Category: Stock Market

Wesfarmers Ltd (ASX: WES) shares are 3.6% lower on Friday at $63.92 apiece in early afternoon trading.

There is no news out of the conglomerate today, so the stock is likely just moving with the market.

At the time of writing, the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) is the weakest of the 11 market sectors, down 2.19%.

Wesfarmers is the largest ASX discretionary stock by market capitalisation.

The benchmark S&P/ASX 200 Index (ASX: XJO) is also 1.14% lower today.

What’s been happening with the Wesfarmers share price?

Wesfarmers shares have had a great run over the past 12 months, clocking an impressive 28.6% growth. This compares to a 13.3% lift for the consumer discretionary index.

In the year to date, Wesfarmers shares have moved 10.9% higher while the index has lifted 4%.

On 8 May, Wesfarmers shares hit an all-time high price of $71.11.

So why is top broker Goldman Sachs downgrading this clear sector outperformer?

Why did this top broker just downgrade Wesfarmers shares?

Goldman Sachs recently released a new report on ASX retail shares, with analysts Lisa Deng and James Leigh re-jigging their stock picks in the sector.

There are 6 ASX retail shares they rate as a buy and 3 retail shares they recommend selling.

However, one that sits in the middle with a neutral rating is Wesfarmers shares. This represents a downgrade for the high-flying stock as it was previously rated a buy.

Buy thesis on Wesfarmers shares has ‘played out’

Goldman did not change its 12-month share price target on Wesfarmers in its recent review. Nor did it change its earnings expectations.

It still likes the stock but explains that its buy thesis has now simply “played out”.

Goldman put Wesfarmers on its buy list on 25 January and further increased its target price ahead of the company’s Strategy Day on 9 April.

This was all premised on Bunnings’ better-than-expected performance, the expectation that Bunnings and Kmart would generate high free cash flow for investment into Wesfarmers’ high growth and high-returning businesses in lithium and health, and some upside valuation potential for its health business.

Deng and Leigh said:

… our Buy thesis of resilient Retail (Bunning and Kmart) businesses generating ~A$2.0-A$2.5B free cashflow to invest behind growth opportunities (Digital and Health) is now fully factored in.

Post the 1H23 results and 2023 Strategy day, the above thesis has largely played out …

Our EBIT/EPS is now not differentiated vs Factset consensus in FY24 though remains ~5% above Consensus in FY25/26e, largely due to Bunnings margin expansion.

The analysts also commented that they have a more favourable view of consumer staples shares over consumer discretionary shares at the moment.

Deng and Leigh said they “see better value in staples where valuation and earnings expectations are less demanding”.

They think consumers are “clearly increasingly value-focused” amid anticipated delays in interest rate cuts, with Goldman recently changing its predicted timing for the first cut from August to November.

The March retail figures from the Australian Bureau of Statistics (ABS) showed the weakest annual rise in retail spending on record outside the pandemic and the introduction of the GST.

Not much room left for more share price growth

Goldman has a 12-month price target of $68.80 on Wesfarmers shares.

So, there’s not much upside available for investors who buy the stock at today’s price — just 7.6%.

The post Why did Goldman Sachs just downgrade Wesfarmers shares? appeared first on The Motley Fool Australia.

More reading

• Why AIC Mines, Fletcher Building, Nufarm, and Wesfarmers shares are dropping
• 2 ASX retail shares just upgraded by brokers (and 1 downgraded)
• What is the price target for Wesfarmers shares?
• How I plan to invest my tax cuts
• What is the dividend yield of Wesfarmers shares?

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

In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to end the week deep in the red. The benchmark index is currently down 1.1% to 7,726.6 points.

Four ASX shares that are falling more than most today are listed below. Here’s why they are dropping:

AIC Mines Ltd (ASX: A1M)

The AIC Mines share price is down over 9% to 53.5 cents. This has been driven by the completion of the copper miner’s institutional placement this morning. AIC Mines revealed that it has received firm commitments for $57.2 million from institutional and sophisticated investors for a placement of 110 million new shares at an issue price of $0.52 per new share. Management advised that the proceeds will be applied primarily to the advancement of the Jericho link drive. AIC Mines’ shares are up 90% since the start of March.

