Category: Stock Market

The Whitehaven Coal Ltd (ASX: WHC) share price has burned bright over the last decade. It has gained a notable 150% since February 2013.

Back then, $1,000 likely would have bought 306 shares in the coal producer at $3.26 apiece.

Today, that holding would be valued at around $2,500. The Whitehaven share price last traded at $8.17.

For comparison, the S&P/ASX 200 Index (ASX: XJO) has gained around 53% over that time.

But what would come of Whitehaven’s returns if we also factor in the company’s dividends? Let’s take a look.

All the dividends from Whitehaven shares since 2013:

Here are all the dividends the ASX 200 coal producer has provided over the last decade:

Whitehaven dividends’ pay date	Type	Dividend amount
September 2022	Final	40 cents
March 2022	Interim	8 cents
March 2020	Interim	1.5 cents
September 2019	Final	13 cents
September 2019	Special	17 cents
March 2019	Interim	15 cents
March 2019	Special	5 cents
September 2018	Final	14 cents
September 2018	Special	13 cents
March 2018	Interim	13 cents
November 2017	Final	6 cents
November 2017	Capital return	14 cents
Total:		$1.595

As the chart above shows, each Whitehaven share has yielded $1.595 of dividend income over the last 10 years. That means our figurative parcel has likely provided $488.07 of passive income.

That bolsters the total return on investment (ROI) for the imagined 306-share-strong parcel to a whopping 199.5% – nearly triple the initial investment!

However, it hasn’t been smooth sailing for income investors. The company’s dividends have been volatile over the years.

It didn’t put any on the table between 2012 and 2017 or between early 2020 and early 2022. It has also paid a number of special dividends and provided a capital return.

The company’s most recent offering was also its largest ordinary dividend in history, born from soaring coal prices.

Whitehaven shares currently offer a 5.87% dividend yield.

The post Did you buy $1,000 of Whitehaven shares 10 years ago? If so, here’s how much passive income you’ve received appeared first on The Motley Fool Australia.

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More reading

• Two ‘top prospect’ ASX 200 dividend shares for 2023 revealed: fund manager
• These ASX 200 shares were smashed in January
• Here are the 3 most heavily traded ASX 200 shares on Friday
• Why is the Whitehaven Coal share price tanking 6% today?
• Why Accent, Mineral Resources, Newcrest, and Whitehaven Coal shares are dropping

Motley Fool contributor Brooke Cooper 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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Premier Investments Limited (ASX: PMV) shares could make a great first investment with $500. It’s an S&P/ASX 200 Index (ASX: XJO) stock that offers investors a good dividend yield.

If I were looking to invest, I’d want to go for a business that could generate a good total return, through a mix of capital growth and income.

The ASX is a great place to find investment opportunities in my opinion, but the problem is that Australia doesn’t have a very large population, so businesses can sometimes reach their growth limit fairly quickly.

But, the ASX businesses that are growing internationally could be ones to look at.

I think Premier Investments’ global growth exposure makes it an attractive option to consider.

Brand power

Premier Investments owns a number of different retail brands including Just Jeans, Jay Jays, Dotti, Peter Alexander and Smiggle. Many readers may already have heard of some of these names.

The ASX 200 stock also owns significant shareholdings of Breville Group Limited (ASX: BRG) and Myer Holdings Ltd (ASX: MYR).

Increased profitability for the ASX 200 stock

The business has managed to use the COVID-19 pandemic period to increase its profitability significantly.

On one hand, the company has managed to grow its percentage of online retail sales a lot compared to the pre-COVID times. Online sales come with a higher profit margin according to the company.

The ASX 200 stock also worked hard on changing its rental agreements to better reflect the situation for bricks and mortar retailing. A lower rent-to-sales ratio improves the profit margin for the business in its physical retailing as well.

Increased profitability normally helps investor sentiment and can help the Premier Investments share price.

