Category: Stock Market

Commonwealth Bank of Australia (ASX: CBA) shares are up 7.8% in 2023.

Atop the potential for share price growth, the S&P/ASX 200 Index (ASX: XJO) bank stock is also popular among income investors.

CBA shares pay a trailing dividend yield of 3.5%, fully franked.

Of course, that figure is a trailing yield, backward-looking by definition.

The question now is, what kind of dividend potential do CBA shares have in the 2023 calendar year?

What’s the dividend outlook for the big four bank?

For CBA shares to offer similar or larger dividend yields in 2023, the bank needs to keep generating strong profits.

Over the past eight months, CommBank has been the beneficiary of higher interest rates. Higher rates generally enable banks to increase their net interest margins.

So long as the RBA doesn’t hike too aggressively over the coming months, potentially sending the economy into recession and driving a surge in bad debts, the big bank should continue to perform well.

Indeed, some top analysts, including those at Morgan Stanley, believe dividends from the bank are likely to leap higher in 2023.

Morgan Stanley forecasts CBA shares will deliver a 17% year-on-year increase in dividends, from $3.85 per share to $4.50 per share. That’s the biggest dividend growth Morgan Stanley forecasts for any of the big four banks.

At the current share price, that works out to a forecast, fully franked yield of 4.1%.

Also sounding off with a bullish outlook for dividends on CBA is passive income-focused Don Hamson, managing director at Plato Investment Management.

“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,” he told The Motley Fool.

CBA stock is in the fund’s top ten holdings right now, Hamson said.

And history is certainly on CommBank’s side.

CBA shares have each yielded a total of $18.95 in passive income since early 2018.

How have CBA shares been performing longer-term?

As you can see in the below chart, CBA shares are up an impressive 17% over the past 12 months. And those gains don’t include the dividend payouts.

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

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More reading

• ASX 200: Buy high and sell higher
• Own CBA shares? Here’s the bank’s half-year results preview
• NAB shares: A top tip for passive income?
• If you stocked up on $5,000 of CBA shares 5 years ago, here’s how much dividend income you’ve made
• 3 of the safest ASX 200 dividend stocks in Australia

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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Achieving lifelong passive income from ASX dividend stocks is the dream of most investors. Why invest if not to secure a stable stream of passive income that keeps you company throughout your life?

But this is easier said than done. Finding the right shares that will pay you for a lifetime is no easy feat. So let’s discuss two candidates that might help get the job done.

2 ASX dividend stocks to buy for lifelong passive income

Coles Group Ltd (ASX: COL)

Coles is an ASX dividend stock we’d all know. The company is the second-largest supermarket operator in the country, owning the Coles chain of grocers, as well as the Liquorland, Vintage Cellars and First Choice Liquor network of bottleshops.

Coles sells us food, drinks and household essentials – all products that none of us can go without. Nothing is certain in the world of investing. But Coles being around to sell us these staples in the coming decades gets pretty close in my view.

As such, this ASX dividend stock could well be worth considering if you want a dividend-paying investment to keep in your passive income portfolio.

Today, Coles shares offer investors a trailing and fully franked dividend yield of just over 3.5%.

Vanguard Australian Shares Index ETF (ASX: VAS)

The beauty of an index fund like this exchange-traded fund (ETF) from Vanguard is its rebalancing methodology. Index funds typically hold all of the shares in an index, weighted in proportion to market capitalisation. But since a company’s share price will change all of the time, so will its market cap.

As such, index funds ‘rebalance’ their holdings every few months to ensure that they are always holding the right companies in their proper proportions.

Over time, this results in the best companies rising to the top, while the losers slowly get weeded out. This makes an index fund a true ‘set and forget’ investment, that can serve investors well for life.

Most ASX shares on our share market pay dividends. Thus, so does this ETF. In fact, on today’s pricing, the Vanguard Australian Shares ETF has a trailing yield of roughly 7%. As such, I think this ETF is another top candidate for investors seeking a lifelong passive income stream.

The post 2 ASX stocks to buy in February for lifelong passive income appeared first on The Motley Fool Australia.

