Category: Stock Market

Before we start… would you like to attend a free one-hour online money and-investing Q&A with yours truly?

This week, we’ve been running a series of seminars under the banner of ‘Financial Literacy Week’, covering important financial topics like budgeting, eliminating debts, saving and investing.

Today is the last day. But no prior knowledge is necessary.

It’s going to just be a 60 minute Q&A session.

We’ve been collecting questions all week, and you can ask them live, during the webinar.

It’s running for an hour from 12.30pm AEDT, today. (Also, I’ve been told we have a very special offer. So yes, at the end I will be selling something, but it’s… cheap. By which I mean… cheap.

But you don’t have to buy anything to attend, and I won’t be doing a hard sell.

So, if you’d like to know more about it, reserve a spot, and sign up for a handy reminder email, just click here! See you at 12.30pm AEDT!

—–

So, Treasurer, can I fix the Superannuation and pension mess for you?

Yes, that’s a bold idea. Especially from someone who isn’t in the public service or politics.

But maybe that’s the point.

I’m not encumbered by electoral considerations, political ideology or ‘not invented here’ syndrome.

Nor do I have the weight of vested interests: donors, impacted businesses, or anything else.

So, while I don’t claim to have perfect insight, I have the benefit of physical and metaphorical distance.

First, though, let’s look at the mess: there are contribution limits, and catch-up limits. There’s preservation ages, transition to retirement, accumulation accounts and pension accounts. There’s indexing, minimum contributions… seriously, the thing is a dog’s breakfast. Then there’s the new two-tier tax approach introduced by the government, based on the size of the Super balance.

And then there are the disincentives. How much can you earn before losing the pension? How much can you leave in Super, to benefit your heirs? How can you use Super to save paying tax?

Why is this such a mess? Votes, mostly. Some ideology. And so many vested interests, there’s almost no-one to speak up against it.

But what if we weren’t subject to any of this? How could we change, and dramatically simplify, our ridiculously complex retirement system?

Because Super was a spectacularly good idea that’s been, well, bastardised by successive governments ever since. So fixing it should be a priority.

And it’s stupidly simple. Here’s how:

First, increase the tax-free threshold for over-67s by around $20,000.

Second, make all income (earned income, unearned income, the aged pension, and Superannuation incomes) taxable above that threshold, at marginal tax rates.

Third, mandate a larger minimum withdrawal (as a % of the current balance) from Super, so it can’t be used as an estate-planning tool.

Fourth? There isn’t one.

That’s literally it.

I would scrap the ridiculous tax dodge of ‘transition to retirement’ pension. And you could roll back the 30% tax rate on higher Superannuation balances, because my system would capture its taxation as income.

And the benefits? There are many:

– You wouldn’t need an accountant to work this stuff out.

– The government doesn’t lose a truckload of tax revenue when people use Super for estate planning or to earn an untaxed six-figure income.

– It ameliorates the cost of franking credit refunds to higher income earners, because their Super income would be taxed.

– It wouldn’t disincentivise working in retirement.

(It also opens up the option of giving everyone over 67 the aged pension, should we choose, as an alternative to raising the tax-free threshold, which would save a small fortune on administration and the frictional costs of people moving in and out of work.)

Why wouldn’t we do it? There’s no good reason.

Oh, people who are trying to use it as a tax shield would scream blue murder. And the accountants and financial planners might lose some business.

But that’s okay.

(I don’t dislike those people, by the way. They do a good job. It just shouldn’t be necessary to engage a financial planner to organise what otherwise should be a plain-vanilla retirement.)

It won’t happen, of course. For the reasons I outlined at the top. But it should. And a Treasurer (of either/any political stripe) would do it, if he or she started from first principles, with the national interest as the foremost objective.

(By the way, according to some numbers from the Super Members Council out this morning, the cost of raiding Super during COVID could be as high as $85 billion. I called it #RetirementWrecker at the time. And since. And I’m still calling it that, now. It might just have been the worst financial policy decision of my adult lifetime.)

It’s time to return Super to its original purpose, to remove the complexity and to stop it being used as a tax dodge.

Over to you, Treasurer.

Fool on!

The post A simple fix for Superannuation appeared first on The Motley Fool Australia.

