Category: Stock Market

If you’re searching for an income boost, then it could be worth checking out the two ASX dividend shares listed below that analysts are bullish on.

Here’s what you they are saying about these income options:

Accent Group Ltd (ASX: AX1)

The first ASX dividend share for investors to consider buying for income is footwear-focused retailer Accent.

It owns a large stable of brands such as Hype DC, Platypus, Stylerunner, and Sneaker Lab.

Bell Potter is positive on the company. This is because of “continuing casual footwear trends and as sports, fitness & wellness related spending remains a priority.”

The broker expects this to underpin fully franked dividends per share of 12 cents in FY 2024 and then 14.1 cents in FY 2025. Based on the latest Accent share price of $2.27, this represents dividend yields of 5.3% and 6.2%, respectively.

Bell Potter has a buy rating and $2.80 price target on its shares.

Dexus Convenience Retail REIT (ASX: DXC)

Another ASX dividend share that has been given the thumbs up is Dexus Convenience Retail REIT.

It is a convenience retail and service station property fund with a portfolio of 101 assets located across Australia but concentrated on the eastern seaboard. Management notes that its portfolio is leased to high-quality tenants on attractive, long-term leases.

Bell Potter is also a fan of the company and highlights that “DXC trades at a circa 34% discount to stated NTA which we think is overly punitive for a sub-sector where there is clear price discovery, and investors for commercial real estate have a clear preference for smaller cheque size assets.”

In addition, it is expecting some big yields in the near term. The broker is forecasting dividends per share of 20.9 cents in FY 2024 and 20.5 cents in FY 2025. Based on its current share price of $2.80, this equates to yields of 7.5% and 7.3%, respectively.

Bell Potter has a buy rating and $3.00 price target on its shares.

The post 2 ASX dividend shares to buy to supercharge your income appeared first on The Motley Fool Australia.

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More reading

• How long would it take to turn $20,000 into $100,000 with ASX dividend stocks
• Last time this ASX 300 stock reported results, it surged 19%. Will it deliver again next week?
• Are these ASX dividend shares strong buys for passive income?
• 3 ASX dividend shares with 5%+ yields to buy now
• Forget term deposits and buy these ASX dividend shares

Motley Fool contributor James Mickleboro 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 recommended Accent Group. 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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Many punters would be surprised at how few shares you need to potentially generate regular passive income.

Is the prospect of an extra $1,500 each month tempting enough for you to try investing?

While diversification is imperative in every portfolio, to demonstrate how achievable the above goal is, let me pick out one particular S&P/ASX 200 Index (ASX: XJO) stock.

What does Goodman Group do?

Goodman Group (ASX: GMG) is a developer and manager of industrial real estate.

That might not sound all that exciting on face value. But the continuing transition of retail from bricks-and-mortar to online has been a goldmine for Goodman.

The retail sector is increasingly needing the type of warehouse and industrial park properties to be able to execute e-commerce capabilities.

In fact, US behemoth Amazon.com Inc (NASDAQ: AMZN) is a tenant of Goodman’s.

And to further fuel growth, Goodman is starting to develop properties for data centres, which are crucial for cloud computing and artificial intelligence.

How is Goodman Group going?

Last Thursday alone Goodman shares rocketed 6.5% at one stage, after it revealed boom results that morning.

The company showed off a 98.4% occupancy rate, 29% increase in operating profit and available liquidity of $3 billion.

Goodman Group has $12.9 billion of development in progress across 85 different projects.

Chief executive Greg Goodman said its well-located real estate was allowing tenants to “increase investments in digitisation and automation to improve efficiency”.

“Our growth in data centre capacity underscores our ability to deliver digital infrastructure, where we’re securing power on our sites and developing data centres in cities with high demand.”

$40,000 and six years: all you need for passive income

So that’s all good, but how can Goodman shares generate passive income for you?

Let’s say you bought $40,000 worth of stock right now, which equates to about 1,400 shares at the current price.

While past performance is no indicator of the future, for the purposes of this hypothetical, let’s look back at the five-year track record.

The Goodman share price has gained 119%, excluding dividends, which equates to a compound annual growth rate (CAGR) of just under 17%.

Because the stock pays out a small dividend each year, let’s round it up to 17% for ease of calculation.

That $40,000, if you allow it to grow at 17% per annum compounded monthly, will reach $110,136 after just six years.

From that point on, instead of keeping the returns and dividends in the investment, just cash out.

The 17% would provide you with an average passive income of $18,723 each year.