Fletcher Building Ltd (ASX: FBU)

The Fletcher Building share price is down 4% to $2.83. This building materials company’s shares jumped on Thursday amid rumours that it could be a takeover target of US-based global investment firm Platinum Equity. However, with no offer being made public today, it seems that some investors have decided to take a bit of profit off the table. Fletcher Building’s shares are down almost 40% since this time last year.

Nufarm Ltd (ASX: NUF)

The Nufarm share price is down a further 2% to $4.63. Investors have been selling this agricultural chemicals company’s shares since the release of its half year results this week. Nufarm’s profits fell well short of expectations during the half. One broker that wasn’t overly impressed with its performance was Bell Potter. In response to the result, the broker retained its hold rating and slashed its price target to $5.10 from $6.35. The broker commented: “We see FY24e as an abnormally difficult year.”

Wesfarmers Ltd (ASX: WES)

The Wesfarmers share price is down almost 4% to $63.88. This appears to have been driven by the release of a bearish broker note out of Morgan Stanley. According to the note, the broker has downgraded the Bunnings owners’ shares to an underweight rating with a $56.20 price target. The broker believes that Wesfarmers’ shares are expensive compared to peers and sees limited scope for an earnings upgrade to justify the premium. In light of this, it believes that Wesfarmers’ shares could be dragged lower in the near future. Morgan Stanley’s price target implies potential downside of 12% from current levels.

The post Why AIC Mines, Fletcher Building, Nufarm, and Wesfarmers shares are dropping appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today
• Beaten-up ASX 200 stock surges 12% on buyout rumour
• Why BHP, Nufarm, Peninsula Energy, and Regis Resource shares are sinking today
• 2 ASX retail shares just upgraded by brokers (and 1 downgraded)

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 Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

S&P/ASX 200 Index (ASX: XJO) investors who’ve been holding their breath for interest rate cuts in 2024 may wish to exhale.

Patience, it seems, is the name of the game for any pending rate cuts from either the Reserve Bank of Australia or the US Federal Reserve.

Which isn’t all bad news.

You see, a good part of the entrenched inflation issues that are pushing out the likely timing of interest rate cuts stems from the strength of the Aussie and the US economies. And that strength is being reinforced by the rapid rise of artificial intelligence.

The latest Purchasing Managers’ Index (PMI) data out of the US again tells me that ASX 200 companies and investors are unlikely to see any central bank easing until 2025.

Yesterday’s data (overnight Aussie time) revealed that business activity in the world’s number one economy increased in May at the fastest rate in two years. US labour market figures also recently came in stronger than expectations.

Commenting on the ongoing strength of the US economy, National Australia Bank Ltd (ASX: NAB) said (quoted by The Australian Financial Review):

US yields rose, the USD was higher and US equities fell. Stronger PMI data out of the US was the proximate driver, and while those did come in much stronger than expected, the context of upside surprises in US economic data having been rare for the last month or so may have supported the size of the market reaction.

The market reaction NAB is referring to includes the 0.7% overnight decline on the S&P 500 Index (SP: .INX). And those headwinds see the ASX 200 down 1.1% in afternoon trade today.

ASX 200 shares can boom amid high rates

It’s worth recalling that in 2023, a year which saw the RBA and the Fed hiking interest rates aggressively, the ASX 200 gained 9.3%. If we add in the dividends many companies paid, then the accumulated gain in 2023 was around 13.9%.

As for the S&P 500, it soared 24.2% in 2023 and is up another 10.4% so far in 2024. And according to JPMorgan Chase & Co, the S&P 500 is likely to continue breaking record highs this year, fuelled by the AI boom.

“With the AI-theme still delivering and the macro hypothesis intact, we are likely to continue to make new all-time highs,” the broker said (quoted by Bloomberg).

With that in mind, here’s what the experts are saying about the prospects for rate cuts in 2024.

