining traction following a raft of positive market updates. It was only last month that the company received a government order for its DroneGun Tactical hand-held counter-drone products. And weeks before the contract win, DroneShield bagged an order for its DroneSentry system to a Southeast Asian nation.

Since the start of September, the DroneShield share price has shot up from 13.5 cents to today’s price of 21 cents. This represents a gain of 55%.

More reading

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• Sky Network (ASX:SKT) share price shoots 6% higher on upgraded guidance
• Why the Immutep (ASX:IMM) share price flew up 5% this morning
• ASX 200 Weekly Wrap: US election special
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Motley Fool contributor Aaron Teboneras 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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Resimac Group Ltd (ASX: RMC) shares rocketed up 17.5% to $1.92 a share this morning, after it provided the market with a trading update. The Resimac share price has retreated slightly to $1.91 at the time of writing, up 16.82%.

What was announced?

Resimac has provided the market with guidance on its FY21 first-half profit of between $48 million and $53 million. The company says the numbers will be achieved based on lower funding costs, cost controls, and growth in assets under management. 

Resimac says home loan settlements from July to October were $1.4 billion, with 65% being ‘prime’ loans,  and 35% ‘specialist’ loans. Its home loan assets under management were $12.7 billion, up from $12.4 billion in June. Around 4.4% of customers were in COVID-19 payment deferrals at October 31.  Remicas says it is unlikely to increase the 30 June 2020 COVID-19 collective provision overlay of $16.4m.

Brief take on Resimac

Resimac is a leading non-bank residential mortgage lender. It was recognised as Australian Non-Bank of the Year by the Australian Mortgage Awards in 2020. Resimac’s business includes origination, servicing, and funding residential mortgages in Australia and New Zealand. The company’s loan book is more than $12 billion, and assets under management at almost $15 billion.

Recently Resimac signed a partnership agreement with technology provider Infosys Finacle to deliver more personalised digital banking experiences for its customers. The move facilitates Resimac’s “end-to-end digital modernisation”, taking it a step closer to its goal of becoming Australia’s first ‘neo-non-bank’. 

How did Resimac share price fare in 2020?

The Resimac share price has gone up by 30% on a year-to-date basis including today’s rise of 17.5%. At current price of $1.92, the company commands a market cap of $667 million.

More reading

• Looking to invest in non-bank lending ASX shares?
• 1 ASX share to buy for the WA housing boom

Motley Fool contributor Eddy Sunarto 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 NEXTDC Ltd (ASX: NXT) share price has edged higher on Friday following the release of its annual general meeting presentation.

At the time of writing, the data centre operator’s shares are up slightly to $12.82.

What did NEXTDC talk about at its annual general meeting?

The company started by giving investors a reminder of how it performed in FY 2020.

In FY 2020 NEXTDC delivered a 14% increase in revenue to $205.2 million and a 23% lift in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to $104.6 million.

This was driven by increasing demand from new and existing customers, which led to contracted utilisation rising 33% to 70MW and interconnections lifting 19% to 13,051

NEXTDC CEO, Craig Scroggie, commented: “I would like to emphasise the significance of the growth in our contracted utilisation which is up by 33% to 70MW. We experienced a record level of sales during the reporting period with contracted utilisation increasing by 17.4MW or 33%, a number which represents by far the single largest sales performance in the company’s 10-year history.”

“This included the announcement of significant new contract wins in Victoria and New South Wales, with Victoria in particular exhibiting very strong growth in customer demand, both in the form of contract wins as well as future customer commitments to expansion options and reservations,” he added.

FY 2021 outlook.

At the event the company also provided an update on its outlook for FY 2021. However, no changes have been made to its guidance for the financial year.

NEXTDC continues to expect data centre services revenue of $242 million to $250 million. This will be up 21% to 25% on FY 2020 and is expected to be driven by strong growth in recurring data centre services revenue, underpinned by long-term customer contracts.