And that’s a monthly payout of $1,560.

Done.

The post For $1,500 in monthly passive income, buy 1,400 shares of this ASX 200 stock appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• 2 ASX 200 real estate shares leaping higher on earnings news
• Why Altium, Goodman, Magellan, and Wesfarmers shares are storming higher today
• I think this ONE factor gives ASX shares a huge chance to make big returns
• 5 things to watch on the ASX 200 on Wednesday

Motley Fool contributor Tony Yoo 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 Goodman Group. The Motley Fool Australia has recommended Goodman Group. 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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On Friday, the S&P/ASX 200 Index (ASX: XJO) ended the week with a solid gain. The benchmark index rose 0.7% to 7,658.3 points.

Will the market be able to build on this on Monday? Here are five things to watch:

ASX 200 expected to edge higher

The Australian share market looks set to edge higher on Monday despite a poor finish on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the day 8 points higher. On Friday on Wall Street, the Dow Jones was down 0.4%, the S&P 500 fell 0.5%, and the Nasdaq dropped 0.8%.

Oil prices rise

It could be a good start to the week for ASX 200 energy shares including Santos Ltd (ASX: STO) and Woodside Energy Group Ltd (ASX: WDS) after oil prices pushed higher on Friday night. According to Bloomberg, the WTI crude oil price was up 1.5% to US$79.19 a barrel and the Brent crude oil price was up 0.75% to US$83.47 a barrel. US crude oil is at its highest level since November amid rising tensions in the Middle East.

Westpac Q1 update

Westpac Banking Corp (ASX: WBC) shares will be on watch today when the banking giant releases its first quarter update. Commenting on the impending release, Goldman Sachs said: “On the outlook into 1H24, WBC noted: i) Persistent inflation, ii) Software amortisation headwind, iii) Risk & reg spend to remain elevated, iv) Focus on cost reset, and v) Sustained investment of A$2 bn pa over the next four years.”

Gold price climbs

ASX 200 gold shares Newmont Corporation (ASX: NEM) and Northern Star Resources Ltd (ASX: NST) could have a decent start to the week after the gold price rose on Friday. According to CNBC, the spot gold price was up 0.5% to US$2,025.5 an ounce. This couldn’t stop the precious metal from recording a second consecutive weekly decline.

Inghams rated as a sell

Inghams Group Ltd (ASX: ING) shares remain overvalued despite crashing on Friday according to analysts at Goldman Sachs. According to a note, the broker has reiterated its sell rating on the poultry producer’s shares with a $3.15 price target. It said: “We continue to expect FY25E EBITDA to decline -6% vs FY24E as ING’s operating conditions become more challenging to navigate without the tailwind of price increases.”

The post 5 things to watch on the ASX 200 on Monday appeared first on The Motley Fool Australia.

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More reading

• How to build a $1 million superannuation fund
• Here’s how the ASX 200 market sectors stacked up this week
• Here are the top 10 ASX 200 shares today
• 7 ASX 200 shares with ex-dividend dates next week
• Why Inghams, IAG, Neuren Pharmaceuticals, and Pro Medicus shares are sinking today

Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation and 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.

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Have you got $20,000 to invest right now?

Lucky you! It’s nice to have some spare cash to buy ASX stocks, as there are always great opportunities available.

If I had that sort of money, here are two best shares I would buy at the moment:

Margin up, competitor down

I already own Resmed CDI (ASX: RMD) but would be tempted to buy more at the moment.

Last year, the healthcare stock fell off a cliff after investors panicked over the impact of new GLP-1 weight loss drugs on obesity.

While a reduction in obesity is a wonderful development for the world, the market worried that it would also reduce the incidences of sleep apnoea, which ResMed’s products treat.

Many investment and medical experts at the time declared that the panic was overdone, and they were proven to be correct.

According to a Blackwattle memo to clients, ResMed’s business update last month presented “data showing no negative sales impacts from GLP1 weight loss drug usage”.

If anything, such treatments could be complementary.

“[ResMed’s update] highlighted the benefits of combining those drugs with CPAP devices to address sleep apnoea.”

The other tailwind for ResMed was the continued struggles for its biggest rival Koninklijke Philips NV (AMS: PHIA), who suffered a product safety recall a few years back.

“Philips agreed on a consent decree with the FDA, which effectively prohibits it from selling new devices in the USA in the immediate future.”

The January update also showed fatter margins, which was the other major concern back in the August reporting season.