International growth

Premier Investments is doing an excellent job at growing Smiggle, a business that sells school items (such as bags and pencil cases) with branded imagery on them, such as Marvel and Minecraft.

This offering appears to be very popular with kids and families around the world. Premier Investments said that in FY22, Smiggle generated $261.2 million of sales globally, which was an increase of 24.6% – Smiggle saw sales rise 61.7% in Australia and New Zealand, while Europe and Asia also saw growth return as school and tourism resumed.

The company noted that it developed new products with Disney studios, BBC studios and Universal Studios, as well as its very first sporting collaboration with the AFL.

The company’s overall sales have continued to perform strongly in FY23 as it cycles against the last of the lockdowns globally.

What is the dividend yield on Premier Investments shares?

The ASX 200 stock could pay a grossed-up dividend yield of 5.4% in FY23 according to the estimate on Commsec.

In the coming years, I think the dividends could provide good returns and the growth of Smiggle could unlock further capital gains.

The post I’d invest my first $500 in this high-dividend-yield ASX 200 stock today appeared first on The Motley Fool Australia.

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More reading

• The ASX 200 is still full of cheap shares despite this year’s surge and I’m ready to buy more
• Top ASX shares to buy in February 2023
• How I’d invest $200 a month in ASX shares to make a $20,000 passive income for life
• Forget lithium! I’m using the Warren Buffett method to help find winning ASX shares in 2023
• Why this ASX 200 retail share is ‘best positioned’ for 2023: Morgan Stanley

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 positions in and has recommended Walt Disney. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2024 $145 calls on Walt Disney and short January 2024 $155 calls on Walt Disney. The Motley Fool Australia has recommended Premier Investments and Walt Disney. 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 tech sector is roaring again at last!

Investors have been flooding back into this side of the market this week, driving ASX tech shares higher.

The good news is that it’s not too late to add some tech exposure to your portfolio. Listed below are two ASX tech shares that Morgans rates very highly:

Megaport Ltd (ASX: MP1)

The first ASX tech share that Morgans is tipping as a buy is Megaport. It is the leading network as a service provider with a clear first mover advantage. Morgans believes that recent weakness in its share price means the risk/reward on offer with its shares is compelling. It commented:

MP1 is the world leader in Network as a Services (NaaS). They have first mover advantage, scale and technical expertise which means they are well placed to grow rapidly and maintain a healthy competitive advantage. We have always been long term bulls on MP1 but more recently thought expectations were too high and that this made for poor risk/reward. Consensus revenue and EBITDA growth in FY23 now looks reasonable to us. With the risk of multiple compression now hopefully behind us, fundamentals will once again matter. Quality tech can grow regardless of weak economic conditions.

Morgans has an add rating and $8.25 price target on the company’s shares.

NextDC Ltd (ASX: NXT)

Another ASX tech share that Morgans has named as a buy is NextDC. The broker believes the data centre operator is well-placed for growth thanks to the structural shift to the cloud and its new developments. It explained:

NXT should deliver another good set of results in FY23 with some upside risk to guidance, in our view. Structural demand for cloud and colocation remains incredibly strong. NXT’s new S3 and M3 data centres are now open. Consequently, we expect significant new customer wins over the next six-to-twelve months (including CSP options being exercised). Sales should drive the share price higher. NXT looks comfortably on-track to generate over $300m of EBITDA in the next three to five years.

Its analysts have an add rating and $13.30 price target on NextDC’s shares.

The post Tech boom! Buy these ASX tech shares before it’s too late: broker appeared first on The Motley Fool Australia.