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More reading

• Does the Coles dividend forecast make it a great buy for income?
• How I’d invest $300 a month in ASX shares to target an extra income of $20,000 per year
• ASX shares: Is this my once-in-a-lifetime chance for mega returns?
• How to create a million-dollar ASX share portfolio in two decades
• Buying ASX shares as a beginner? Here are 3 things I wish I’d known

Motley Fool contributor Sebastian Bowen has positions in Vanguard Australian Shares Index ETF. 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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Amcor PLC (ASX: AMC) shares are in the red in morning trade, down 3% at the time of writing.

The S&P/ASX 200 Index (ASX: XJO) plastic packaging giant closed yesterday trading for $17.27 per share and plunged as low as $16.45 apiece after open, shedding 4.75%.

Shares are currently changing hands for $16.75 apiece.

Here’s what ASX 200 investors are mulling over today.

(Note, the dollar figures quoted below are all in US dollars.)

Amcor shares down despite earnings and sales growth

Amcor shares are mired in the red today, despite the company reporting some strong financial metrics for the first half of the 2023 financial year (1H FY23). Amcor released its quarterly figures for the three months ending 31 December this morning.

Among the highlights, the plastics packaging company reported net sales of $7.35 billion, an increase of 6% from 1H FY22.

Generally accepted accounting principles (GAAP) net income leapt 62% from the prior corresponding half year, reaching $691 million.

And GAAP diluted earnings per share (EPS) increased by 65% to 46.1 cents per share (cps). Adjusted EPS increased a more modest 8% on a comparable constant currency basis to 36.6 cps.

Adjusted earnings before interest and taxes was also up 8% from 1H FY22 on a comparable constant currency basis to $791 million.

The Amcor board declared an unfranked quarterly dividend of 12.25 US cents per share (17.3 Australian cps). That’s up from 12 US cps in the same quarter last year.

In 1H FY23, Amcor returned some $400 million to shareholders through dividends and share repurchases. The company forecasts share repurchases of up to $500 million for the full 2023 financial year. That includes the additional $100 million it announced this morning.

What did management say?

Commenting on the results, Amcor CEO Ron Delia said:

Amcor delivered strong financial performance for the first half of fiscal 2023, demonstrating excellent operating leverage amid ongoing challenges in the macroeconomic environment…

Our teams are doing an excellent job navigating through volatile market conditions, while recovering general inflation and higher raw material costs. Our exposure to consumer staples and healthcare end markets positions our business well despite some softening in the demand environment and customer destocking through the December quarter.

We also completed the sale of our Russian plants and announced a bolt-on acquisition in China to strengthen our healthcare packaging business in the Asia Pacific region.

What’s next for Amcor shares?

Amcor maintained its guidance for FY23. The company forecasts full-year EPS of 77 to 81 cents per share. It expects free cash flow in the range of $1 billion to $1.1 billion.

“Notwithstanding a more cautious near-term outlook, we remain focused on executing against our strategy for long term growth,” Delia said.

“Our ability to generate significant annual cash flow allows us to continue to invest in multiple growth opportunities, pay an attractive and growing dividend and regularly repurchase shares.”

How have Amcor shares been tracking?

As you can see in the graph below, Amcor shares are down 5.3% in 2023. The stock is up 3.8% over the past 12 months, not including the dividend payouts.

The post ASX 200 listed Amcor shares tumble despite increased earnings and dividends appeared first on The Motley Fool Australia.

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More reading

• 2 ASX mining shares rocketing over 20% today
• Fortescue share price edges higher on ‘potentially massive’ news
• 3 unmissable ASX AI stocks on my radar right now
• Boral share price soars 12% on ‘strong profit growth’
• RBA increases rates. Again. Scott Phillips on Nine’s Late News

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 Amcor Plc. 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 All Ordinaries index (ASX: XAO) is pushing 0.3% higher on Wednesday morning.

While this is positive, it is nothing compared to some of the gains that are being recorded on the market today.