“The company reported improved gross margins following price increases, lower freight costs, currency movements and a favourable mix shift towards its new AirSense 11 product.”

The best shares among small caps

In the small cap end of the market, Camplify Holdings Ltd (ASX: CHL) is looking good to me ahead of its report on Wednesday.

The $170 million company provides a technology platform for owners of caravans and motorhomes to lend out their recreational vehicles when they’re unused.

The startup began in Newcastle NSW but has now expanded globally, to places like New Zealand, the UK, Spain, Germany, Netherlands and Austria.

A holding company of Citigroup Inc (NYSE: C) is Camplify’s biggest shareholder, owning about 13.4% of the shares.

Camplify has put a smile on investor faces in recent times, soaring 35% over the past 10 months.

While it’s not yet profitable, the business reported a 133% boost in revenue for the 2023 financial year.

The post The best ASX shares to invest $20,000 in right now appeared first on The Motley Fool Australia.

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More reading

• If I could buy only one ASX stock this February earnings season, it would be…
• 2 ASX 200 growth shares to buy with ‘immense opportunity’ ahead
• How high could the ResMed share price climb?
• 3 ASX shares this fund manager thinks are compelling buys right now
• Here’s how the ASX 200 market sectors stacked up this week

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Tony Yoo has positions in Camplify and ResMed. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ResMed. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Camplify. The Motley Fool Australia has positions in and has recommended ResMed. The Motley Fool Australia has recommended Camplify. 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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It’s all happening in the land of ASX shares as reporting season ploughs ahead in earnest.

eToro market analyst Josh Gilbert has picked out the three critical developments to watch this week:

1. Australian quarterly wage index

Wednesday will see the latest wage statistics, which will be crucial in determining which direction the Reserve Bank of Australia will go with interest rates.

According to Gilbert, the wage index is expected to rise 1% quarter-on-quarter and to 4.1% year-on-year.

“With capacity in Australia’s job market growing, wages should not see too much pressure to the upside from here, given that we will likely see the unemployment rate grow during 2024, all of which is good news for inflation.”

He added that the signs have been positive for a peak in rates.

“Unemployment last week [lifted] more than expected, showing the labour market is loosening.

“Rising unemployment will be a significant reason for the RBA to cut rates, with market pricing looking to as early as June for the first cut.”

2. Pilbara Minerals results

There is no getting around the fact that ASX lithium shares have backed up their horrible 2023 with more losses in 2024.

“It’s been a torrid few years for the price of lithium as it continues to freefall, weighing heavily on local miners that enjoyed a strong 2022 during peak prices for the asset.”

Pilbara Minerals Ltd (ASX: PLS), which reports on Thursday, has been more resilient than others, only losing 6.9% so far this year.

“That’s because it has a better balance sheet than most to get it through this lithium winter, allowing it to continue expanding and growing production.”

It’s obvious income will plunge in the coming results, so Gilbert advises investors to focus on the comments regarding production.

“Ultimately, Pilbara [Minerals] is at the whim of the lithium price, but the business looks the best positioned to navigate this challenging period.”

He reminded investors that lithium will still see heavy demand in the long run.

“While the pricing environment has softened for the time being, investors should not lose sight of the significant demand for lithium, with EV growth still high at around 30% this year.”

3. Nvidia earnings

On the other side of the Pacific, artificial intelligence (AI) darling Nvidia Corp (NASDAQ: NVDA) will report on Thursday morning Australian time.

Gilbert pointed out that the stock has now returned 1,500% to investors in the past five years.

“Last week, the artificial intelligence computing company claimed another feather in its cap, taking the title of the third largest company on the S&P 500 Index (SP: .INX). 

“Within the last year, Jensen Huang and his team at Nvidia have grown its earnings by 500%, a remarkable feat that’s even more remarkable given Wall Street expects that growth to continue.”

Analyst consensus was that Nvidia would report earnings per share of US$4.56, said Gilbert, with a revenue of US$20.26 billion.

“If the last three results are anything to go by, we could even expect numbers much higher than that.”

But more than the raw numbers, the market will be watching the outlook guidance, as the stock is priced highly for future success.

“Shareholders will want to hear that sales aren’t slowing down and that the AI boom is not just a flash in the pan. 

“With such outsized gains in less-than-optimal conditions, anything but perfect will put shares on the back foot.”

The post 3 things ASX investors should watch this week appeared first on The Motley Fool Australia.