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More reading

• These were the best performing ASX 200 shares in February
• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today
• 5 things to watch on the ASX 200 on Thursday
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Scott Phillips 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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A new month is here, so what better time to make some new additions to your portfolio.

But which ASX stocks could be top options in March? Well, one that has been named as a buy on Friday is tech stock Xero Ltd (ASX: XRO).

In fact, the broker has named the company as its “preferred ANZ Technology pick” this morning.

What is Goldman Sachs saying about this ASX tech stock?

Goldman was pleased with Xero’s inaugural investor day event and came away feeling even more positive on the company.

It has highlighted three key takeaways from the event:

(1) Xero is increasingly positive on its financial outlook, upgrading its use of the Rule of 40 from a ‘useful measure’ to having a formal aspiration to deliver rule of 40 or greater, alongside aspiring to double revenues; (2) The cadence of product releases (both announced and planned) has dramatically accelerated within the 3X3 over the last year (highlights include increase US bank feeds from ~20 to 600 in 12m, alongside launching US bill pay partnership and Just Ask Xero, the GenAI product announced today) – this supports further subscriber and ARPU growth for XRO; and (3) The strength and calibre of Xero’s global management team, which has undergone a significant change over the past year.

Buy rating reiterated

In response to the event, the broker has reiterated its buy rating with an improved price target of $152.00 (from $141.00).

Based on the latest Xero share price of $127.31, this implies potential upside of greater than 19% for the ASX tech stock over the next 12 months. Goldman concludes:

We see Xero as very well-placed to take advantage of the digitisation of SMBs globally, driven by compelling efficiency benefits and regulatory tailwinds, with >100mn SMBs worldwide representing a >NZ$100bn TAM. Given the company’s pivot to profitable growth and corresponding faster earnings ramp, we see an attractive entry point into a global growth story with Xero our preferred large-cap technology name in ANZ – we are Buy rated.

The post Guess which ASX tech stock is Goldman Sachs’ top pick in March appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• Xero share price falls despite strategy update and new AI solution
• 5 things to watch on the ASX 200 on Thursday
• 3 no-brainer ASX shares to buy under $30
• Leading brokers name 3 ASX shares to buy today

Motley Fool contributor James Mickleboro has positions in Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Xero. The Motley Fool Australia has positions in and has recommended Xero. 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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Are you wanting some exposure to the energy sector? If you are, then it could be worth checking out the two ASX energy shares listed below.

They have just been named as buys by analysts at Bell Potter. Here’s what the broker is saying:

Boss Energy Ltd (ASX: BOE)

The broker thinks that this uranium producer is a top option for investors looking for energy exposure.

It has speculative buy rating and $6.34 price target on its shares. This implies potential upside of 26% over the next 12 months.

It is bullish on the company due to the favourable outlook for uranium and its diversified revenue streams. The broker explains:

Uranium fundamentals continue to support our thesis being 1) advancement in Nuclear energy across the globe (60 reactors currently under construction) filtering through to a growing demand for U3O8 and 2) a lack of near-term supply as producers exited the market post Fukushima. The recent acquisition of a 30% interest in the Alta Mesa joint venture, diversifies BOE’s operations and revenue streams, making BOE one of only two geographically diversified uranium producers in CY24.

Strike Energy Ltd (ASX: STX)

Another ASX energy share that Bell Potter is bullish on is Strike Energy. It is an oil and gas producer, explorer, and developer.

Its analysts have a speculative buy rating and 32 cents price target on the company’s shares. This suggests potential upside of almost 50% for investors from current levels.

Bell Potter is feeling positive about the company due to its strong balance sheet and growth outlook. And while recent drilling at the West Erregulla project has been disappointing, this is now baked into its valuation. It said:

With Walyering coming online in 2023, STX is now a producer with cash flows and a strong balance sheet to support further growth at Walyering, appraisal of its Perth Basin acreage and ultimately develop the larger scale West Erregulla project. While recent results at South Erregulla have materially de-rated STX equity, our heavily risked valuation supports a Speculative Buy recommendation.

The post 2 ASX energy shares to supercharge your returns appeared first on The Motley Fool Australia.

