Author: therawinformant

Breville Group Ltd (ASX: BRG) shares are lifting after the company announced an update on its business and provided guidance for FY21 at today’s annual general meeting (AGM). At the time of writing, the Breville share price is trading 1.3% higher at $26.46. 

Highlights from the AGM

Breville delivered some key numbers for FY20:

• 25.3% increase in top line revenue to $952 million. 
• Earnings before interest and taxes (EBIT) grew by 14.3% to $113 million after normalising one-off expenses incurred due to COVID-19.
• Net profit after tax (NPAT) on a normalised basis increased by 11.2% to $75 million
• Dividend for the year grew 10.8%, tracking growth in NPAT. 

The appliance company also mentioned the successful acquisition of Baratza, a designer and distributor of premium coffee grinders, in October.

Guidance for FY21 

Breville also issued an outlook for FY21, with a caveat that it won’t have a clear visibility of its numbers until January 2021 due to prevailing uncertainties. However, assuming no significant change in market conditions, Breville expects EBIT for the full year of FY21 to be consistent with the market’s current consensus forecast range of $128 million to $132 million.

A brief look at Breville

Breville is a well-known Australian designer and manufacturer of small appliances such as blenders, coffee machines, juicers and mixers. It owns popular brands such as Kambrook, Ronson, Sage, Solis, Gastroback, Stollar, Catler, Bork and Riviera & Bar. 

Breville positions its brands at the premium end of the market. The company’s brand strength is particularly prominent in North America and Europe, where it enjoys a substantial price premium to competitors, and where retail pricing is routinely up to 30% higher than in Australia.

In Australia ironically, Breville does not benefit from the same pricing premiums it commands in North America and Europe. While its domestic pricing is still at the upper end of the market, it doesn’t command an additional premium against high-end competitors such as De’Longhi and KitchenAid.

As the company’s products are priced at the top end, management has acknowledged that Breville’s business is exposed highly to the economic cycle, and a downturn could lead to consumers opting for cheaper alternatives that would erode its margins. 

How the Breville share price has performed in 2020

The Breville share price has climbed up by almost 50% this year, rising from $17.46 in January to $26.46 at today’s trading. The company has benefited from the COVID-19 lockdowns as more people working from home buy small appliances like coffee machines and blenders. Breville commands a market cap of $3.6b billion.

More reading

• 5 things to watch on the ASX 200 on Thursday
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• The 10 ASX stocks worst hit by a Biden US presidential election win

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 past performance of equity markets suggests that it is only a matter of time before the next stock market crash takes place. After all, no bull market has ever lasted in perpetuity.

Furthermore, risks such as the coronavirus pandemic mean that the prospect of a market downturn is relatively high at the present time.

This may dissuade some investors from buying shares. However, the best stocks could offer good value for money and may have the capacity to survive a weak economic period. Therefore, they could be worth buying and holding for the long term.

An upcoming stock market crash?

The prospect of a stock market crash may currently be higher than it has been for a number of years. Risks such as political uncertainty in a number of the world’s major economies and the ongoing coronavirus pandemic may weigh on company performance. This could lead to increased risk aversion among investors that negatively impacts on stock prices.

However, a market downturn is not guaranteed to take place over the coming months. News regarding the economy and its outlook could be more positive than expected. Therefore, even though a market decline is very likely to take place over the long run, the stock market could deliver impressive returns for investors between now and then. Investors who avoid shares could miss out on gains, while receiving low returns from other assets such as cash and bonds.

Buying the best stocks today

Moreover, the best stocks are likely to survive a period of weak economic performance that prompts a stock market crash. For example, businesses that have solid balance sheets are relatively likely to have the financial means to cope with a period of slower sales growth. Equally, companies that have a competitive advantage over their peers may be less impacted by slowing consumer demand. This may enable them to maximise their market prospects for the long term.

Of course, identifying the best stocks is highly subjective. But they often have common traits, such as an adaptable business model that can provide flexibility in a rapidly-changing economic environment. They are also likely to have a solid track record of outperformance of their peers in a variety of market conditions.

Low valuations

Buying shares today while there is a heightened risk of a stock market crash could be a sound long-term move due to their low valuations. Indexes such as the FTSE 100 Index (FTSE: UKX) have yet to recover from the 2020 market decline. Many companies are trading at prices that are significantly below their average values. This suggests that investors are at least partially factoring in a period of weaker economic performance.