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More reading

• Buy this ASX 200 tech stock that’s crashed 27% this week: expert
• Here are the top 10 ASX 200 shares today
• 3 ASX 200 tech shares going gangbusters on Thursday
• ‘Incredible value’: 3 ASX 200 shares expert would buy now for long-term growth
• Top brokers name 3 ASX shares to buy today

Motley Fool contributor James Mickleboro has positions in Nextdc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Megaport. The Motley Fool Australia has recommended Megaport. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

from The Motley Fool Australia https://www.fool.com.au/2023/02/03/tech-boom-buy-these-asx-tech-shares-before-its-too-late-broker/

National Australia Bank Ltd (ASX: NAB) shares have had a strong year, rising by 12% in the last 12 months. On top of that, the dividend income from NAB may be supercharged thanks to the higher interest rates. But is the ASX bank share a good bet in the current environment?

Bank profits are expected to rise in FY23 because banks have passed on more of the rate hikes to borrowers than to savers.

Considering lending is where most of the profit is generated by NAB, changes to the situation can have a big impact.

Large financial improvement expected in FY23

It’s partially because of the higher interest rates that NAB is expected to generate $2.50 of earnings per share (EPS) in FY23, according to Commsec. That would be an increase of around 14% from continuing operations EPS in FY22. This estimate would put the NAB share price at under 13 times FY23’s estimated earnings.

Bigger profit generation would enable NAB to fund bigger dividend payments.

Commsec numbers suggest that NAB could pay an annual dividend per share of $1.71 in FY23, translating into a grossed-up dividend yield of around 7.75%.

In terms of the dividend yield, that’s a compelling level of income that could be on the way to investors, with mid-single-digit growth in percentage terms in FY24 and FY25.

For investors who are mostly focused on income, I think NAB is a decent shout with its effective management team and growing profit.

Is the NAB share price a buy?

There’s more to an investment than just how much dividend income it produces. I don’t think there’s much point getting 7% of income if the share price falls 10% or more (and stays down).

I think banks like NAB are on track for higher levels of profitability as measured by the net interest margin (NIM). But higher interest rates also come with a risk – a higher chance of defaulting by borrowers. How much will NAB’s arrears rise? Well, that’s a key question. At this stage, I think it’s hard to say.

I think NAB will be able to get through the coming period relatively unscathed, I think the boss Ross McEwan has set up the bank in the right way with the right risk settings.

I’d choose NAB over all of the other domestic ASX bank shares because of the combination of its quality, growth, and reasonable valuation.

Time will tell whether the banking sector ignites another competition war, but I think NAB shares are well-placed to do well.

The post Should I buy NAB shares for 2023 dividend potential? appeared first on The Motley Fool Australia.

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More reading

• Investing in ASX 200 dividend shares? Here’s what to look for in 2023: fund manager
• How I’d invest $20,000 in ASX 200 dividend shares in 2023
• Buy NAB and this high yield ASX dividend share: experts
• Investing in ASX 200 bank shares? Here’s the dividend outlook for 2023
• Goldman Sachs names 2 ASX dividend shares to buy now

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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Certainly businesses need to know what they’re doing to flourish, that much is obvious.

But sometimes external factors can push a company’s fortunes into the stratosphere.

It could be that its products and services see a huge rush in demand because of an unexpected event. It might be that the economic forces align just in the sweet spot for the business.

The company happens to be in the right place at the right time.

Is this fair? 

Plenty of otherwise excellent businesses go broke because of unexpected external factors — such as a pandemic. So you have to take the good with the bad.

The Elvest Fund this week mentioned two of its holdings that currently have the opportunity to make much hay while the sun shines:

Travel is going gangbusters

Yes, interest rates have climbed recently at a frightening speed not seen in a generation. Consumers and businesses alike are tightening their belts.

But visit any airport and you realise how much Australians want to travel at the moment, regardless of how worried they are about their mortgage repayments.

Being trapped in lockdowns and closed borders for two years will do that to you.

There are also external drivers stimulating the travel industry too.

China, after persisting with a zero-COVID policy for three years, reversed its stance late last year after rarely seen mass protests flared up among its fed-up population.

While in the short term this could cause tremendous health problems for the world’s largest country, it is a major step in rejuvenating its economy back to something close to normal levels.