Odds of 2024 interest rate cuts fading

Goldman Sachs CEO David Solomon has essentially written off any chance that ASX 200 investors might see the Fed cut rates this year.

According to Solomon (courtesy of the AFR)

I still don’t see the data that’s compelling to see we’re going to cut rates here…

If you’re talking to CEOs that are running businesses that really deal with what I’ll call the middle of the American economy, those businesses have been starting to see change in consumer behaviours.

Inflation is not just nominal. It’s cumulative, and so everything is more expensive. You’re starting to see the consumer, the average American, feel this.

Indeed, the minutes from the 1 May Federal Open Market Committee reinforce my belief that ASX 200 investors shouldn’t expect a rate cut until 2025.

Those minutes revealed members noted “that it would take longer than previously anticipated for them to gain greater confidence that inflation was moving sustainably toward 2%” amid “disappointing” inflation prints this year.

Commenting on the Fed minutes, FHN Financial’s Chris Low said (quoted by Bloomberg), “The minutes are a reminder that while the Fed does not see another rate hike as likely, and certainly does not see it as a base-case, it will not rule out hikes if inflation does not behave.”

With that said, ASX 200 investors could still see a Fed rate cut in September.

“Fed members have indicated they want to see more progress on inflation. Fortunately, the US economy still looks robust enough to take an extended rate pause. We continue to look for the first Fed rate cut in September,” Strategas Securities’ Don Rissmiller said.

The post Why ASX 200 investors shouldn’t expect interest rate cuts until 2025 appeared first on The Motley Fool Australia.

More reading

• Global companies just paid a record $512 billion in Q1 dividends. Here’s how ASX 200 shares stacked up
• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today
• Beaten-up ASX 200 stock surges 12% on buyout rumour
• ASX 200 shares vs. property: Which has performed better since the COVID crash?

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has 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.

S&P/ASX 200 Index (ASX: XJO) coal stocks are in the red today.

New Hope Corp Ltd (ASX: NHC) shares closed yesterday trading for $5.01. During the Friday lunch shares are swapping hands for $4.94 apiece, down 1.5%.

It’s a similar picture with Whitehaven Coal Ltd (ASX: WHC). The Whitehaven share price closed yesterday at $7.80 and is down 1.9% at the time of writing to $7.66 a share.

The ASX 200 is also under pressure today, down 1.0% on the back of strong US economic data that could push Federal Reserve interest rate cuts out to 2025.

But ASX coal shares are facing an additional headwind.

ASX 200 coal stocks eyeing perpetual tax hike

Queensland’s super tax on coal profits came into effect in July 2022. The tax regime mandates that ASX 200 coal stocks (and smaller coal miners, for that matter) pay an additional tax on all the coal they sell for more than AU$175 a tonne.

With coal prices soaring over that period, this has already delivered billions of dollars to the state’s coffers.

But it’s drawn the ire of international companies, investors, Aussie coal miners, and even nations like Japan that likened the tax to an unexpected sovereign risk.

Despite a big retrace in coal prices from the 2022 all-time highs of more than US$437 (AU$662) per tonne, Whitehaven achieved an average coal price of AU$219 for the March quarter.

And ASX 200 coal stock New Hope achieved an average realised sales price of AU$180 per tonne, in line with the prior quarter.

Now, the Queensland Labor government is getting set to enshrine the super coal tax into law ahead of the state elections.

Yesterday, Deputy Premier Cameron Dick introduced a bill that will require legislative amendments to change or axe the coal tax.

According to Dick (quoted by The Canberra Times):

There would be no quiet Friday afternoon regulatory changes under any future Queensland government. Any reduction to the coal royalties will be subject to the scrutiny of the people of Queensland through their parliament, as it should be.

As you’d expect, this comes as unwelcome news to ASX 200 coal stocks and industry groups who warn it could impact future investment.

Queensland Resources Council CEO Janette Hewson warned:

The legislation announced by the Government sends a very negative message to the international investment community. Once again, we have seen the Queensland Government make a significant change affecting the resources sector without any notification to, or consultation with, the industry.