Therefore, building a diverse portfolio of stocks could be a shrewd move. It may experience high volatility in the short run, but has the potential to make solid gains in the long run.

More reading

• Here’s why the GrainCorp (ASX:GNC) share price jumped 8% higher today
• Nine (ASX:NEC) share price surges after AGM update
• 2 ASX healthcare shares that have risen since Pfizer’s vaccine news
• Why the De Grey Mining (ASX:DEG) share price is pushing higher
• Why the Paradigm (ASX:PAR) share price is climbing higher today

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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The GrainCorp Ltd (ASX: GNC) share price has been on form on Thursday following the release of its full year results.

The grain exporter’s shares were up as much as 8% to $4.32 at one stage in early trade.

The GrainCorp share price has given back most of these gains now but is still up 1% to $4.03 at the time of writing.

How did GrainCorp perform in FY 2020?

GrainCorp reported an improved financial performance following a year of significant transformation.

For the 12 months ended 30 September, the company reported underlying earnings before interest, tax, depreciation and amortisation (EBITDA) from continuing operations of $108 million. This compares to an underlying EBITDA loss of $107 million a year earlier.

Things weren’t quite as positive for its underlying net profit after tax, which came in at a loss of $16 million. Though, this is still a major improvement on FY 2019’s $158 million loss.

GrainCorp’s statutory net profit after tax was far better at $343 million, compared to a loss of $113 million a year earlier.

Despite its underlying loss, the company’s board has reinstated its dividend and will pay shareholders 7 cents per share fully franked.

Managing Director and CEO, Robert Spurway, commented: “GrainCorp reported a substantially improved financial performance in FY20, despite a third year of drought. We are delivering on our operational initiatives and these are providing more consistent and stable earnings for the business.”

“The most significant drivers in the year were the positive impact from the Crop Production Contract (CPC), improved performance from our East Coast of Australia (ECA) grains and international trading businesses, and stronger oilseed crush volumes and margins,” he added.

Outlook.

While no concrete guidance was given for FY 2021, management advised that it expects growth in earnings. This is due to the anticipated larger ECA winter crop and the ongoing benefits from recent operating initiatives.

In Agribusiness, improved growing conditions and current grain receival year to date, indicate a very strong 2020/21 winter crop, similar in size to the FY 2017 harvest.

Whereas in Processing, the expected increased supply of Canola seed will continue to support strong oilseed crush margins, partially offset by reduced meal values.

More reading

• ASX 200 Weekly Wrap: ASX snaps winning streak… just
• These were the worst performing ASX 200 shares last week
• Are these 2 ASX commodity shares ready to ride 2 booming trends?
• There’s good news and bad for these ASX commodity shares
• Countries are panic buying food and this isn’t reflected in ASX agriculture stocks

Motley Fool contributor James Mickleboro 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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Nine Entertainment Co Holdings Ltd (ASX: NEC) announced that its FY21 first half earnings are expected to increase 30% on a rebound in advertising revenues. The Nine share price has jumped up 7.42% to $2.54 following the annual general meeting (AGM) announcement.

What are some highlights from the AGM

Nine advised that since the third quarter, its free-to-air advertising (FTA) market share had risen due to major events such as the State of Origin and NRL finals. Its fourth quarter results are now expected to show growth in FTA advertising revenue of around 15%.

Digital revenue for the period to 31 October is up by around 4% underpinned by Domain’s strong performance, with total group revenue down 7%. 

Nine says FY21 first-half earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to be up by around 30% compared to the previous corresponding period.

Nine chief executive Hugh Marks welcomed the results, saying:

We are certainly trading more positively than we would have anticipated just three months ago and are very pleased with the operating performance and trends in each of our business units.

Despite this, given our limited visibility on the second half advertising market, we do not believe we are in a position to provide guidance on earnings for the full year. We expect to be in a better position to address this at our half year results in February.

Growth opportunities

According to its financial report, Nine generates 90% of its earnings from its Nine Network channel – one of only three television channels licensed to broadcast free-to-air in Australia. The total market for free-to-air advertising is $2.7 billion, of which Nine commands the number one position at 39%.

This market is gradually dwindling as advertisers move to digital platforms. However, management said Nine’s investments in digital platforms such as 9Now, Stan, and Domain had gradually increased its market share in the fragmented digital market. That’s where it expects to see future growth.

The Nine share price performance in 2020

Nine’s share price has been on the rise in 2020, gaining more than 40%. Nine’s share price is currently trading at $2.52, up by 7%. It commands a market cap of $3.8 billion.