These are the two stocks to buy

So which are the two ASX travel shares that the Elvest team thinks are perfectly placed to ride these tailwinds?

“The release of considerable pent up demand coupled with the reopening of the Chinese economy pushed travel related businesses Corporate Travel Management Ltd (ASX: CTD) and Helloworld Travel Ltd (ASX: HLO) higher during the month,” its memo to clients read.

Indeed Corporate Travel shares are now 12.5% higher than where they started December. The Helloworld share price has climbed an impressive 21.7% over the same period.

Certainly, there are many other players that can similarly take advantage of the above tailwinds in the travel industry.

But the nature of these two businesses set them up for long-term success, read the Elvest memo.

“With leaner operating structures, healthy balance sheets and rapidly recovering demand for travel services, both businesses are well positioned to grow earnings from depressed levels in the years to come.”

The post 2 ASX shares in the right place at the right time right now: Elvest appeared first on The Motley Fool Australia.

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More reading

• These were the best performing ASX 200 shares in January
• Here are the top 10 ASX 200 shares today
• 3 of the very best ASX 200 travel shares to buy according to Goldman Sachs
• Here are the top 10 ASX 200 shares today
• Analysts say these ASX growth shares can generate huge returns for investors

Motley Fool contributor Tony Yoo has positions in Corporate Travel Management. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Helloworld Travel. The Motley Fool Australia has positions in and has recommended Helloworld Travel. The Motley Fool Australia has recommended Corporate Travel Management. 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 the mining sector booming thanks to China’s reopening, investors may be keen to gain some exposure to this side of the market.

But which ASX 200 mining shares should you buy? Listed below are a couple of miners that have been named on the best ideas list of Morgans for the month of February.

Here’s why they could be top options for investors:

Mineral Resources Ltd (ASX: MIN)

Morgans is very positive on this mining and mining services company. The broker believes the company’s exposure to iron ore and lithium leaves it well-placed to benefit from China’s reopening. In addition, its analysts like the company due to its organic growth opportunities. They commented:

MIN is a founder-led business and top tier miner and crusher that has grown consistently despite barely issuing a share over the last decade. Also helping our investment view is that MIN’s diversification leaves it far more capable of tolerating volatility in lithium markets than its peers in the sector. We see MIN’s lithium / iron ore market exposures as an ideal combination to benefit from the China re-opening increase in demand during 1H’CY23. We also see MIN as well placed to grow into its valuation, even if we see unexpected metal price volatility, given the magnitude of organic growth in the pipeline.

Morgans has an add rating and $99.40 price target on Mineral Resources’ shares.

South32 Ltd (ASX: S32)

Another ASX 200 mining share for investors to buy this month is South32 according to Morgans. It likes the diversified miner due to its portfolio transformation, which it believes has left it well-positioned for growth. It explained:

S32 has transformed its portfolio by divesting South African thermal coal and acquiring an interest in Chile copper, substantially boosting group earnings quality, as well as S32’s risk and ESG profile. Unlike its peers amongst ASX listed large-cap miners, S32 is not exposed to iron ore. Instead offering a highly diversified portfolio of base metals and metallurgical coal (with most of these metals enjoying solid price strength). We see attractive long-term value potential in S32 from de-risking of its growth portfolio, the potential for further portfolio changes, and an earnings-linked dividend policy.

Morgans has an add rating and $5.60 price target on its shares.

The post These are the best ASX 200 mining shares to buy now: Morgans appeared first on The Motley Fool Australia.

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More reading

• Here are the 3 most heavily traded ASX 200 shares on Thursday
• Should I buy ASX 200 lithium shares now or not?
• Buy these ASX passive income shares now: experts
• Fundie sells South32 to buy this other ASX 200 mining share. Here’s why
• 3 ASX lithium shares to buy right now: experts

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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Buying the dip is all good and well but when that dip is actually a 27% crash, it takes some courage for even the hardiest souls to purchase the stock.