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More reading

• Buy and hold these ASX ETFs for 10 years or more
• Here are the top 10 ASX 200 shares today
• How this rocketing ASX ETF is tapping into the billionaire-making AI revolution
• ASX mining shares up amid Labor plan to spend multibillions on renewables revolution
• Why Fletcher Building, GQG, Pilbara Minerals, and Tyro shares are climbing today

Motley Fool contributor Tony Yoo 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 Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Is it too late to buy ASX shares when you’re 50 for retirement? Good question.

The short answer is a most definite ‘no’. However, the long answer adds a little more complexity.

The whole reason we invest in ASX shares, for retirement or not, is to harness the high returns that ASX shares have historically delivered compared to other assets.

As our chief investment officer, Scott Phillips went through last year, Australian shares delivered an average return of 9.2% per annum between July 1993 and June 2023. That’s assuming dividends are reinvested.

In contrast, cash investments (including savings accounts and term deposits) returned just 4.2% per annum over the same period.

The longer you stay invested in high-returning shares, the longer you have to benefit from the exponential power of compounding.

So I’m not going to pretend that anyone who’s only getting started investing in shares at age 50 wouldn’t have been ludicrously better off starting earlier.

But saying that, you’ve still got plenty of time before retirement to get a big boost to your wealth from ASX shares.

ASX shares at 50? Here’s how you can give your retirement a boost

Let’s say you’re 50 years old, and you’ve amassed a life savings of $150,000 over your working life outside the value of the family home and superannuation.

Let’s then assume that you invested that lump sum into cash investments. And that you are able to achieve that same 4.2% that has been average over the past 30 years. Well, you can expect to have approximately $305,940 by the time you retire at age 67.

Not bad.

But let’s say you instead invest that lump sum into ASX shares and enjoy a return of 9.2% per annum instead (not that that is guaranteed). You could reasonably expect to have a far more impressive $712,443 by the time you hit 67. That’s despite the inherent volatility that shares come with

That’s 406,503 reasons why it’s not too late to buy ASX shares for your retirement at age 50.

That’s an ‘ideal world’ scenario we’ve just discussed. Shares can be volatile, and there’s a significant chance that the Australian share market won’t continue to return an average of 9.2% over the next 17 years. It could be even higher, but it could also be lower.

But I’m a firm believer in the power of taking lessons from history. And history does tell us that ASX shares are almost always one of the best assets to invest in over long periods of time.

The post Is 50 too late to start buying ASX shares for retirement? appeared first on The Motley Fool Australia.

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More reading

• No savings in 2024? I’d follow Warren Buffett and start building wealth
• Top brokers name 3 ASX shares to buy next week
• This ASX passive income all-star just increased its dividend by 17%
• 3 reasons why I’d buy small-cap shares over ASX blue chips in 2024
• How to build a $1 million superannuation fund

Motley Fool contributor Sebastian Bowen 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.

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If you don’t have any savings, but want to be wealthy, then read on.

That’s because I’m going to explain how with ASX shares you could build significant wealth by following the lead of Warren Buffett.

Over many decades at the helm of Berkshire Hathaway (NYSE: BRK.B), the Oracle of Omaha has demonstrated that wealth can be created through very simple investment principles. And the good news for us all is that by applying his time-tested methods with ASX shares, we could also pave our way to financial freedom.

Investing like Warren Buffett with ASX shares

A great starting point is to make consistent investments in ASX shares with a long-term perspective.

For example, if you could invest $500 each month into the share market, then thanks to the power of compounding, you could build a sizeable investment portfolio by following Warren Buffett’s investment approach.

Buffett likes to focus on investing in established companies with sustainable competitive advantages, strong business models, positive long-term growth outlooks, and fair valuations.

Investing in companies that exhibit these qualities has allowed the Berkshire Hathaway leader to deliver an average annual return of 19.8% since 1965. This is double the market return over the same period. Clearly his methods work, you can’t fluke your way through almost 60 years of investing.

Compounding your way to wealth

As I mentioned above, the key is to make consistent investments to benefit from compounding. This is where you earn returns on top of your returns.

Let’s imagine you can achieve a return in line with the market average since 1965, 9.9% per annum, if you were to invest $500 into ASX shares, you would have grown your portfolio to be worth approximately $360,000 in 20 years.

But why stop there? If you keep going, you will see just how powerful compounding is the longer you leave it.

For example, just five more years of the same, and that $360,000 would become approximately $610,000. That’s not a typo. An extra quarter of a million in just five years.

