Category: Stock Market

While I think the likes of Appen Ltd (ASX: APX) and Xero Limited (ASX: XRO) have outstanding growth potential and deserve to trade at a premium, many investors are understandably uncomfortable buying shares with such high price to earnings multiples.

With that in mind, I have picked out two top shares which I think could be classed as cheap at current levels.

Here’s why I would buy them:

Aristocrat Leisure Limited (ASX: ALL)

I think Aristocrat Leisure is a prime example of growth at a reasonable price. The gaming technology company’s shares are currently changing hands at approximately 21x estimated FY 2021 earnings. I think this offers investors a compelling risk/reward based on its very positive long term growth outlook.

This is because as well as having a pokie machine business which manufactures many of the most sought after machines in the world, it has a growing digital business complementing its growth. The latter business has millions of daily active users playing its games and generating significant recurring revenues. Given its pipeline of releases and the increasing popularity of mobile gaming, I believe this business will underpin strong earnings growth over the next decade.

Telstra Corporation Ltd (ASX: TLS)

Another ASX share which I think is cheap is Telstra. Despite its defensive qualities and the maintaining of its guidance in FY 2020, its shares are down over 12.5% since the start of the year. This leaves them trading at an attractive 19x estimated full year earnings. As a comparison, rival TPG Telecom Ltd (ASX: TPM) is trading at approximately 29x estimated full year earnings. It also means Telstra offers a fully franked 5% dividend yield, which I think is generous in the current environment.

Another reason I think this is good value is its improving outlook. Thanks to the NBN rollout nearing completion, its sizeable cost cutting, and the simplification of its business, I believe a return to growth could be coming possibly as soon as FY 2022. This could make now an opportune time to pick up shares.

More reading

• ASX telco sector: A telecom analyst’s top share pick right now
• How I’d build a $100,000 portfolio for ASX dividend shares
• Is Telstra in for a bruising fight with merged TPG-Vodafone?
• Share price winners and losers of the pandemic
• These are the 4 cheapest ETFs on the ASX

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 a new financial year on the horizon, now could be an opportune time to consider making some new additions to your portfolio.

To help you on your way, I’ve picked out ten ASX shares which I think would be great options for FY 2021. They are as follows:

a2 Milk Company Ltd (ASX: A2M)

A2 Milk Company is a New Zealand-based infant formula and fresh milk company with a focus on A2-only products. It has been growing at a rapid rate over the last few years thanks to the insatiable demand for its infant formula in China. I expect more of the same in the coming years, which could be supported by new product launches and acquisitions.

Altium Limited (ASX: ALU)

Altium is an industry leading printed circuit board design software provider. While FY 2020 has been impacted greatly by the pandemic, I believe it is worth overlooking its underperformance and focusing on its long term growth potential. This is thanks to its exposure to the Internet of Things boom, which is driving strong demand for its software.

Appen Ltd (ASX: APX)

I think Appen would be a great option. It has a million-plus team of crowd sourced experts preparing data that goes into the artificial intelligence and machine learning models. As these markets are expected to grow materially in the future, I believe it is well-placed for growth.

Bubs Australia Ltd (ASX: BUB)

Bubs is a goat’s milk-focused infant formula and baby food company. I believe it could grow materially in the future thanks to its growing distribution footprint online in China and offline in Australian supermarkets. Another positive is its recent expansion into cow’s milk infant formula.

CSL Limited (ASX: CSL)

I think this biotherapeutics company would be a great long term option. I’m a big fan of CSL due to the increasing demand for immunoglobulins, its world class plasma collection network, growing demand for influenza vaccines, and its lucrative research and development pipeline.

Nanosonics Ltd (ASX: NAN)

I think this infection control specialist is a top option due to its positive long term growth potential. Not only does its trophon EPR disinfection system have a massive market opportunity, the company is launching new products targeting unmet needs. These could take its growth to the next level if they are successful.