But Dick insists that investor confidence in Queensland coal is at historic highs, citing BHP Group Ltd (ASX: BHP)’s takeover ambitions of Anglo American (LSE: AAL), which atop its copper assets owns a number of coal mines in Queensland.

According to Dick:

That confidence has seen BHP reverse a two-decade policy to now seek new growth in Queensland through the prized mines of Anglo American that they want to purchase.

We’re seeing significant investment and that’s resulting in record jobs… the highest number of jobs ever in the Queensland coal industry, about 44,000 as of December last year.

Royalties from ASX 200 coal stocks and other coal miners in Queensland are forecast to deliver a whopping $9.4 billion to the state over five years.

The post ASX 200 coal stocks sink amid ‘very negative message’ from Queensland government appeared first on The Motley Fool Australia.

More reading

• Global companies just paid a record $512 billion in Q1 dividends. Here’s how ASX 200 shares stacked up
• Should you buy BHP shares after recent weakness?
• Why BHP, Nufarm, Peninsula Energy, and Regis Resource shares are sinking today
• Deal or no deal? Why the BHP share price is crumbling today
• Guess which ASX 200 mining giant could crash 30%

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has 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.

Investing in Yancoal Australia Ltd (ASX: YAL) shares could be an appealing option for Australian investors looking for returns and passive income.

At the market close on Thursday, Yancoal shares were trading at $6.18 apiece, with a trailing dividend yield of 11.3%. This follows a strong three-year period of dividend payouts from the ASX coal miner.

But what kind of income could you expect by May 2025 if you invested $5,000 in Yancoal shares now? Let’s break it down.

How much passive income could you generate from Yancoal shares?

If you invest $5,000 in Yancoal stock at the current price of $6.18, you would own approximately 809 shares.

With Yancoal’s trailing dividend yield of 11.3%, these shares could generate a notable amount of passive income.

Over the next 12 months, you could expect around $565 in annual dividends from a $5,000 investment at that yield — assuming the dividend and share price remained steady, of course (and excluding any franking credits). If the dividend drops, however, so too will the payment.

So how can we be sure it will remain steady?

Yancoal’s financial performance

Firstly, we can never be 100% sure of the future. But three standouts from Yancoal’s first quarter results indicate to me the company is primed to continue its mouth-watering dividends going forward.

One, it has maintained a solid cash balance of $1.66 billion – a $266 million quarterly increase – despite realising lower average coal prices over the last three consecutive years.

Yancoal reported 11.3 million tonnes of saleable coal production and 14.0 million tonnes run of mine (ROM) coal production with in the first quarter of CY 2024, at an average realised coal price of $180 per tonne. This is down from the $232/tonne reported in its 2023 annual results, and $378/tonne in 2022.

Two, Yancoal’s board approved a 32.5 cents per share dividend in February this year after finishing 2023 in such a strong cash position. As I’ve mentioned previously, this latest dividend isn’t out of sync with recent payments either.

Three, Yancoal has a history of strong dividend payments even in times of weak coal pricing. In 2019, when coal prices fell as low as US$71/tonne, the company still paid annual dividends of 39 cents per share. For context, coal currently trades at US$144.90 per tonne as I write.

So, despite fluctuations in coal prices, Yancoal’s quarterly update last month added confidence for its dividend into 2025, in my view.

Why invest in Yancoal shares?

Yancoal shares offer exposure to both thermal and metallurgical coal markets. There is a strong demand for these commodities out of China and India, according to Trading Economics.

Even as coal prices have experienced ups and downs, Yancoal has maintained a consistent dividend payout, which is attractive for those seeking dependable passive income.

In my opinion, the company’s stable financial position and reliable cash flow also make it an appealing choice for income-focused investors.

Foolish takeaway

A $5,000 investment in Yancoal shares today could yield noteworthy returns by the end of 2025, provided the company maintains its current dividend stream.