Two ASX mining shares that are exploding higher are listed below. Here’s why they are on fire today:

Battery Age Minerals Ltd (ASX: BM8)

The Battery Age Minerals share price has continued its stellar run and is up 22% to 70 cents. Investors have been buying this lithium explorer’s shares since it re-listed on the Australian share market earlier this week. The company’s shares are now up 75% since raising $6.5 million and re-listing at 40 cents per share.

Battery Age Minerals has secured a diversified project portfolio to reposition as an international explorer focused on future-facing commodities. One of its key assets is the Falcon Lake Lithium Project in the Thunder Bay mining jurisdiction of north-western Ontario, Canada.

Tennant Minerals Ltd (ASX: TMS)

The Tennant Minerals share price has returned from a trading halt and is up 20% to 4.1 cents.

Investors have been scrambling to buy this mineral exploration company’s shares following the release of a drilling update. That update reveals that thick, true-width, intersections of high-grade copper and gold have been identified at the Bluebird discovery of the Barkly Project in Western Australia.

Management notes that these drilling results highlight the potential to expand the Bluebird discovery, which remains open in all directions.

It also points out that the find is towards the eastern edge of the richly-endowed Tennant Creek Mineral Field (TCMF), which produced over 5Moz of gold and over 500kt of copper from 1934 to 2005.

The post 2 ASX mining shares rocketing over 20% today appeared first on The Motley Fool Australia.

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More reading

• ASX lithium shares today: Two explorers that are thriving

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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The Fortescue Metals Group Limited (ASX: FMG) share price is edging higher on Wednesday, up 0.86%.

The S&P/ASX 200 Index (ASX: XJO) iron ore miner closed yesterday trading for $22.05 per share with shares currently changing hands for $22.24 apiece.

Here’s what’s drawing ASX 200 investor interest today.

What’s drawing ASX 200 investor interest?

The Fortescue share price is well into the green after the miner reported it has signed the Mining Convention for its Belinga Iron Ore Project with the Gabonese Republic.

The Mining Convention for the 4,500 square kilometre project, located in Gabon, was signed via Fortescue’s incorporated joint venture company, Ivindo Iron SA. The Gabonese government has a 10% interest in the JV, with Fortescue holding 72%. The Africa Transformation and Industrialization Fund hold the other 18%.

The convention covers all the regulatory requirements for the project. That includes early development for the production of up to two million tonnes of iron ore per year while the JV partnership works towards large-scale development.

First mining is just around the corner, planned for the second half of the 2023 calendar year.

Fortescue founder Andrew Forrest said this will offer growth opportunities for Fortescue Metals and Fortescue Future Industries (FFI) throughout the African continent.

Commenting on the development sending the Fortescue share price higher today, Forrest said:

The Gabonese Republic chose Fortescue to develop Belinga not only due to our strong track record of delivering major projects, but due also to our company wide commitment to use our major industrial scale and expertise to assist heavy industry combat climate change.

Forrest also pointed to the huge potential of the Belinga project.

“Geological mapping and sampling programs have confirmed our initial thoughts that this new West African iron ore hub may well one day prove to be among the largest in the world,” he said.

“This emerging iron region is potentially massive,” Forrest added. “If it fulfils its promise, it will complement our Australian operations through enhancing our blended products, extending our mine lives and opening new global markets.”

Fortescue forecasts costs of around US$200 million (AU$314 million) for the early stage mining development with investment over calendar years 2023-2024.

Fortescue share price snapshot

The Fortescue share price has enjoyed a strong start to the new year.

As you can see in the chart below, with today’s intraday gains factored in, shares are up 9% in 2023.

The post Fortescue share price edges higher on ‘potentially massive’ news appeared first on The Motley Fool Australia.

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More reading

• Is the 9%+ Fortescue dividend yield safe for passive income investors?
• Why are ASX 200 iron ore shares being hammered hard on Friday?
• Why are ASX 200 iron ore shares like Rio Tinto sliding lower today?
• Here’s the Fortescue dividend forecast through to 2025
• Will funding FFI drag the Fortescue share price lower?