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More reading

• These 2 ASX 300 shares were just upgraded by brokers
• Bell Potter just upgraded this ASX uranium stock
• Here are the top 10 ASX 200 shares today
• How ASX uranium shares like Paladin are ‘in a great position to capitalise’
• Why is the Strike Energy share price crashing 31% today?

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 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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There could be some big returns on the cards for buyers of South32 Ltd (ASX: S32) shares.

That’s the view of analysts at Goldman Sachs, which believe the ASX 200 mining stock is great value at current levels.

What is the broker saying about the ASX 200 mining stock?

Goldman has responded positively to news that the company has agreed to sell its Illawarra metallurgical coal operations.

The broker highlights that the total consideration of up to US$1.65 billion is above its US$0.97 billion asset valuation and implies a possible 6% uplift in its South32 net asset value estimate of $3.54 per share.

In light of this, the broker is feeling even more positive on the company and has reiterated its buy rating and $3.50 price target. This implies potential upside of 19% for investors over the next 12 months.

In addition, the broker is expecting a 3% dividend yield in FY 2024. This boosts the total potential return to approximately 22%.

Why is it bullish?

There are a number of reasons why Goldman is bullish on the ASX 200 mining stock. This includes its improving free cash flow and dividend yield. The latter is expected to more than double in FY 2025. It explains:

GS are bullish copper, aluminium, zinc and met coal (~65% of S32 NTM EBITDA) in CY24. Together with lower capex, working cap unwind and higher production, we forecast ~US$700mn of FCF in the June H. On our forecasts, S32 is trading on a FCF yield of 6% in FY24 and 10% in FY25 (~5% at spot).

We assume the on-market share buyback is reinstated (at ~US$250mn p.a) with the FY24 results with net debt forecast to fall well below S32’s net debt target of US$1-1.5bn through the cycle. S32 continues to pay out 40% of earnings (min div payout). On our estimates, S32 is on a dividend yield of c. 3% in FY24, but increasing to 7% in FY25.

The post Guess which ASX 200 mining stock could offer a 22% return appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• South32 share price jumps on $2.5b coal sale
• The best ASX shares to buy with $1,000 right now
• Which ASX 200 large-cap shares offer the best dividend yields in 2024?
• South32 share price lifts off as ASX 200 miner greenlights US$2.2 billion project

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

Analysts are feeling bullish about these shares and are tipping attractive yields from their shares. Here’s what you need to know:

Accent Group Ltd (ASX: AX1)

The first ASX dividend share that could be a buy is footwear retailer Accent. It owns brands such as The Athlete’s Foot, Platypus, and Stylerunner.

The team at Bell Potter is positive on the company and has a buy rating and $2.50 price target on its shares.

Its analysts highlight that they “remain constructive on AX1 given the scale & exposure in terms of channels, brands & size as the overall industry navigates a challenging retail spend environment.”

Bell Potter is expecting some attractive dividend yields in the near term. It is forecasting fully franked dividends per share of 13 cents in FY 2024 and then 14.6 cents in FY 2025. Based on the latest Accent share price of $2.02, this represents dividend yields of 6.4% and 7.2%, respectively.

Orora Ltd (ASX: ORA)

The team at Goldman Sachs believes that Orora would be a good ASX dividend share to buy.

It is a designer and manufacturer of packaging products such as fibre-based packaging, glass bottles, beverages cans, and corrugated boxes.

Goldman likes the company due to its defensive qualities. In addition, its analysts “believe the current market implied valuation of Saverglass provides a favourable risk-reward skew.”

The broker has a buy rating and $3.40 price target on its shares.

As for dividends, Goldman Sachs is expecting the company to pay dividends per share of 13 cents in FY 2024 and 14 cents in FY 2025. Based on the current Orora share price of $2.68, this will mean yields of 4.9% and 5.2%, respectively.

The post Analysts name 2 high-yield ASX dividend shares to buy appeared first on The Motley Fool Australia.

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More reading

• I’m listening to Warren Buffett and loading up on cheap ASX shares in March
• Top brokers name 3 ASX shares to buy today
• Is this the best high-yield ASX dividend stock for you?
• Invest $10,000 in these buy-rated ASX dividend shares with 5%+ yields
• Brokers say these ASX dividend shares are buys

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 Goldman Sachs Group. The Motley Fool Australia has recommended Accent Group and Orora. 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) managed to carve out a small gain in February. The benchmark index rose 0.2% over the period.