That’s exactly the dilemma for investors looking at technology company Megaport Ltd (ASX: MP1) at the moment.

The stock was belted 24.7% on Tuesday, then took another 3.46% hit on Wednesday.

If you buy it, are you just burning your money into a loser? Or is there hope in the long run?

Morgans senior analyst Nick Harris tackled this question in a blog post this week.

Bottom line is fine, sales have slowed

The market punished Megaport on Tuesday as a result of its latest quarterly update.

But Harris thought the main figures weren’t a massive disaster.

“Headline EBITDA was above our and consensus expectations (US$ adjusted) with revenue broadly inline,” Harris said on the Morgans blog.

“Cash burn was higher than we expected due to higher cash expenses. Cash burn reduced but not as much as we had expected.”

That expenditure will improve, according to Harris. 

“FY24 guidance suggests cash burn will [halve] year-on-year and our maths suggests [a] drop by two-thirds as revenue grows from a combination of price rises and steady sales momentum.”

The sudden drop in stock price, according to Harris, was more due to “anaemic quarter-on-quarter growth” in sales of its Megaport Cloud Router and Megaport Virtual Edge products.

“MCRs & MVEs declined QoQ, which was attributed to customer proof of concepts completing and not yet being migrated from proof of concepts (tests) to, hopefully, live paying deals.”

Are Megaport shares a buy now?

So the main risk for investors considering buying the dip in Megaport shares is whether the declining sales momentum sticks around.

Harris does not think that this is the case, so would buy the tech stock.

“We think [declining sales] is short term and see value in Megaport for those with a higher risk profile.”

The big upwards share price catalyst will be “becoming free cash flow positive and accelerating sales in the medium term”.

The major financial indicators are heading in the right direction, he noted.

“From Q1 to Q2 FY23 revenue grew by 24%, gross profit grew by 41% and EBITDA grew by 114%,” said Harris.

“This is extremely impressive operating leverage. This trend should continue over the next 12 months as Megaport optimises and automates.”

The post Buy this ASX 200 tech stock that’s crashed 27% this week: expert appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• 3 ASX 200 tech shares going gangbusters on Thursday
• Top brokers name 3 ASX shares to buy today
• Are Megaport shares mega cheap following Tuesday’s crash?
• 5 things to watch on the ASX 200 on Wednesday

Motley Fool contributor Tony Yoo has positions in Megaport. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Megaport. The Motley Fool Australia has recommended Megaport. 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 benchmark ASX 200 index has plenty of income shares to choose from. But which ones offer value for money now?

Two that have been tipped as buys are listed below. Here’s what you need to know about them:

Transurban Group (ASX: TCL)

The first ASX 200 income share to buy is this leading toll road operator.

Transurban owns a world-class portfolio of toll roads in Australia and North America that cut travel times for millions of drivers each year. In addition, the company has a significant project pipeline that looks likely to underpin further solid growth in the coming years.

Another positive is the company’s inflation exposure. As Transurban’s toll road concessions are inflation linked, it stands to benefit greatly in the current environment.

It is partly for this reason that Citi is positive on the company. It currently has a buy rating and $15.70 price target on its shares.

In addition, the broker is forecasting dividends per share of 53 cents in FY 2023 and then 55.8 cents in FY 2024. Based on the current Transurban share price of $14.06, this will mean yields of 3.8% and 4%, respectively.

Westpac Banking Corp (ASX: WBC)

Another ASX 200 income share that could be a buy is Australia’s oldest bank, Westpac.

With the banking sector benefiting from rising rates, the big four banks have been tipped to deliver solid earnings and dividend growth in the near term.

Westpac could potentially even grow even quicker thanks to its bold cost cutting plans.

It is because of this that Goldman Sachs has named it as the best big bank to buy right now. Its analysts have a conviction buy rating and $27.68 price target on its shares.