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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The hype around artificial intelligence (AI) has never been more palpable. But with most AI companies located outside Australia and even fewer publicly listed, where can investors get a slice of AI stocks on the ASX?

We may not have the likes of Microsoft Corp (NASDAQ: MSFT) or Alphabet Inc (NASDAQ: GOOG) at our fingertips. However, Australia offers some high-quality businesses that may provide some exposure to the red-hot sector.

Find out what is catching my eye below.

The next frontier for productivity

Unless you have been living under a rock, you’ve probably heard of ChatGPT. The AI-powered chatbot owned by OpenAI became the fastest-growing consumer internet app in history in the past week — dethroning TikTok by reaching 100 million users in only two months.

Now, Microsoft, Google, and China search engine Baidu are all squabbling over which can implement the technology the quickest.

Critics may consider AI to be an overhyped fad, but the biggest tech companies in the world appear to be taking it seriously. In fact, Microsoft wasted no time integrating several new AI features into its browser yesterday, giving people the ability to leverage what it calls a ‘co-pilot’ directly in Microsoft Edge.

Which ASX stocks look ripe for the AI boom

In my opinion, the efficiency benefits of AI in the future will lend themselves to countless applications. As Microsoft CEO Satya Nadella states, “I think that this technology is going to reshape pretty much every software category.”

That’s why I’m personally keeping an eye on ASX stocks with their toes already in the AI industry.

TechnologyOne Ltd (ASX: TNE) is one such company that already makes use of the technology in its enterprise software solutions. If more enterprises see the value in AI, TechnologyOne could be well-placed to offer off-the-shelf solutions to its customers.

Another ASX stock offering AI-powered solutions is Imdex Limited (ASX: IMD). The company is a software provider to the mining industry, helping it make more informed decisions. One such product is their cloud-based AI spectral interpretation system named aiSIRIS.

Furthermore, Imdex currently trades at a price-to-earnings (P/E) ratio of 24. The valuation and its growth trajectory make it one company I’m seriously considering adding to my portfolio.

The final ASX stock with AI exposure that I think is appealing is circuit board design software company Altium Limited (ASX: ALU).

AI software ultimately needs hardware to run on. The company noted AI as a macro trend for driving increased demand for electronics in its 2022 full-year results.

Altium brings together a long tailwind, a history of executing on growth, and a commendable balance sheet. These ingredients combined make this ASX stock one I’d strongly consider for exposure to AI.

The post 3 unmissable ASX AI stocks on my radar right now appeared first on The Motley Fool Australia.

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More reading

• ASX shares: Is this my once-in-a-lifetime chance for mega returns?
• Fund reveals the type of ASX shares to buy for 2023, with 2 examples
• Happy days! 8 ASX 200 shares smashing new 52-week highs on Thursday
• Goldman reveals the ASX shares that could surprise to the upside (and downside) this reporting season
• The Nasdaq just had its best January in over 20 years. Are ASX tech shares back?

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Mitchell Lawler 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, Altium, Imdex, and Microsoft. The Motley Fool Australia has positions in and has recommended Imdex. The Motley Fool Australia has recommended Alphabet and Technology One. 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 Boral Limited (ASX: BLD) share price is skybound on news of strong earnings and profit growth during the first half of FY23.

The ASX building and construction materials company released its FY23 first-half earnings this morning.

Boral shares opened at $3.75, up 6.5%, before rising to a high of $3.95 — a 12.2% bump on yesterday’s close.

The Boral share price is currently up 8.4% at $3.815.

Boral share price jumps on 50% profit lift

In its ASX statement, the company said it had achieved “strong underlying revenue, earnings, and profit growth”.

The highlights for the six months to 31 December 2022 are as follows:

• Revenue $1,681.1 million, up 12% on the previous corresponding period (pcp) of 1H FY23
• Earnings before interest and taxes (EBIT) $95.3 million, up 15%
• EBIT margin 5.7%, up 20 basis points
• Return on funds employed (ROFE) 8.5%, improved by 80 basis points
• Net profit after tax (NPAT) $56.8 million, up 53%
• Adjusted earnings per share (EPS) 5.1 cents, up 50%.