More reading

• ASX stock of the day: Nine (ASX:NEC) share price surges on sporting venture
• Nine (ASX:NEC) share price edges up on rugby union deal
• Why the Nine (ASX:NEC) share price has surged 30% in 3 months
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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 S&P/ASX 200 Index (ASX: XJO) has risen by 4.67% since last Friday’s close (6 November) to 6,466 points. Global investors have snapped up pandemic-hit shares after Pfizer Inc. (NYSE: PFE) indicated that its COVID-19 vaccine had proved more than 90% effective in its trial.

A breakthrough COVID-19 vaccine

On Monday, the American drug maker Pfizer and its German partner BioNTech SE (NASDAQ: BNTX) released positive results from the clinical trial of their COVID-19 vaccine, BNT162b2. Pfizer’s chair and CEO Dr. Albert Bourla commented:

Today is a great day for science and humanity. The first set of results from our Phase 3 COVID-19 vaccine trial provides the initial evidence of our vaccine’s ability to prevent COVID-19.

Acting Victorian chief health officer Professor Allan Cheng commented that while the Pfizer vaccine was good news, there was “very little detail about what the results actually are,” as they have not been published in a peer-reviewed medical journal (as quoted by The Guardian).

Despite the lack of detail, investors are starting to look at the healthcare sector again. Here are 2 ASX healthcare shares that have gained traction since the anouncement.

Mayne Pharma Group (ASX: MYX)

Mayne Pharma is a specialty pharmaceutical company focused on applying its expertise in drug delivery to commercialise pharmaceutical products. The company’s flagship product TOLSURA is used for the treatment of infectious pulmonary and extrapulmonary diseases.

In its FY20 results presentation in August, Mayne Pharma reported revenue of $457 million and underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) of $95 million, including a non-cash intangible asset impairment of $99 million.

Meanwhile, the company reported that TOLSURA sales  grew by 460% in the fourth quarter year over year, due to the COVID-19 pandemic. Mayne expects the sales of TOLSURA to accelerate in FY21.

The Mayne share price has gone up 6.66% since last Friday’s close, valuing the company at a market capitalisation of $537 million. 

Medical Developments International Ltd (ASX: MVP)

This Australian healthcare company manufactures and distributes pharmaceutical drugs and medical equipment and has a market capitalisation of $419 million. The Medical Developments share price has risen by 14% since last Friday.

According to its FY20 report, Medical Development International grew sales by 61%, an all-time record, with Australian sales up by 43% and North American sales up by 88%. 

Finally, the company’s management team has also indicated their intention to replicate the success of the respiratory business internationally. This is achieved by buying back the European distribution rights to its Penthrox methoxyflurane inhaler from Mundipharma for 3 million euros.

Penthrox is the company’s pain relief product and is approved throughout Europe, with 568 European Union organisations buying the product. The company has indicated it is focused on taking a more direct role in the commercialisation of Penthrox by building a direct in-market presence in Europe.

More reading

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• 5 things to watch on the ASX 200 on Thursday
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• Latest ASX stocks to be hit by a broker downgrade
• The irresistible urge that costs retail investors 3% a year

MWUaus has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Medical Developments International Limited. The Motley Fool Australia has recommended Medical Developments International 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 De Grey Mining Limited (ASX: DEG) share price has been a positive performer on Thursday despite weakness in the gold sector.

In morning trade the gold-focused mineral exploration company’s shares are up 2.5% to $1.16.

Why is the De Grey Mining share price pushing higher?

Investors have been buying De Grey Mining’s shares this morning after it released further drilling results from its Hemi prospect in Western Australia.

Today’s update relates to activities at the Aquila and Crow zones which are located adjacent and to the north of the large Brolga intrusion at Hemi.

According to the release, step out and infill drilling at Hemi is on-going and the latest results at Aquila and Crow continue to firm up areas of high grade gold mineralisation within a much larger and broader gold system.

Management notes that some outstanding high-grade intercepts continue to be returned at Crow, whereas drilling at Aquila is continuing to extend the high grade plunging shoot to the west.

Management commentary.

De Grey’s Managing Director, Glenn Jardine, was pleased with the latest set of results.

He commented: “The new results at Crow continue to demonstrate potential for higher grade lodes within the large, broad mineralised zones. The Company recently announced extensions to the northwest of Crow. Potential also remains for extensions to the northeast and southwest.”