And you keep going another five years, your portfolio would be worth over $1 million, all else equal.

The above is based on the market return. If you can better this by following Buffett’s tenets, your portfolio could become even greater.

Overall, I believe this shows that by following Warren Buffett’s investment style with ASX shares, you can build significant wealth even if you have no savings today.

The post No savings in 2024? I’d follow Warren Buffett and start building wealth appeared first on The Motley Fool Australia.

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More reading

• What can ASX investors learn from Warren Buffett’s latest buys and sells?
• No passive income at 50? I’d use Warren Buffett’s methods to get rich
• How Charlie Munger used $1,500 to make a $107k-a-year passive income
• Lessons from a $600,000 share price
• Not confident to invest? I’d follow these 2 Warren Buffett tips

Motley Fool contributor James Mickleboro 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 Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway. 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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It was another busy week for Australia’s top brokers. This led to the release of a large number of broker notes.

Three ASX broker buy ratings that you might want to know more about are summarised below. Here’s why brokers think these ASX shares are in the buy zone:

AGL Energy Limited (ASX: AGL)

According to a note out of UBS, its analysts have retained their buy rating on this energy giant’s shares with a slightly reduced price target of $11.25. UBS was pleased with AGL’s first half result, noting that it was well ahead of the broker’s expectations. It sees potential for further earnings outperformance in the coming years if its generation availability can be maintained. The AGL share price ended the week at $8.63.

CSL Ltd (ASX: CSL)

A note out of Morgans reveals that its analysts have retained their add rating on this biotechnology giant’s shares with a trimmed price target of $315.40. This follows the release of a solid half-year result which revealed earnings ahead of consensus expectations. Overall, Morgans was pleased with the result and especially the performance of the key CSL Behring business. And although the broker has trimmed its valuation to reflect the CSL112 trial failure, it continues to see a lot of value on offer. The CSL share price was trading at $284.00 at Friday’s close.

Pro Medicus Limited (ASX: PME)

Analysts at Macquarie have retained their outperform rating and $120.00 price target on this health imaging technology company’s shares. Macquarie notes that Pro Medicus fell short of the broker’s first-half expectations with both its revenue and earnings. However, it remains positive given new contract wins and its healthy sales pipeline. The Pro Medicus share price was trading at $87.24 on Friday.

The post Top brokers name 3 ASX shares to buy next week appeared first on The Motley Fool Australia.

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More reading

• If I could buy only one ASX stock this February earnings season, it would be…
• Brokers name 3 ASX shares to buy now
• 7 ASX 200 shares with ex-dividend dates next week
• Why Inghams, IAG, Neuren Pharmaceuticals, and Pro Medicus shares are sinking today
• Top brokers name 3 ASX shares to buy today

Motley Fool contributor James Mickleboro has positions in CSL. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Macquarie Group, and Pro Medicus. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended CSL and Pro Medicus. 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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GQG Partners Inc (ASX: GQG) is an ASX passive income all-star in my opinion. It just grew its annual dividend per share by 17%, and I think it’s still one to watch.

The GQG share price has taken its shareholders on an impressive run, rising by around 30% since the start of 2024. It has lifted by 48% since I called it “my pick for superior income in 2024“.

Dividend growth

GQG reported its 2023 annual result on Friday, which showed average funds under management (FUM) increased 14.7% to US$101.9 billion, net revenue increased 18.5% to US$517.6 million, net profit after tax (NPAT) grew 18.7% to US$282.5 million and distributable earnings rose 17.4% to US$297.9 million.

All of those growth numbers helped GQG’s dividend per share increase 17.3% to US 9.1 cents. At the current GQG share price and foreign exchange rate, that translates into an FY23 dividend yield of 6.4%.

There aren’t too many fund managers delivering double-digit profit growth and dividend growth at the moment.

Could the ASX passive income payments keep growing?

The ASX passive income all-star generates nearly all of its revenue from asset-based management fees as opposed to performance fees. If funds under management (FUM) grow, then revenue, net profit and dividends should be able to keep growing.

The fund manager experienced an average FUM of $101.9 million in FY23, and it finished the year with a closing FUM of $120.6 million. If the US$120.6 billion closing FUM ends up being the average FUM for FY24, that would suggest a rise of another 18%. Ongoing net inflows can help here.

Fund managers are very scalable businesses – it doesn’t necessarily take another 10% more people to manage 10% more FUM, so more FUM can translate into even faster earnings growth.