Despite the impressive numbers, Boral shareholders will not receive an interim dividend.

The company said this was due to “limited availability of franking credits and free cash flow performance for the half”.

The last time Boral paid a dividend was this time last year, along with a capital return.

What else happened in 1H FY23?

While Boral reported a significant boost to its underlying NPAT, its statutory NPAT was actually down 91% at $89.5 million pcp.

That’s because 1H FY22 included $1,002.4 million of income from discontinued operations in the United States, and the profit on the sale of its US building products business.

Boral said its 1H FY23 revenue bump of 12% related to volume and price.

The company said it had offset “a sharp increase in costs felt across the business” due to inflation through “price and cost discipline”.

Boral said its operating cash flow is up 37% to $117.4 million.

What did management say?

Boral CEO Vik Bansal, said:

While our financial results are pleasing considering a difficult inflationary environment, I know Boral is capable of much more.

It is promising to see our pricing actions gain traction, which along with volume growth and cost discipline drove EBIT, excluding Property, 23% higher to $95.4 million…

We will need to remain highly disciplined and focussed in getting price realisation from the market across the country while maintaining a disciplined approach to cost management. Price erosion is not an option for Boral.

What’s next?

Boral said it expects 2H FY23 EBIT to be broadly in line with 1H FY23.

The company said the priorities for 2H FY23 include embedding the new operating model and the continued roll-out of standardisation and simplification initiatives.

This relates to Bansal’s PEMAF strategy (people, environment and sustainability, markets, assets, and finance), introduced at the annual general meeting last November.

Bansal said:

During the first half of the year, we have been quick to move towards a new, decentralised but standardised operating model, aimed at better leveraging our network, extensive downstream footprint, and vertically integrated upstream infrastructure.

Other priorities include managing inflationary pressures and focusing on price and volume of sales. The company said price realisation is more important than cost recovery.

Boral share price snapshot

The Boral share price is up 28.5% over the past six months . This compares to a 7.2% bump for the S&P/ASX 200 Index (ASX: XJO).

The post Boral share price soars 12% on ‘strong profit growth’ appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• I just bought this ASX share that ‘no one wants to touch’: fundie
• Here are the top 10 ASX 200 shares today
• Here are the top 10 ASX 200 shares 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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Motley Fool Australia Chief Investment Officer Scott Phillips joined Michael Thomson for Nine’s Late News on Tuesday night to unpack the RBA’s latest interest rate decision, with the likelihood for more on the way. 

The post RBA increases rates. Again. Scott Phillips on Nine’s Late News appeared first on The Motley Fool Australia.

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• Invest $20,000 in ASX 200 shares and get $1,500 each year without lifting a finger
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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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There are some wonderful ASX growth shares that are delivering exceptional dividends to investors.

ASX growth shares may not be known for their dividends, but one of the great things about strong growth in earnings per share (EPS) is that it also enables good growth of the dividend as well.

While in the first few years a dividend yield of an ASX growth share isn’t likely to be as high as BHP Group Ltd (ASX: BHP), it can rise over time to be bigger.

Below are two that are paying solid yields and also could deliver excellent growth over time.

Lovisa Holdings Ltd (ASX: LOV)

Lovisa is a leading ASX retail share that sells affordable jewellery which is focused on younger shoppers.

The business has a global network of stores in Australia, North America, Europe and so on. Asia could be the next growth engine for the company if it’s able to achieve a good foothold in places like India or China.

Let’s have a look at how much dividend income the ASX growth share is projected to pay in 2023.

Commsec numbers suggest that Lovisa could pay a grossed-up dividend yield of around 3%.

By FY25, the projections suggest that the EPS could jump by 55% and that the dividend could increase by 43%. These numbers suggest that Lovisa would be retaining a higher proportion of its earnings to fund its growth. In other words, the dividend payout ratio could decrease.