More drilling is on the way and results are due in the near term from these activities.

Mr Jardine explained: “Wide spaced 80 by 80m extensional RC drilling continues in the northwest of Crow, with assay results awaited. Aircore drilling further to the west of the Crow intrusive has identified areas for follow up RC drilling. Drilling will continue at Crow to infill and expand the mineralised footprint. Drilling at the western end of Aquila continues and has extended mineralisation at depth and to the west toward Falcon.”

What now?

De Grey is on course to reveal its maiden resource estimate in the middle of next year.

“A broad mineralized zone is present at least 400 metres below surface that includes narrower high grade intervals. Total metres drilled at Hemi now exceed 200,000 metres since the discovery in December 2019. Seven rigs are currently operating around Hemi in support of completion of a maiden resource by the middle of 2021,” the managing director advised.

More reading

• Why the Paradigm (ASX:PAR) share price is climbing higher today
• Xero (ASX:XRO) share price hits record high after delivering strong first half growth
• Is the Commonwealth Bank (ASX:CBA) share price in the buy zone?
• 2 ASX dividend shares growing their dividend every year
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Motley Fool contributor James Mickleboro 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 Paradigm Biopharmaceuticals Ltd (ASX: PAR) share price is climbing higher today on news the company has started Phase 2 trials of pentosan polysulphate sodium (iPPS).

In early morning trade, the Paradigm share price is up 1.62% to $3.13.

Phase 2 trial commences

Paradigm advised that it has started Phase 2 trials of iPPS to treat patients who suffer from orphan disease Mucopolysaccharidosis Type 1 (MPS-1).

Led by principal investigator, Dr David Ketteridge, the open label study will recruit up to 10 participants who meet specific criteria. Those enrolled in the trial will receive one of two dosing cohorts, either 0.75mg/kg or 1.5mg/kg. The drug will be administered weekly as an injectable dose for the first 12 weeks and then every second week for the 11-month duration.

Paradigm will seek to primarily assess the safety of iPPS in patients and evaluate if treatment can successfully alleviate pain. The biopharma company said its first patient has been enrolled and had received the first dose of iPPS.

The Phase 2 study will be undertaken at the Adelaide’s Women & Children’s hospital.

What is MPS-1?

Mucopolysaccharidosis type 1 is a rare metabolic disorder caused by a genetic defect when born. The disorder catabolises heparan sulphate and dermatan sulphates which cause a raft of problems for sufferers. They include abnormal bone development, irregular growth, cardiac and respiratory problems, and sometimes cognitive impairment.

Current treatments available are enzyme replacement therapy (ERT) and hematopoietic stem cell therapy (HSCT). Both therapies work to reduce the accumulation glycosaminoglycans (heparan sulphate and dermatan sulphate).

What did the CEO say?

Commenting on the trial, Paradigm CEO Paul Rennie said:

The data collected from the Phase 2 trial will be vital to support Paradigm’s future regulatory filings and applications for the development of PPS as a potential adjunctive therapy to enzyme replacement therapy (ERT) treatments. Our MPS programs will treat subjects as adjunct to ERT as well as previously bone marrow transplanted patients who may or may not remain on ERT.

Paradigm is making significant progress in the clinical development of PPS in both of our two programs of osteoarthritis (Zilosul) and the rare disease of MPS.

It is important to note both the US FDA and EU EMA have confirmed MPS is an orphan indication and as such the commercial advantage of an orphan drug is the 7-year regulatory exclusivity awarded to orphan drugs.

About the Paradigm share price

The Paradigm share price has been up and down over the past 12 months, reaching as high as $4.50 and as low as $1.08.

The company has a market capitalisation of $702.3 million and trades an average volume of 1.1 million shares daily. This shows investors are active when it comes to buying and selling Paradigm shares.

More reading

• Xero (ASX:XRO) share price hits record high after delivering strong first half growth
• Is the Commonwealth Bank (ASX:CBA) share price in the buy zone?
• 2 ASX dividend shares growing their dividend every year
• Wesfarmers (ASX:WES) share price on watch after FY 2021 trading update
• Telstra (ASX:TLS) share price on watch after major update

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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The Xero Limited (ASX: XRO) share price is charging higher following the release of its half year update.

In morning trade the cloud-based business and accounting platform provider’s shares are up almost 7% to a record high of $130.95.

How did Xero perform in the first half?

For the six months ended 30 September, Xero continued its positive form despite the challenging COVID-19 environment.