The company’s underlying EBITDA guidance remains $125 million to $130 million. This represents year on year growth of 20% to 24%. Management notes that its second-generation facility performance is driving scale and earnings growth Furthermore, operational excellence continues to deliver efficiencies in energy management and purchasing.

International expansion?

Based on comments at its meeting, NEXTDC could soon be operating in international markets.

Mr Scroggie commented: “Our company continues its disciplined expansion, and we remain focussed on developing our people, our systems and our processes to take full advantage of the exponential opportunities ahead. We will also continue to invest on exploring opportunities for regional expansion. We have offices in Singapore and Tokyo where we continue to work with key customers and talk to respective governments about potential expansion in the region.”

More reading

• 5 things to watch on the ASX 200 on Friday
• Macquarie Telecom (ASX:MAQ) share price surges on contract win
• The 5 best-performing ASX 200 shares so far this year
• Why ResMed (ASX:RMD) and these ASX shares just hit record highs
• Which 5 ASX shares hit 52-week highs on Friday?

Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. 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 Quickstep Holdings Limited (ASX: QHL) share price is climbing higher today on news of an acquisition agreement.

At the time of writing, shares in the carbon fibre composites manufacturer are trading up 4.94% to 8.5 cents.

What’s the agreement?

Quickstep has agreed to the terms to purchase Boeing Defence Australia’s aerospace maintenance, repair and overhaul (MRO) capability.

Base in Tullamarine, Victoria, Boeing Australia Component Repairs (BACR) manages a wide range of aircraft structures for both commercial and military use. The company fields recent experience working with Boeing, Airbus, Embraer and Bombardier aircraft. This includes fighter aircraft such as the F/A Hornets, military transport planes C-130J Hercules and helicopter CH-47 Chinooks.

In addition, Quickstep advised it was seeking to expand the scope of MRO work offered. The company hopes to carry out service functions on the stealthy F-35 jet alongside other military and commercial contracts. As key approvals all require major regulatory bodies to be on board, Quickstep is working towards obtaining the certifications needed.

Terms of the deal

Under the purchase agreement, Quickstep will acquire operating assets, inventories and certain contracts from BACR for $2.64 million.

A top tier Australian bank has committed to funding the purchase of a refinanced package for Quickstep’s existing long-term loan. Pleasingly for the company, the rate will be offered at a reduced margin.

Completion of the deal is expected to be at the end of the calendar year, provided Quickstep obtains necessary approvals. It’s anticipated that the acquisition will be positively contributing to earnings per share (EPS) by the second year of operation.

Should BACR terminate the agreement if Quickstep fails to uphold its end of the bargain, a termination fee will apply. This will be payable to BACR for the amount of $2 million.

What did management say?

Commenting on the acquisition, Quickstep CEO Mark Burgess said:

We are delighted to soon be welcoming highly capable aerospace employees from the BACR business to Quickstep. The acquisition of this important national capability aligns well to our business strategy, positions us to grow our defence sustainment business and opens up new opportunities in the high value commercial aftermarket as we move toward post- pandemic recovery.

Boeing Defence Australia, vice president and managing director Scott Carpendale added:

We’re pleased that this agreement will offer Quickstep the ability to grow its unique sovereign capability to the benefit of regional commercial and defence customers. We look forward to continuing to work with Quickstep on new opportunities to increase their support of Boeing customers locally and globally.

Quickstep share price summary

The share price for Quickstep hasn’t been too positive for the past year. Shareholders would have seen their value drop by more than 40% if they bought 12 months ago. However, the Quickstep share price has made a strong recovery in November alone, gaining more than 15% from 7 cents.

More reading

• The Quickstep (ASX:QHL) share price is shooting higher today. Here’s why
• Quickstep (ASX:QHL) share price edges up on positive FY20 results

Motley Fool contributor Aaron Teboneras 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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Knowing which shares fund managers are buying and selling can be advantageous for investors.

This is because they have the resources to employ analysts to research companies and identify investment opportunities. Something which simply isn’t feasible for retail investors.