Doing some of the heavy lifting were the ASX 200 shares listed below which recorded very strong gains in February.

Here’s why they were the best performers on the benchmark index last month:

Lovisa Holdings Ltd (ASX: LOV)

The Lovisa share price was the best performer on the ASX 200 with a 40.9% gain. Investors were scrambling to buy the fashion jewellery retailer’s shares following the release of a strong half-year result. Lovisa defied consumer spending weakness and delivered an 18.2% increase in revenue to $373 million and a 12% lift in net profit after tax to $53.5 million.

Altium Ltd (ASX: ALU)

The Altium share price wasn’t far behind with an impressive 30.4% gain. This was driven by news that the electronic design software company received and accepted a takeover offer from Japan’s Renesas. If all goes to plan, Renesas will acquire Altium by way of a scheme of arrangement for a cash price of $68.50 per share. This represents a 33.6% premium to its last close price and values Altium’s equity at $9.1 billion.

WiseTech Global Ltd (ASX: WTC)

The WiseTech share price was on form and recorded a 29.4% gain during February. Investors were fighting to get hold of the logistics solutions company’s shares following the release of its half-year results. Wisetech reported a 32% increase in revenue to $500 million and 23% lift in EBITDA to $230 million. The key driver of its first-half growth was the CargoWise business, which reported a 40% increase in revenue to $421 million.

Reliance Worldwide Corporation Ltd (ASX: RWC)

The Reliance share price was a strong performer and rose 29.3% last month. This follows the release of the plumbing parts company’s half-year results. Reliance revealed a 2% decline in sales but a modest lift in net profit after tax for the half. While on paper this may not looking overly impressive, it was comfortably ahead of consensus estimates and garnered positive responses from brokers.

The post These were the best performing ASX 200 shares in February appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today
• Should you buy Lovisa shares before they go ex-dividend?
• 5 things to watch on the ASX 200 on Thursday
• Here are the top 10 ASX 200 shares today

Motley Fool contributor James Mickleboro has positions in Altium and Lovisa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Altium, Lovisa, Reliance Worldwide, and WiseTech Global. The Motley Fool Australia has positions in and has recommended WiseTech Global. The Motley Fool Australia has recommended Lovisa. 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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Investors in the Vanguard Australian Shares Index ETF (ASX: VAS) would be a happy bunch right about now, I’d wager. It was only back in late October that VAS units were going for under $83.50 each. But at the close on Thursday, those same units were priced at $95.63.

This means that investors in this popular exchange-traded fund (ETF) have enjoyed more than a 14% unit price appreciation in just four months. Investors can also add another approximately 0.76% to that return as a result of VAS’s December dividend distribution.

Index fund aficionados might notice that this stonking gain is well outside the norms of what VAS investors usually achieve. After all, ETF provider Vanguard tells us that VAS units have averaged a return of 9.03% per annum (with dividends reinvested) since its ASX inception in 2009. That’s as of 31 January.

That’s the average return for 12 months, not four. So we’ve witnessed a very lucrative window for this index fund indeed.

So what can explain this super-sized return that the Vanguard Australian Shares ETF has enjoyed since October last year?

How have VAS units returned 14% in four months on the ASX?

Well, to answer that, let’s do a refresher on how an index fund like this works. Index funds work by closely tracking an underlying index and replicating its holdings and allocations. Hence the name.

In VAS’s case, the index employed is the S&P/ASX 300 Index (ASX: XKO).

The ASX 300 holds the largest 300 shares on the Australian share market, weighted by market capitalisation. That’s everything from Commonwealth Bank of Australia (ASX: CBA), Woolworths Group Ltd (ASX: WOW) and Telstra Group Ltd (ASX: TLS) to JB Hi-Fi Ltd (ASX: JBH), Ampol Ltd (ASX: ALD) and Harvey Norman Holdings Limited (SX: HVN).

Because it is weighted by market capitalisation, the larger shares (such as CBA) have more weighting and influence in the index, and thus the ETF, than the smaller ones (like Ampol).