As for dividends, Goldman is forecasting fully franked dividends of 148.4 cents per share in FY 2023 and 160 cents per share in FY 2024. Based on the current Westpac share price of $23.50, this will mean yields of 6.3% and 6.8%, respectively.

The post Buy Westpac and this ASX 200 income share: experts appeared first on The Motley Fool Australia.

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More reading

• Investing in ASX 200 dividend shares? Here’s what to look for in 2023: fund manager
• Top ASX dividend shares to buy in February 2023
• Westpac shares are ‘attractive for income-oriented investors’: analyst
• ASX shares investors rejoice! RBA says inflation has now peaked
• Buy these ASX passive income shares now: experts

Motley Fool contributor James Mickleboro has positions in Westpac Banking. 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 Westpac Banking. 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) flew 6.2% higher during January and three ASX 200 lithium stocks were among its best performers.

Let’s take a look at why.

Sayona Mining Ltd (ASX: SYA)

Sayona was a stand-out ASX 200 lithium stock in January. Between the close on 30 December and the close on 31 January, the share price rose by 37%. And that meteoric rise has continued, with Sayona Mining shares rising 6.7% yesterday for a collective increase of more than 40% already in 2023.

Continuing high lithium prices and optimism that prices may stay higher for longer boosted Sayona’s fortunes. The company also reported progress with the restart of its North American project.

Pilbara Minerals Ltd (ASX: PLS)

This ASX 200 lithium stock charged 27% higher in January. A strong quarterly update gave the stocks a big nudge northwards. Production, sales volumes, and unit costs were all up quarter over quarter (qoq). Plus, the company increased its cash balance by a whopping 62% qoq to $2.226 billion.

That’s handy, given Pilbara’s plans to pay a maiden dividend in FY23. The company intends to pay 20% to 30% of its free cash flow as dividends. Also in January, Pilbara Minerals announced progress with the expansion of its Pilgangoora Project in Western Australia with the awarding of a construction contract.

Liontown Resources Ltd (ASX: LTR) 

Getting an honourable mention here is Liontown, with its shares rising by 19% over January. The ASX lithium company released an update on its Kathleen Valley Lithium Project, revealing good and bad news. The bad: Construction is going to cost more than previous estimates. The good: This is partly due to expanded capacity, which will increase the initial throughput rate by 20% to 3Mtpa.

We also learned that Liontown chair Tim Goyder bought an extra $1.5 million worth of shares on-market during the month. The market wasn’t so pleased with the quarterly report on 31 January, with Liontown shares dipping 5.7%. This took the shine off an otherwise strong performance from the ASX 200 lithium stock over the month.

The post 3 ASX 200 lithium stocks that leapt beyond 20% in January appeared first on The Motley Fool Australia.

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More reading

• The ASX 200 is trading near record highs. Is now the time to invest?
• Can buying Pilbara Minerals shares today create long-term wealth?
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• Why are ASX 200 iron ore shares like Rio Tinto sliding lower today?

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.

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Ask a Fund Manager

The Motley Fool chats with fund managers so that you can get an insight into how the professionals think. In part two of this edition, we’re rejoined by Don Hamson, managing director at Plato Investment Management.

The Motley Fool: 2022 saw the mining and energy sectors deliver some of the top ASX 200 dividend yields. How do you see that playing out in 2023? 

Don Hamson: Despite the naysayers, Australian miners have continued to deliver strong dividends, hence why many have remained in our portfolio.

Broadly speaking, we think this will continue into 2023. Income from the sector will remain strong, but we may not see the record dividends and special dividends seen in recent years.

BHP Group Ltd (ASX: BHP) is a good example here.

In FY22, it posted net profits of US$22.4 billion. That was up 64% on 2021 when many thought it was the peak for the ‘Big Australian’ because it was the top of the iron ore cycle. But last year, it was coal that provided a windfall, generating about US$9.5 billion for the company. A great demonstration of diversified revenues.