Pushpay Holdings Group Ltd (ASX: PPH)

Pushpay is a donor management platform provider for the faith sector. It has been growing at a rapid rate thanks to its leadership in a niche but lucrative market. Management has set itself a target to win a 50% share of the medium to large church market in the future. This represents a US$1 billion revenue opportunity and is many multiples FY 2020’s revenue of US$127.5 million.

REA Group Limited (ASX: REA)

REA Group is a leading property listings company with websites in Europe, Asia, the United States, and of course Australia. While trading conditions are tricky at present, I expect them to ease once the pandemic passes. This could make it worth snapping up its shares with a long term view.

ResMed Inc. (ASX: RMD)

I think this sleep treatment-focused medical device company is well-placed for growth thanks to its industry-leading products and sizeable market opportunity. Management estimates that there could be upwards of 1 billion people impacted by sleep apnoea worldwide. The vast majority of these are undiagnosed.

Xero Limited (ASX: XRO)

Xero is a leading cloud-based business and accounting software provider. It has been growing its customer numbers and recurring revenues at a strong rate for many years. I’m confident there will more of the same over the coming years thanks to the shift to online accounting, its global market opportunity, and high quality product.

More reading

• Top brokers name 3 ASX shares to buy next week
• Where to invest $5,000 into ASX shares in July
• How I would construct a $50,000 growth portfolio
• 3 top ASX shares to buy for growth investors in July
• These exciting ASX shares could help you smash the market in the 2020s

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Altium, CSL Ltd., Nanosonics Limited, PUSHPAY FPO NZX, and Xero. The Motley Fool Australia owns shares of and has recommended BUBS AUST FPO. The Motley Fool Australia owns shares of A2 Milk and Appen Ltd. The Motley Fool Australia has recommended Nanosonics Limited, PUSHPAY FPO NZX, REA Group Limited, and ResMed Inc. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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This week, the reality of our current economic situation caused a fall in many share prices. The Qantas Airways Limited (ASX: QAN) announcement of large-scale layoffs was a bit of wake up call and we also followed United States markets down as concerns over a second wave of COVID-19 started to take hold. In light of these events, here are three ASX share price trends I think are worth keeping an eye on next week, including some tactics to get the most out of them.

Oil and Gas

This week saw the oil price fall, bringing the share prices of all of our large oil and gas companies down with it. However, this is only the start of the challenges facing this sector. The LNG price has recently hit a 25-year low due to slow economic recoveries and modest industrial energy needs. There is also reduced demand for cooling with many regions being cooler than forecast.

This is likely to put more pressure on the share prices of the oil and gas majors. Companies like Woodside Petroleum Limited (ASX: WPL), Santos Ltd (ASX: STO), Origin Energy Ltd (ASX: ORG) and Oil Search Limited (ASX: OSH) have already seen share price slumps this week. I believe this is likely to continue into the coming week. 

This might, however, be a good time to pick up solid companies at a reasonable price. I believe Woodside is still trading at a premium due to many of the large-scale projects it has underway. Origin Energy, however, is worth a closer look in my view. 

Gold miners

In a normal market, companies like Evolution Mining Ltd (ASX: EVN) would be seen as overbought. The company’s price to earnings (P/E) ratio of 33 is way above its 10-year average. So too with other gold miners like Saracen Mineral Holdings Limited (ASX: SAR) and Northern Star Resources Ltd (ASX: NST). However, these are not normal times and this is not a rational market. 

The US dollar gold price is higher than it has been since October of 2012. In Australia, it is also near all-time highs. Personally, I have invested in Bellevue Gold Ltd (ASX: BGL) which is an exploration company. This is despite it too currently trading at an all-time high. 

Regis Resources Limited (ASX: RRL) is another well priced gold mining company likely to benefit from the high gold price. I like this company over the medium term regardless of what happens with the gold price. 

Real estate share prices

After several weeks of trading at very high volumes, the three A-REITs with the most exposure to retail markets have fallen this week. Vicinity Centres (ASX: VCX), Scentre Group (ASX: SCG) and GPT Group (ASX: GPT) saw their share prices edge lower over the course of the week. I do not see this trend reversing anytime soon, particularly with the uncertainty surrounding dividend payouts due to the poor trading conditions. 