Given that the Vanguard Australian Shares ETF merely tracks the ASX 300 Index, it won’t be too surprising to learn that the ASX 300 Index has also returned around 14% since October last year. So it would have been very strange if VAS units didn’t return something similar.

These returns can be further explained by a look at how the most influential shares in the ASX 300 Index, and the VAS ETF, have performed over this period.

Take the CBA share price. It’s up more than 20% since the end of October. The other big four bank shares have all returned a similar result. Whilst the CSL Ltd (ASX: CSL) share price is up almost 24%.

So given how some of the largest shares in the ASX 300 have performed in recent months, it’s easy to see why the Vanguard Australian Shares ETF has followed suit.

The post 14% in 4 months: How has the Vanguard Australian Shares ETF (VAS) managed it? appeared first on The Motley Fool Australia.

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More reading

• How much would I need to invest in ASX shares for a retirement income of $80,000 per year?
• A once-in-a-decade chance to get rich from ASX 200 shares?
• Is the Vanguard Australian Shares Index ETF (VAS) a good buy for beginners?
• Retirees: Here’s how to boost your pension in 2024
• Thinking about buying the Vanguard Australian Shares ETF (VAS)? Here’s what you’re really buying

Motley Fool contributor Sebastian Bowen has positions in CSL, Telstra Group, and Vanguard Australian Shares Index ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has positions in and has recommended Harvey Norman and Telstra Group. The Motley Fool Australia has recommended CSL and Jb Hi-Fi. 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 Thursday, the S&P/ASX 200 Index (ASX: XJO) recovered from a shaky started to record a decent gain. The benchmark index rose 0.5% to 7,698.7 points.

Will the market be able to build on this on Friday and end the week on a high note? Here are five things to watch:

ASX 200 expected to edge higher

The Australian share market looks set to end the week in a positive fashion following a decent night on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open 8 points or 0.1% higher this morning. In late trade on Wall Street, the Dow Jones is down slightly, the S&P 500 is up 0.3%, and the NASDAQ is up 0.5%.

Oil prices soften

ASX 200 energy shares Beach Energy Ltd (ASX: BPT) and Karoon Energy Ltd (ASX: KAR) could have a subdued finish to the week after oil prices edged lower overnight. According to Bloomberg, the WTI crude oil price is down 0.3% to US$78.25 a barrel and the Brent crude oil price is down slightly to US$83.66 a barrel. Higher than expected US inventories has put pressure on prices.

Life360 results

The Life360 Inc (ASX: 360) share price will be on watch on Friday when the location technology company releases its FY 2023 results. Goldman Sachs is forecasting subscription revenue of US$221.7 million for the year, which represents annual growth of 51%. EBITDA is expected to come in at US$15.9 million, which is the top end of Life360’s guidance range of US$12 million to US$16 million.

Gold price rises

ASX 200 gold shares including Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a good session after the gold price pushed higher overnight. According to CNBC, the spot gold price is up 0.5% to US$2,054.6 an ounce. Gold hit a one-month high after US inflation data came in line with expectations.

Xero remains a buy

Xero Ltd (ASX: XRO) shares are a top buy according to Goldman Sachs. In response to its investor day event, the broker has reiterated its buy rating on the cloud accounting platform provider’s shares with an improved price target of $152.00. This implies almost 20% upside for investors over the next 12 months.

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

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More reading

• Here are the top 10 ASX 200 shares today
• 2 ASX energy shares going gangbusters on today’s earnings results
• Xero share price falls despite strategy update and new AI solution
• 5 things to watch on the ASX 200 on Thursday
• Here are the top 10 ASX 200 shares today

Motley Fool contributor James Mickleboro has positions in Life360 and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group, Life360, and Xero. The Motley Fool Australia has positions in and has recommended Xero. 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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Since listing on the ASX in its own right back in late 2018, Coles Group Ltd (ASX: COL) has carved out a name for itself as a generous dividend payer. The supermarket giant has increased its annual dividend most years since 2019 without delivering a single dividend cut.

That’s unlike the shares of its arch-rival Woolworths Group Ltd (ASX: WOW).

Earlier this month, Coles revealed its latest half-year earnings report, which detailed the company’s next dividend payment.