This would change if Yancoal were to reduce its quarterly payouts. But, the company’s strong cash balance and recent financial results add a layer of confidence to my outlook on this.

But always remember one critical thing: past performance never guarantees future results.

The post If I invest $5,000 in Yancoal shares today, how much income will I receive in 2025? appeared first on The Motley Fool Australia.

More reading

• How a $9k investment in this ASX All Ords stock ballooned to $35,234 in just 3 years!
• Here’s how the ASX 200 market sectors stacked up last week
• Up 9% in a month, this ASX 300 stock is my top pick for May
• ASX coal shares higher despite major superannuation fund walking away
• My top ASX dividend pick for 2024 is a passive income powerhouse

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

The All Ordinaries Index (ASX: XAO) is down 1.0% on Friday morning, but that’s not holding back ASX AI stock Appen Ltd (ASX: APX).

Appen shares closed yesterday trading for 59 cents and soared 10.2% to 65 cents apiece in earlier trade.

After some likely profit-taking, shares in the ASX AI stock are swapping hands for 63.5 cents apiece at the time of writing, up 7.6%.

Here’s what’s happening.

ASX AI stock lifts on stabilising revenue

Investors are bidding up the Appen share price on the back of today’s annual general meeting (AGM).

Ryan Kolln, who took over as Appen CEO in February, addressed shareholders along with Richard Freudenstein, chairman of the ASX AI stock.

Kolln didn’t hold back any punches when it came to Appen’s FY 2023 performance. As you can see on the above chart, the Appen share price crashed 71% in 2023 and has only recently begun to stabilise.

In FY 2023 Appen’s revenue fell 30% year on year to $273.0 million, which Kolln admitted was “a disappointing result”.

“Excluding the impact of foreign exchange, we recorded an [underlying earnings before interest, taxes, depreciation and amortisation] EBITDA loss of negative $20.4 million dollars, compared to $13.6 million dollars in FY22,” he said.

In response to the falling revenue, the company cut its costs by $60 million in 2023. But the first full year benefit of those cost reductions was only realised in FY 2024. In December, this saw the company exit 2023 cash EBITDA positive.

As for 2024, Kolln noted the decline in revenue this year was driven by the termination of the Google [Alphabet Inc Class A (NASDAQ: GOOGL)] contract, which ended on 19 March.

In FY 2023, Appen’s revenue from Google was approximately $83 million, or 30% of the total revenue the ASX AI stock earned over the year. This saw Appen slash its cost base by another $13.5 billion.

Likely spurring investor interest today, Kolln said:

Revenue excluding Google shows a continuation of the stabilisation that we saw in the second half of 2023. We are pleased to see revenue levels in March and April that are well above the non-Google revenue in Q3 2023.

Riding the generative AI wave

Kolln went on to note how generative AI, driven by tech giants like Nvidia Corporation (NASDAQ: NVDA), is fuelling the next wave of AI growth.

He noted that Bloomberg and IDC forecast the generative AI market to reach US$1.3 trillion by 2032, growing at a 42% compound annual growth rate (CAGR).

“We are very bullish on the impact of generative AI, and our strategy is strongly focused on capturing value from the market,” Kolln said. “The impact of generative AI has a significant impact on Appen’s total addressable market (TAM).”

Indeed, the ASX AI stock forecasts that new generative AI opportunities will increase its TAM by $4 billion to $8 billion by 2030.

Looking to the year ahead, Kolln concluded:

Our cash balance at 30 April 2024 was $36.4 million, and we are confident in our cash position. We remain highly focused on ongoing cash positivity, and our target is to reach cash EBITDA positive on a run-rate basis in the early second half of FY24.

The post This little ASX AI stock is soaring 10% today. Here’s why appeared first on The Motley Fool Australia.

More reading

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• Is the Telstra share price too cheap?
• Should you buy Coles shares for that hefty 6% dividend yield?
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• ASX 200 bank shares: How dividends offset poor capital growth over 10 years

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Appen, and Nvidia. The Motley Fool Australia has recommended Alphabet and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Telstra Group Ltd (ASX: TLS) share price has dropped 20% over the past 12 months and 13% since the start of the year, as shown in the chart below.