With that in mind, I like to take a look at monthly reports from fund managers to see what they are doing.

The Concentrated Leaders Fund Ltd (ASX: CLF) has just released its latest monthly update and revealed that it is still outperforming the market in the current financial year. This could make it well worthwhile looking at what it is doing.

What is the Concentrated Leaders Fund doing?

During October the fund’s portfolio returned +0.87% on a gross basis versus the benchmark return of 1.93%. This underperformance was largely due to its underweight exposure to the banks and financials.

Its underweight exposure to consumer staples also detracted, while being underweight to materials and energy delivered a positive outcome.

Nevertheless, the fund is still beating the market financial year to date with a return of +2.36% on a gross basis. This compares to the benchmark’s +1.48% return, which represents an outperformance of +0.88%.

Two of the best performers for the fund during the month were TechnologyOne Ltd (ASX: TNE) and Seven Group Holdings Ltd (ASX: SVW).

TechnologyOne recorded its first monthly gain since April with an impressive 13% rise. It notes that this was driven primarily by improving sentiment and expectation that previously delayed IT capex by several corporates would resume.

Whereas Seven Group shares rose 8.4% over the month. This appears to have been driven its push for control over building products company Boral Limited (ASX: BLD).

A key detractor to its performance was Bravura Solutions Ltd (ASX: BVS). Its shares fell 13.8% during the month despite announcing the acquisition of Delta Financial Systems and a contract win with Aware Super. The fund manager believes Bravura is continuing to suffer from negative investor sentiment following its FY 2020 result.

Outlook.

The Concentrated Leaders Fund is continuing to operate with a degree of caution, but is now more actively looking to deploy capital with the improvement in the macro environment and reduced political and virus related risk.

It also notes that value shares appear to be back in favour at the expense of growth shares.

It commented: “Markets have rallied strongly thus far in November, but it has been the major reversion in ‘style’ which has been the most interesting. Since the vaccine has been announced, ‘Value’ has staged a dramatic recovery, while ‘Growth’ has sold off heavily.”

“While it is too early to know how this plays out fully, the recent losers have been the big winners. This makes the rally in equity markets more sustainable as it allows ‘cheap’ companies to normalize and hence drive the market higher. This is what we are currently seeing with the Australian banks – despite their ongoing risks.” It added.

More reading

• These ASX dividend shares beat term deposits and savings accounts
• 2 ASX dividend shares with better yields than term deposits
• Why the Boral (ASX:BLD) share price is up 6% today
• Why the AMP (ASX:AMP) share price could be set to rocket higher today
• Buying these ASX dividend shares could solve your income needs

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Bravura Solutions Ltd. 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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Australian drug development company Noxopharm Limited (ASX: NOX) has announced a major breakthrough this morning on its DARRT cancer therapy drug.  The announcement shot the share price of NOX up by 11% to 63 cents at the opening bell.

What was the breakthrough?

Noxopharm advised that a recent discovery by Weill Cornell Medical College in New York has significantly validated the company’s novel DARRT treatment program that comprises Veyonda and radiotherapy. Veyonda is a clinical-state drug candidate designed to boost the effectiveness of both chemotherapy and radiotherapy. It enhances the cancer-killing effect of standard chemotherapy and radiotherapy, thereby enabling lower doses of these toxic therapies to be used. It also seeks to activate the body’s immune cell function to attack those cancer cells that have survived the initial treatment.

The company the Weil Conell discovery relates to how Veyonda combines with radiotherapy to produce whole-of-body anti-cancer response known as an ‘abscopal response’ in patients with metastatic cancer. A complete abscopal response is regarded as the ultimate form of treatment for metastatic cancer.

Up to now, the abscopal response has remained an elusive phenomenon with the mechanisms behind it remaining a mystery. Now, the Weill Cornell study – which was recently published in the scientific journal, Nature Immunology – has shed light on the mechanism, finally offering a path to making it more commonplace. This mechanism happens to be one of the ways that Veyonda works as an anti-cancer agent.