But, let’s play with the idea that the GQG dividend could grow by 18% in FY24. At the current GQG share price, that would translate into a forward dividend yield of 7.5%.

It’s quite possible the dividend could grow even more than that because at 31 January 2024, the FUM reached US$127 billion. So, we’ll have to see what the net inflows and investment performance are for the rest of 2024.

But, I’m quite optimistic about the business, considering its investment funds have managed to deliver good returns over the long term.

The post This ASX passive income all-star just increased its dividend by 17% appeared first on The Motley Fool Australia.

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More reading

• Why Fletcher Building, GQG, Pilbara Minerals, and Tyro shares are climbing today
• Up 55% in a year, GQG share price charging higher again on surging revenue results
• 2 cheap and ‘attractive’ ASX shares to buy now that you’ve not thought of
• What can owners of GQG shares expect in the upcoming FY23 result?
• Why the GQG share price is up 7% to a 52-week high and could keep rising

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.

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ASX small-cap shares can deliver wonderful returns for investors who are brave enough to look at them. In fact, in 2024, I’d rather buy smaller businesses than ASX blue-chip shares.

Don’t get me wrong, I think the ASX has many quality, large businesses such as Wesfarmers Ltd (ASX: WES), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), Sonic Healthcare Ltd (ASX: SHL), Brickworks Limited (ASX: BKW) and Xero Limited (ASX: XRO).

And I’m not suggesting that every small-cap will do well — I don’t usually look at a business with a market capitalisation of less than $100 million.

But if I want to achieve stronger returns (and I do), I think some of those smaller names could be good ideas for a few different reasons.

1. Growth potential

Smaller businesses are typically much earlier in their growth journey than blue chips.

To give ourselves a good chance of beating the market return, I think we need to see potential revenue/profit growth that’s faster than the market’s growth over a longer time period (such as three or five years).

It’s much easier for a company to double its revenue from $10 million to $20 million than it is to go from $1 billion to $2 billion.

Every business has a growth ceiling – once it reaches a certain level, volume growth can slow (and be limited to population growth and inflation). The earlier we can identify these businesses with strong growth potential, the better the shareholder returns may be.

Bear in mind that every big business was small once, including stocks like Amazon.com and Microsoft. But we can’t know for sure if an ASX small-cap share will do well, and it can take years for the growth to play out, so patience is critical.

2. ASX small-cap shares are under-researched

Many analysts and investors typically follow the performance of ASX blue-chip shares. This means the market rarely undervalues these companies by any significant amount. There aren’t many major surprises.

But, a significantly smaller number of people are analysing those ASX small-cap shares, so they have less public attention and coverage. This can sometimes mean they trade on an attractive price/earnings (P/E) ratio even though they have a much larger growth runway ahead of them.

I like finding ASX shares where the market underappreciates a company, and the smaller end is the right place to look, in my opinion.

When a stock has a relatively low P/E ratio, it can also lead to a solid dividend yield. I was able to buy Altium Limited (ASX: ALU) shares roughly a decade ago with a dividend yield of more than 3%, simply because it wasn’t priced for how much growth it was about to achieve.

3. Takeover potential

As a bonus, a takeover offer can suddenly appear, rapidly increasing the return.

There have been a number of ASX shares that I liked which received (and accepted) takeover offers, including Volpara Health Technologies Ltd (ASX: VHT), Pushpay and Healthia. If the overall market doesn’t recognise the potential, a bidder may swoop in and deliver the returns we’re looking for.

Plenty of ASX small-caps have seen their share prices lift in the last few months, so there may not be as many cheap opportunities today. But I think there are still more than enough if you do your research.

The post 3 reasons why I’d buy small-cap shares over ASX blue chips in 2024 appeared first on The Motley Fool Australia.

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More reading

• Here’s how the ASX 200 market sectors stacked up this week
• Buying Altium shares amid blockbuster takeover deal? What you need to know
• I’d invest $580 a month in ASX 200 shares to aim for a million!
• Here are the top 10 ASX 200 shares today
• Why Altium, Goodman, Magellan, and Wesfarmers shares are storming higher today

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has positions in Altium, Brickworks, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Altium, Amazon, Brickworks, Microsoft, Volpara Health Technologies, Washington H. Soul Pattinson and Company Limited, Wesfarmers, and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has positions in and has recommended Brickworks, Washington H. Soul Pattinson and Company Limited, Wesfarmers, and Xero. The Motley Fool Australia has recommended Amazon and Sonic Healthcare. 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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