Coles began by announcing a 3.7% rise in revenues to $22.22 billion over the period. As well as a 4.2% bump in underlying earnings. The company also revealed that its next interim dividend would be worth 36 cents per share, fully franked.

That dividend is flat on what the company paid out for the same period last year. Paired with Coles’ final (and fully franked) dividend of 30 cents per share from September, it keeps the company’s annual dividend steady at 66 cents per share.

This gives the Coles share price both a forward and trailing dividend yield of 3.91%. That’s based on the company’s closing share price of $16.90 yesterday.

How to secure the next Coles dividend

But if you wish to receive this next dividend from Coles, and you don’t already own this company’s stock, time is running out.

Coles is scheduled to trade ex-dividend for this upcoming payment on Tuesday, 5 March. That’s next week, and means the last day you can buy Coles shares with the rights to this payment attached is on Monday, 4 March.

If you buy Coles shares on Tuesday onwards, you’ll miss out. So expect to see a bit of a drop in the Coles share price when the markets open on Tuesday morning, reflecting this inherent loss of value.

For eligible shareholders, Coles will then finally fork out the cash on 27 March. Unless of course, you opt for the dividend reinvestment plan (DRP). If you do so by 7 March, you have the option of receiving additional Coles shares in lieu of the cash payment.

The post Want to cash the latest Coles dividend? Here’s what you need to do appeared first on The Motley Fool Australia.

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More reading

• 1.6m Australians facing ‘mortgage stress’, Coles’ margins fall: Scott Phillips on Nine’s Late News
• Top brokers name 3 ASX shares to buy today
• Why the Coles share price could keep rising after the result
• 5 things to watch on the ASX 200 on Wednesday
• Here are the top 10 ASX 200 shares today

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 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.

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With $7,000 of money to spare, I’d avoid going on a shopping spree and instead invest in ASX dividend shares to build an extra income.

Once I have the right ASX portfolio holdings in place, I can use the passive income this delivers to buy the extra goodies I’ve had an eye on.

Here’s how I’d aim to turn a spare $7,000 into an annual $1,000 extra income.

A diversified ASX investment for $1,000 in annual extra income

With $7,000 to spare, I could invest $1,000 in seven different ASX dividend stocks.

If I were to take this route, I’d primarily target companies paying franked dividends, so I can hold onto more of my extra income when the ATO comes knocking.

I’d also be sure to invest in a range of quality companies trading at fair prices. And ones that are operating in different sectors and parts of the world. That kind of diversity will lower my overall investing risks.

I could achieve similar diversity by investing in a high-yielding ASX exchange-traded fund (ETF).

The BetaShares Australian Dividend Harvester Fund (ASX: HVST), for example, holds anywhere from 40 to 60 ASX dividend shares at any given time.

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

BHP, CBA and NAB shares all pay fully franked dividends. And they have lengthy track records of making two annual payments, helping secure that extra income.

But HVST’s holdings are more diversified than just the financial and materials sectors. The ETF is also invested across the healthcare, consumer discretionary, energy and industrial sectors, among others.

As for that extra income, as at 31 January HVST had a 12-month dividend yield of 6.6%, franked at 79.5%.

This equates to a gross yield, which includes those handy franking credits, of 8.9%. The one-year gross return, which includes share price moves, is 8.45%.

Judging by the blue-chip portfolio holdings and with history as my guide, I believe that’s a sustainable long-term return from this ASX dividend ETF.

Now at those returns, my spare $7,000 would see me earning an annual passive income of $592. That’s a fair bit short of my goal.

To garner that $1,000 in yearly extra income at a return of 8.45%, I’d need to own $11,905 of HVST shares.

So I’ll be a bit patient and reinvest those dividends into the ETF as they come in.

In a little over six years, I’ll have reached that level.

And, if I can hold off going on that spending spree a bit longer, my spare $7,000 will have grown to $12,621 after seven years, offering an annual extra income of $1,066.

The post $7,000 of money to spare? Here’s how I’d aim to turn that into $1,000 in annual extra income appeared first on The Motley Fool Australia.

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More reading

• Invest $833 in this ASX share each month to create passive income of $840 in 2024!
• This 6.7% ASX dividend stock pays cash every month

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.

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