Commenting on the breakthrough, Noxopharm CEO Graham Kelly said:

Our experience shows that this is no dream. The clinical data shows that Veyonda very clearly is boosting the chances of triggering an abscopal response. The Weill Cornell discovery, combined with what we learnt from the DARRT-1 study about Veyonda dosing, means we go into the upcoming DARRT-2 study with a high degree of confidence that we are on the edge of a major breakthrough in cancer therapy.

What is Noxopharm?

Noxopharm is a clinical-stage Australian drug development company with offices in Sydney and New York. The company has a primary focus on the development of Veyonda. Earlier this week, Noxopharm was in the spotlight when it joined a pilot study (IONIC-1) to explore the ability of Veyonda to boost the effectiveness of Bristol Myers Squibb’s nivolumab (Opdivo) for the treatment of cancer.

How has Noxopharm’s share price performed in 2020?

The Noxopharm share price has gone through the roof, rising by 125% this year, after various positive announcements and the general bullish state of the health sector pushed it higher. The share price is trading at 63 cents, giving it a market cap of $120 million.

More reading

• Why the Noxopharm (ASX:NOX) share price surged 8% higher today

Motley Fool contributor Eddy Sunarto 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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High-yield dividend stocks could offer much more than just a generous passive income. Reinvesting dividends could lead to a growing retirement portfolio that provides a worthwhile income in older age.

Furthermore, the low valuations on offer across the stock market and the potential for rising demand for high-yield opportunities may help to lift share prices. This may produce capital growth that improves an investor’s retirement outlook.

Reinvesting a passive income from dividend stocks

Dividend stocks could offer an attractive total return in the long run. A large proportion of the stock market’s past total returns have been derived from the reinvestment of dividends. Therefore, dividend shares may be of interest to a wider range of investors than just those individuals who are seeking a passive income today.

In fact, the stock market crash has caused many income shares to trade at low prices. This means that they offer high yields in many cases. As a result, they could provide scope to reinvest significant sums of capital in the stock market on a regular basis. Over time, this could lead to a growing portfolio that improves an investor’s retirement prospects.

Low valuations after the stock market crash

The 2020 COVID-19-related market crash also means that dividend stocks could offer capital growth potential. In some cases, they trade at low prices due to uncertain near-term operating outlooks that could negatively impact on profitability. However, some income stocks with low valuations have the financial strength and strategies to overcome their short-term risks so that they can deliver improving profitability over the long run.

Therefore, investors who identify financially-sound businesses today while they trade at low prices could benefit from a long-term stock market recovery. With indexes such as the FTSE 100 Index (INDEXFTSE: UKX) having always returned to previous highs after their various bear markets, the long-term turnaround prospects for undervalued high-yield income shares appear to be relatively bright.

Increasing demand for income shares

Dividend stocks may also deliver strong capital growth that boosts an investor’s retirement prospects because of a lack of other passive income opportunities. For example, low interest rates mean that the returns on cash and bonds are relatively low. Their returns may even fail to keep pace with inflation over the long run. Similarly, high house prices may mean that the yields on property investment are somewhat disappointing relative to income shares.

This could mean that demand for income shares increases over the coming years. The end result could be rising prices for income shares that produces capital gains for their holders. As such, now could be the right time for investors to build a diverse portfolio of dividend shares that offer good value for money and solid financial positions. They appear to have the potential to produce a retirement portfolio that can provide a generous passive income in older age.

More reading

• Noxopharm (ASX: NOX) share price shoots higher on major breakthrough
• Why the Mach7 (ASX:M7T) share price is zooming 9% higher today
• Lovisa (ASX:LOV) share price rockets higher on European acquisition news
• Jumbo (ASX:JIN) share price on watch following signed Lotterywest agreement
• Is the Magellan Infrastructure Fund (ASX:MICH) share price a buy?

Motley Fool contributor Peter Stephens 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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