Management feels that this demonstrate the resilience of its global subscriber base and its proactive response supporting customers and partners.

During the half, the company’s operating revenue grew 21% over the prior corresponding period to NZ$409.8 million. This was a 19% increase in constant currency.

This led to Xero’s annualised monthly recurring revenue (AMRR) growing 15% to NZ$877.6 million.

A key driver of this growth was a 19% increase in total subscribers to 2.45 million. Management advised that all markets made positive progress and Australia became Xero’s first market to pass one million subscribers.

And while there was some volatility in churn during the half, overall reported MRR churn was consistent at 1.11%.

One key metric of interest for investors is the company’s total subscriber lifetime value (LTV). This increased 15% over the prior corresponding period to NZ$6.2 billion. It is also up 12.7% since the end of FY 2020.

What about earnings and free cash flow?

Operating leverage was on display for all to see in the first half of FY 2021.

Despite revenue increasing 21%, Xero’s earnings before interest, tax, depreciation and amortisation (EBITDA) increased by an even greater 86% to NZ$64.9 million.

Things were even better on the bottom line, with Xero’s net profit after tax coming in 26 times greater than the prior corresponding period at NZ$34.5 million.

Also growing strongly was the company’s free cash flow, which came in at NZ$54.3 million for the half. This is up from NZ$4.8 million a year earlier.

Management advised that its strong earnings and free cash flow growth reflects Xero’s disciplined financial management during a highly uncertain period. This approach contributed to a 10% reduction in sales and marketing costs when compared to the prior corresponding period.

And while uncertainty from COVID-19 is likely to remain, management expects Xero’s focus on long-term growth, combined with a return to more normal market conditions, to lead to a return to sales and marketing cost growth in the future.

Management commentary.

Xero’s CEO, Steve Vamos, commented: “This result demonstrates the value our customers attribute to their Xero subscription and the underlying strength of Xero’s business model. We continue to prioritise investment in customer growth and product development in line with the long term opportunity we see.”

“Subscriber growth was positive in all geographies, with stronger net subscriber additions in Australia and New Zealand with relatively less disruption in those markets from COVID-19. During a difficult period, it’s pleasing to report we grew to exceed one million subscribers in both Australia and in our International segment,” he added.

Outlook.

Management notes that Xero is a long-term oriented business with ambitions for high-growth.

It continues to operate with disciplined cost management and targeted allocation of capital. It feels this allows it to remain agile so it can continue to innovate, invest in new products and customer growth, and respond to opportunities and changes in the operating environment.

However, due to the continued uncertainty created by COVID-19, it believes it is speculative to provide further commentary on its expected FY 2021 performance at this time.

More reading

• 5 things to watch on the ASX 200 on Thursday
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• Why the Xero (ASX:XRO) share price jumped 13% to a record high today
• ASX 200 up 1.3%: CBA Q1 update, tech shares rebound, JB Hi-Fi sinks
• Why CBA, Straker, Woodside, & Xero shares are surging higher

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 Xero. 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 Commonwealth Bank of Australia (ASX: CBA) share price has been a positive performer this week.

Since the end of last week, the banking giant’s shares have charged 7% higher to $74.40.

Why is the Commonwealth Bank share price charging higher?

Investors have been buying Commonwealth Bank’s shares for a couple of reasons this week.

The first is of course the COVID-19 vaccine news which has put a rocket under the S&P/ASX 200 Index (ASX: XJO).

The prospect of the pandemic ending sooner than expected has sparked optimism that the economic impact may not be as bad as feared.

In addition to this, the release of a better than expected first quarter update and a sharp reduction in COVID-19 loan deferrals has given its shares a boost.

Is it too late to invest?

One leading broker that believes it is too late to invest is Goldman Sachs.

This morning its analysts reiterated their sell rating and cut the price target on Commonwealth Bank’s shares to $65.24.

Goldman Sachs believes its weak operational performance doesn’t justify the premium the bank’s shares trade at and sees better value elsewhere in the sector.

The broker explained: “Weak operational performance does not justify PER premium. While CBA’s balance sheet is strong, with a sector leading capital and provisioning position, CBA’s operational performance in 1Q21, particularly as it relates to costs, does not justify the 24% premium it is currently trading on versus peers (versus 15% 15-yr average). Coupled with our revised 12-month TP implying 6% downside, we remain Sell rated.”

Which bank should you buy?