When a large ASX blue-chip share falls, it can be worth a closer look to determine whether it’s now better value to buy.

This week’s 6% dip was likely triggered by a recent Telstra update on mobile prices and cost-cutting at its enterprise business.

Wilson Asset Management (WAM) senior investment analyst Anna Milne recently spoke about her views on the ASX telco share, which she’s bullish on for several reasons.

But first, a recap on Telstra’s recent news

On Tuesday, the telco stock announced it was working on measures to reset the enterprise business and improve productivity, including the bombshell news it may cut up to 2,800 jobs from that division.

Telstra also advised it would wind up its postpaid mobile plans to remove the CPI inflation-linked annual price review. This would provide “greater flexibility to adjust prices at different times and across different plans”. However, some investors fear it may mean price increases will stop.

Even so, Telstra revealed its mobile business “continued to perform strongly, with growth in subscriber numbers for the first four months” of the FY24 second half.

The company also revealed guidance that FY25 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) would be between $8.4 billion to $8.7 billion.

Long-term data demand

On the same day, WAM analyst Milne identified Telstra’s connectivity as a major positive, saying it would ensure the company would benefit from the growth in artificial intelligence (AI).

She noted there was “no point in having the data and having the artificial intelligence if you don’t have the infrastructure to connect data centres” with households and businesses.

To this end, Telstra is developing an intercity fibre project to “deliver next-generation digital infrastructure for the country as demand for connectivity continued to soar.”

Telstra CEO Vicki Brady explained these fibre cables would build resiliency and “support data centres that facilitate cloud and AI”, as well as many other sectors. It’s working on a number of routes, including connecting into Darwin from Adelaide. This route unlocks pathways to sub-sea cable infrastructure and provides new options for data centre locations, including to service Asia.

The intercity fibre and ‘Viasat’ projects are on track to deliver an internal rate of return (IRR) in the “mid-teens or better” and around $200 million in additional annuity income once all routes become ready for service and contributing.  

Lower Telstra share price

The WAM analyst is also attracted to Telstra’s lower share price, which now has dropped even more.

Milne noted that the company’s enterprise division in the FY24 first-half update had not impressed the market, suggesting this was an opportunity for Telstra to look at that business and “cut costs”, which the telco is now doing.

She had this to say about the Telstra share price:

… 70% of their earnings come from the mobile division and the mobile division is in the best place it’s been in years. Prices are increasing, subscribers are increasing and the industry is rational. We see the current share price as an opportunity to enter one of the best businesses in Australia at a discount.

Time will tell if the market is too pessimistic about Telstra’s prospects.

The post Is the Telstra share price too cheap? appeared first on The Motley Fool Australia.

More reading

• 2 of the best passive-income-focused ASX shares to consider buying in June
• Why these 4 ASX 200 shares just got downgraded by top brokers
• Dividend deals: 2 top ASX shares that still look undervalued
• Top brokers name 3 ASX shares to buy today
• What are brokers saying about the Telstra share price after this week’s update?

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 positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Aussie investors are lucky in that we have a lot of quality S&P/ASX 200 Index (ASX: XJO) shares to tap for passive income.

Unlike many international markets, many ASX 200 shares also pay out fully franked dividends. That means most investors should be able to hold onto more of that welcome cash when it comes time to pay the ATO their dues.

And there’s a lot of passive income on the table.

How much?

According to the latest Global Dividend Index from Janus Henderson, global companies paid a whopping US$339.2 billion (AU$512 billion) in the first quarter of 2024 (Q1 2024).

That’s up 2.4% from Q1 2023 on a headline basis, driven by underlying growth of 6.8%.

In a promising sign, the report also notes that 93% of companies across the world that paid a dividend in the first quarter either maintained or increased their payouts.

Bank stocks were the star players (and payers). With elevated interest rates across most of the developed world, the dividends paid by banks leapt 12.0% year on year in Q1,

So, how did ASX 200 shares stack up?