BHP is now trading on a double-digit grossed-up yield, with an incredibly strong balance sheet. In its FY22 financials, it had US$300 million worth of debt – it can make that up in about a week!

MF: What other sectors look like they might offer some strong potential ASX 200 dividend plays? 

DH: Along with the resources sector, we remain positive on financials over the coming 12 months.

There will be challenges for the big banks if more Australians start struggling with rising mortgage repayments. But they came out of the COVID period in great shape, have strong balance sheets and improving profit margins due to those rising rates.

Beyond the Big 4, there are also some great opportunities for income, such as Macquarie Group Ltd (ASX: MQG) as previously mentioned.

Commonwealth Bank of Australia (ASX: CBA), Macquarie Group, National Australia Bank Ltd (ASX: NAB), and Westpac Banking Corp (ASX: WBC) are all in our top 10 holdings right now.

MF: What do you see as the biggest threat for ASX dividend investors in 2023?

DH: We think we are now in a period where there’ll be more dividend traps than investors have seen in recent years. This is a result of a very complex investing and economic environment, with central banks around the world tightening, inflation volatility, and geopolitical concerns.

Dividend traps occur when you see lofty dividend yield figures on a stock but in reality, the company’s dividends are being cut and their stock price is falling. Investors should remember the dividend yield figures you see associated with stocks are always backwards looking.

When it comes to generating income from equities, avoiding dividend traps is just as important as finding the strong and sustainable dividend payers.

Two examples of dividend traps over the past year have been Magellan Financial Group Ltd (ASX: MFG) and Alumina Ltd (ASX: AWC). Both were trading on dividend yields of over 10% at times. But investors, of course, never saw that sort of income, and may have seen a capital loss.

MF: And what’s the biggest opportunity for ASX dividend investors? 

DH: Strong balance sheets and franking credits are two great opportunities for income investors.

If you do your homework, you’ll find many Australian companies with very strong balance sheets, despite a lot of the doom and gloom and sensational headlines about the economy and recession. A strong balance sheet is an enabler of strong and sustainable dividends.

As always, franking credits will remain a major source of additional income for retirees and low-tax investors. They are the icing on the dividend cake.

For every one dollar of income received from fully franked dividends by pension-phase and other tax-exempt investors, an additional 43 cents on top of franking is received.

MF: What’s your outlook on dividends from the broader ASX 200?

DH: Plato’s modelling is projecting that at an index level in 2023, the ASX 200 will deliver a cash yield of 6% when including franking credits. On top of this, we think active and tax-effective portfolio management will deliver significant additional income.

MF: Are there any income stocks you’re likely to avoid, any of the so-called dividend traps? 

DH: Higher interest rates and mortgage repayments are likely to hit mortgage holders big time this year. This might see revenue and profits of some consumer discretionary stocks take a big hit.

Having said that, the prices of many discretionary stocks have already fallen a considerable amount. And, so far, retail sales have held up very well. So it will be interesting to see how this pans out in 2023.

MF: If the market closed tomorrow for five years, which ASX 200 dividend share would you be sure to want in your portfolio? 

DH: We think the set-and-forget approach can be a dangerous strategy in a world that is ever-changing.

Having said that, Macquarie would be my choice here. They have a great track record of taking advantage of change and growing their business in different directions, such as being a leading player in decarbonisation.

**

If you missed part one of our interview, you can find that here.

(You can find out more about the Plato Australian Shares Income Fund here.)

The post Investing in ASX 200 dividend shares? Here’s what to look for in 2023: fund manager appeared first on The Motley Fool Australia.

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More reading

• Why are ASX 200 iron ore shares like Rio Tinto sliding lower today?
• How I’d invest $20,000 in ASX 200 dividend shares in 2023
• ASX 200 investors are selling off CBA shares! What should I do?
• Two ‘top prospect’ ASX 200 dividend shares for 2023 revealed: fund manager
• As the BHP share price flirts with $50, do I buy more?

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 positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Westpac Banking. 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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