As of last week, Goldman Sachs’ top pick was National Australia Bank Ltd (ASX: NAB). It had a conviction buy rating on the bank’s shares. However, its price target stands at $21.18, which is now lower than the current NAB share price of $21.82.

The broker also has a buy rating on Westpac Banking Corp (ASX: WBC) shares, with a $19.60 price target. This compares to its last close price of $18.73.

More reading

• ASX 200 surges again on Wednesday
• Commonwealth Bank (ASX:CBA) share price higher on Q1 and loan deferral update
• ASX 200 up 1.3%: CBA Q1 update, tech shares rebound, JB Hi-Fi sinks
• Why CBA, Straker, Woodside, & Xero shares are surging higher
• CBA (ASX:CBA) share price lifts on first quarter results

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. 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 two ASX dividend shares in this article are growing their dividends every year.

The Reserve Bank of Australia (RBA) recently decided to cut the official interest rate to almost 0% with a reduction to 0.10%.

ASX shares pay out dividends from their profit each year and some are growing their dividend every year.

Here are two examples rated as buys by the Motley Fool Dividend Investor service:

Rural Funds Group (ASX: RFF)

Rural Funds is an agricultural real estate investment trust (REIT). That means it’s an owner of commercial farmland. It leases out that farmland to many large, quality tenants.

Some of those tenants include: JBS, Select Harvests Limited (ASX: SHV), Olam, Australian Agricultural Company Ltd (ASX: AAC), Queensland Cotton, Treasury Wine Estates Ltd (ASX: TWE) and Stone Axe.

The farms that Rural Funds owns are diversified – they are spread across different states and climates. They’re also diversified by farm type, it has almonds, cattle, macadamias, vineyards and cropping (cotton and sugar).

All of the rental contracts have rental growth built into them. The contracts mostly have a fixed 2.5% rental increase (with market reviews) or are linked to CPI inflation. This is a core factor of Rural Funds’ goal of growing the distribution yield by 4% per annum for investors. It has increased its distribution each year for the past several years.

Rural Funds has a portfolio weighted average lease expiry (WALE) of 10.9 years, which means the tenants are there for the long-term.

The ASX dividend share continues to invest in capital expenditure which aims to increase rental income in the future from those farms. In FY21 it’s planning to spend $5.7 million on water delivery infrastructure for almonds. For ‘productivity developments and infrastructure’ it’s planning to spend $10.8 million on cattle farms and $10 million on cropping farms. There is also another $1.1 million of capex planned for its vineyards and macadamias.

Based on a forecast FY21 distribution of 11.28 cents per unit, the Rural Funds share price offers a yield of 4.5%.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Patts is an investment conglomerate that owns stakes in a variety of listed and unlisted businesses.

It has large positions in companies like TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Australian Pharmaceutical Industries Ltd (ASX: API), Tuas Ltd (ASX: TUA) and Clover Corporation Limited (ASX: CLV).  

The ASX dividend share also has positions in unlisted businesses and industries like resources, agriculture, financial services, swimming schools and a company called Ampcontrol.

Soul Patts has increased its dividend every year since 2000. That’s the longest record on the ASX.

It has actually paid a dividend every year since it listed in Australia in 1903.

Soul Patts funds its dividend from the investment income it receives from its investments (the dividends, distributions and interest) and then it pays its operating expenses. What remains is the net operating cashflow from its investments – this profit measure is what Soul Patts pays its dividend from. In FY20 its net cash from investments grew 48.8%.

The ASX dividend share paid out 56.93% of its net cashflows as a dividend in FY20, meaning the remaining 43% can be re-invested into other investment opportunities.

In FY20 the ASX dividend share grew its annual dividend payout by 3.4% to 60 cents. Over the past 20 years it has grown its ordinary dividend at a compound annual growth rate of 9.2% per annum.

At the current Soul Patts share price, it offers a trailing grossed-up dividend yield of 3.1%.

More reading

• Brickworks (ASX:BKW) hasn’t cut its dividend for over 40 years
• 2 ASX dividend shares analysts rate as a ‘buy’
• These ASX dividend shares offer 4.5%+ dividend yields
• Why Soul Patts (ASX:SOL) is a strong ASX dividend share
• Is the Rural Funds (ASX:RFF) share price a buy for the dividend yield?

Tristan Harrison owns shares of RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, RURALFUNDS STAPLED, Treasury Wine Estates Limited, and Washington H. Soul Pattinson and Company 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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