Q1 dividend growth for ASX 200 shares

Janus Henderson reported that Australian companies continued to dominate Asia Pacific dividend payments, making up 75% of the total. And I should note here that it’s not just ASX 200 shares that pay dividends. A number of smaller ASX stocks also contribute to the passive income pile.

The dividends paid by Aussie companies increased by 2.0% in Q1, trailing the 2.4% global growth figure.

That lag is largely due to a 20% interim dividend cut by the biggest ASX 200 share, BHP Group Ltd (ASX: BHP).

Janus Henderson noted that excluding BHP, ASX dividends would have enjoyed double-digit growth.

As with the global banks, the second biggest ASX 200 share, Commonwealth Bank of Australia (ASX: CBA), was a star dividend performer. CBA reached ninth place in the world for its dividend payouts in the first quarter. CBA was the only big four bank to make the top 20 global dividend payer list.

Commenting on the dividend growth, Matt Gaden, head of Australia at Janus Henderson Investors said, “The resilience of the Australian share market was evident over the quarter as it recorded healthy dividend growth despite the pressures on commodity prices and the mining sector.”

Gaden added:

The big four banks remain dividend darlings, showcasing the important role that they play for Australian investors.

Overall, global economies continue to face inflationary headwinds and the cost of capital is tipped to stay higher for longer.

But with a wave of government money coming into renewable energies and new opportunities are unlocked by AI technology, dividend investors are urged to remain aware of how these forces will impact global dividends over the medium to long term.

Now what?

As to what kind of passive income investors can expect from global and ASX 200 shares, Janus Henderson continues to forecast underlying growth of 5.0% for 2024.

That will see global companies shell out an eye-watering US$1.72 trillion (AU$2.6 trillion) in dividends over the year.

The report noted that lower special dividends mean the headline increase is set to be 3.9% year-on-year, equivalent to a rise of 5.0% on an underlying basis.

The post Global companies just paid a record $512 billion in Q1 dividends. Here’s how ASX 200 shares stacked up appeared first on The Motley Fool Australia.

More reading

• ASX 200 bank shares: How dividends offset poor capital growth over 10 years
• Should you buy BHP shares after recent weakness?
• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today
• Beaten-up ASX 200 stock surges 12% on buyout rumour

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has 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.

Coles Group Ltd (ASX: COL) shares have provided investors with a growing stream of dividends over the last few years. The Coles share price has fallen 10% in the past year, as seen on the chart below, making the dividend yield more compelling.

When a share price drops, it boosts the yield. For example, if a business with a 5% dividend yield suffers a 10% share price fall, the dividend yield becomes 5.5%. As a bonus, the lower Coles share price results in a more appealing price/earnings (P/E) ratio.

Firstly, let’s look at the passive income potential.

Is the Coles dividend yield appealing enough?

The ASX supermarket share has grown its annual payout every year since it started paying dividends in 2019. There aren’t too many S&P/ASX 200 Index (ASX: XJO) shares that have grown their payouts through the COVID-impacted year of 2020 and during the inflation-hit years of FY23 and FY24.

According to the estimate on Commsec, Coles shareholders are forecast to receive a dividend per share of 67 cents. This translates into a fully franked dividend yield of 4.1%, or around 6% grossed-up with franking credits.

As a comparison, the Vanguard Australian Shares Index ETF (ASX: VAS) has a partially franked dividend yield of 3.7%, according to Vanguard.

In my opinion, Coles shares offer a dividend yield that’s stronger than the market.

But, there’s more to shares than just the passive income – earnings growth and capital growth are also important factors.

Earnings growth is forecast

I believe earnings growth is the crucial driver of share prices over the long term.

The most recent update from the company showed the business is going in the right direction.

In the third quarter of FY24, Coles reported supermarket sales growth of 5.1% and total sales growth of 3.4%. Revenue is usually a key input for profit growth, so it’s pleasing to see the supermarket segment’s revenue still growing at a solid pace despite the reduction in inflation. Coles reported third-quarter inflation of 2.2%, compared to 6.2% inflation in the third quarter of FY23.