In FY25, the business could pay a grossed-up dividend yield of 4%. I think the dividend could grow a lot more over the rest of the decade.

FY23 is looking promising, with the company entering Canada, Poland, Hong Kong, Italy and Mexico. It’s opening itself up to countries with large populations.

Universal Store Holdings Ltd (ASX: UNI)

Universal Store is not a well-known name on the ASX, but I think long-term growth of EPS and dividends could make the apparel ASX retail share stand out.

I like that the business has a fairly easy path to growth through opening new stores. It’s important that the company chooses good locations that don’t cost too much in rent, but its expansion strategy is going well.

At the company’s annual general meeting (AGM), Universal Store revealed that total sales had grown 40% year over year, which didn’t include the acquired THRILLS business numbers. It also said that the gross profit margin had improved year over year.

Commsec numbers suggest that the business is going to achieve EPS of 41 cents, putting the company at 14 times FY23’s estimated earnings. EPS is predicted to grow by 30% to FY25.

This could allow the dividend to grow from 27.4 cents per share – a grossed-up dividend yield of around 7% – to 35.9 cents per share in FY25. That potential FY25 payout would be a grossed-up dividend yield of 9.1%.

The post 2 ASX growth shares that also offer incredible dividends 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 positions in and has recommended Lovisa. 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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Collins Foods Ltd (ASX: CKF) shares look like a bargain, and too tasty to miss. The S&P/ASX 200 Index (ASX: XJO) share has gone through a decline, but it could be a great time to buy.

For readers who don’t know, this business is a franchisee of KFC outlets in both Australia and Europe. It also has a small Taco Bell network in Australia which it’s looking to grow over time.

The Collins Foods share price is down by 33% over the past 12 months. In other words, it has lost a third of its value.

What’s going wrong for the ASX 200 share?

Collins Foods fell throughout 2022 as the business saw investor attention decline amid rising inflation and higher interest rates.

At the end of November 2022, the company’s share price plunged 24% after delivering its FY23 half-year result. Investors didn’t like what they heard.

In the first six months of FY23, revenue rose 15% to $614.3 million. However, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) only rose 0.5% to $95.4 million and underlying net profit after tax (NPAT) dropped 14.2% to $24.8 million.

The ASX 200 share decided to maintain its interim dividend at 12 cents per share.

Collins Foods noted there was significant cost inflation and wage increases in Australia and Europe. Taco Bell openings have been paused and it said that eight restaurants were underperforming. Taco Bell same store sales fell 7.8%.

However, Collins Foods is now going to work with Yum! (owner of the Taco Bell brand) to regain traction in sales before recommencing the rollout and scaling the brand.

Why I think the Collins Foods share price is a bargain

Management said it’s confident about the future prospects of Taco Bell “given its value position within the fastest growing quick service restaurant segment”.

Trading in the first six weeks of the FY23 second half was promising, with KFC stores’ same sales growth of 5.6% in Australia and 14.8% in Europe.

The company is expecting to open nine to 12 new KFC outlets in Australia in FY23.

In the Netherlands, it’s aiming to reach a long-term target of up to 130 net new KFC restaurants by 2031. This could be an earnings driver.

The ASX 200 share also continues to look for acquisition opportunities in Australia and Europe.

Collins Foods thinks same-store sales growth for Taco Bell will return in FY23.

All of these elements together make me think that FY24 will be more positive, particularly as inflation (hopefully) reduces.

According to Commsec, Collins Foods is currently trading at 20 times FY23’s estimated earnings. It’s expected to grow its earnings per share (EPS) by 44% to FY25, which would enable the dividend to grow to 32 cents per share. This would be a grossed-up dividend yield of 5.5%.

I think Collins Foods has plenty of earnings growth in store over the next five years, which can help share price growth and pave the way for a return to good dividends, and higher payouts.

The post Why this 4%-yielding ASX 200 share looks cheap to me appeared first on The Motley Fool Australia.

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More reading

• Add these ASX shares to your retirement portfolio for growing income: analysts

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 Collins Foods. The Motley Fool Australia has recommended Collins Foods. 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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