While Coles is facing higher costs, particularly wages, it’s still forecast by analysts to generate earnings growth in the next few years.

According to Commsec, Coles’ continuing operations earnings per share (EPS) are forecast to grow 3.7% in FY24 to 81 cents. FY25 EPS is predicted to rise another 4.4% to 84.6 cents, and FY26 EPS is forecast to grow 12.8% to 95.4 cents.

These numbers put the Coles share price at 20x FY24’s estimated earnings and 17x FY26’s estimated earnings. Profit is predicted to go in the right direction.

I think there are a number of positives for Coles’ earnings in the medium term, so I’ll mention two. The Australian population keeps growing, which means more potential customers. The new Coles distribution warehouses are getting closer to completion, which will help margins and efficiencies once operational.

Coles shares are a buy, in my opinion, for both the pleasing dividend and the prospect of growing profit in the years ahead.

The post Should you buy Coles shares for that hefty 6% dividend yield? appeared first on The Motley Fool Australia.

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

There were two changes to superannuation in the recent Federal Budget that are worth noting, says Kym O’Brien, a partner at financial advisory firm Findex.

Ms O’Brien commented:

The changes announced generally relate to making superannuation savings more equitable and boosting retirement savings.

Firstly, eligible parents will soon receive a 12% contribution of their government-funded paid parental leave towards their superannuation.

Secondly, starting July 2026, employers will be obligated to pay superannuation alongside salaries and wages, intending to enhance retirement savings and address issues like unpaid superannuation.

Let’s take a closer look at the details.

Superannuation for workers on paid parental leave

Eligible workers will receive Superannuation Guarantee contributions while on government-funded paid parental leave to look after their babies.

Parents of babies born or adopted on or after 1 July 2025 will receive the super payments.

From 1 July this year, the Superannuation Guarantee paid by employers to eligible workers will increase from 11% to 11.5%.

On 1 July 2025, it will increase again to 12%. This is what parents on paid government-funded leave will receive.

Ms O’Brien said this was designed to reduce the impact of career breaks to care for children on retirement savings.

She said:

The ATO will make payments directly to superannuation accounts on an annual basis from 1 July 2026. Contributions will count towards the concessional contributions cap and be taxed within the superannuation fund at the super tax rate of 15%.

This increase in superannuation contributions for eligible parents can bolster their retirement savings while still caring for their young children, potentially reducing financial strain during their retirement years.

Workers to receive super payments with salary and wages

Ms O’Brien said 4 million Australians currently receive their Superannuation Guarantee payments from their employers on a quarterly basis, rather than at the same time as their salary or wages.

Ms O’Brien said the recent Federal Budget includes a plan to change this from 1 July 2026.

She explained:

In an effort to boost retirement savings and improve workplace productivity, from 1 July 2026, employers will be required to pay their employees’ superannuation at the same time as their salary and wages.

This is designed to address an estimated $5 billion a year in unpaid superannuation by making it easier for workers to keep track of payments, reduce the risk of businesses building up large superannuation balances and for the Australian Taxation Office to monitor compliance.

A couple more things to note…

From 1 July this year, the superannuation concessional contributions cap will increase from $27,500 to $30,000 per annum.

The concessional contributions cap is the maximum amount of money you can have paid into your superannuation each year.

It combines your employer’s compulsory Superannuation Guarantee payments, any salary sacrifice amounts you have organised with your employer, and any extra personal contributions that you make.

Concessional contributions are taxed at 15% instead of your marginal tax rate.

So, if you deposit $5,000 of after-tax dollars into your superannuation as a personal contribution, you can claim a $5,000 tax deduction on your tax return for that financial year.

With the end of FY24 approaching, Vanguard Australia provides five easy ways to get more money into your super by 30 June.

By the way, here is how much superannuation you need to retire comfortably in 2024.

The post Here are 2 changes to superannuation in the Federal Budget appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has 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.