I also expect the A-REITs exposed to the housing market, like Stockland Corporation Ltd (ASX: SGP), to follow the retail sector downwards. There has been a lot of commentators pumping up this sector of late. However, personally, I cannot see it reaching anywhere near the levels seen in January with all the uncertainty surrounding the job market. 

I think investors looking for real estate exposure would be better served to consider DEXUS Property Group (ASX: DXS) as it is a pure play commercial real estate company.

Foolish takeaway

I believe these trends are a continuation of issues that have been building for some time. Yet despite the apparent negativity, there are often opportunities to be found. I’m confident it’s still possible to profit from a rising gold price. In addition, commercial real estate is rising while retail is falling. When you see a downward pattern, it always pays to look a little closer to see if any other sector may benefit. 

More reading

• Invest $50 per day in ASX shares to generate a $50,000 passive income
• These were the best performing ASX 200 shares last week
• Here are 5 rebound shares to buy with $5,000
• 5 things to watch on the ASX 200 on Friday
• Why the Scentre share price could rise 88% in 2020

Motley Fool contributor Daryl Mather owns shares of Bellevue Gold Ltd. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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ASX investors beware, the RBA has warned about what may happen when the loan deferrals come to an end in a few months.

According to reporting by the Australian Financial Review, RBA boss Philip Lowe had a bank-focused meeting on Friday with Prime Minister Scott Morrison and Treasurer Josh Frydenberg as well as bank bosses.

The topic of the meeting was the $236 billion of loan deferrals that are on course to end on 30 September 2020.

One of the problems is that the loan deferrals are going to come to an end at the same time as jobkeeper ends. Most of the COVID-19 support could end at exactly the same time. 

There are specific government measures that will support some areas of the economy for longer. There was a package for the arts and entertainment sector. There’s also the ‘homebuilder’ grant which will give people $25,000 who are involved with new home builds or large renovations.

We’ve already heard that there is extended government support for the childcare sector. A business like G8 Education Ltd (ASX: GEM) will benefit from that. The government may also launch more support for airlines after Qantas Airways Limited (ASX: QAN) did a large capital raising and announced 6,000 job cuts.

Certain industries aren’t going to rebound as quickly due to no fault of their own.

RBA wants banks to keep playing their part

AFR sources revealed that whilst Dr Lowe said the economy was recovering well and liquidity was strong, a second-round effect could see demand dry up. There could be another wave of job losses in the next few months.

The RBA boss wants to make sure that banks continue to lend. APRA is thinking about whether to give banks the leniency to defer loans beyond September. That mean the banks wouldn’t be punished with capital penalties.

The AFR indicated banks are willing to extend the loan deferrals beyond September, but only on a case-by-case basis after analysing the borrower’s circumstances.

What does this mean for ASX shares?

Obviously shareholder returns is not the key focus of the RBA or the government. They want banks to remain robust and continue to lend. The economy needs lending to continue to function properly.

These issues obviously affect the big ASX banks of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB).

It would also affect the other lenders like Macquarie Group Ltd (ASX: MQG), Suncorp Group Ltd (ASX: SUN), Bank of Queensland Limited (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN).

Banks can’t continue the payment holiday forever. They need to make profit for shareholders and they need cashflow from the borrowers. I’m not sure how much more leniency the banks can give borrowers. As much as the RBA wants them to be lenient.

Some banks like Westpac and ANZ have already taken the big decision of deferring the dividend. Considering many industries are now largely operational again, I think banks would be entitled to decide that payments should resume for borrowers who have the capability to pay.

However, I’m sure the federal government feels strongly about not letting house prices crash. A property decline seems unavoidable, but a housing crash wouldn’t be good for the economy at all.

Foolish takeaway

I think the RBA is right to be worried about continued bank lending and the deferred loans. No-one wants to see a big wave of forced property sales over the next 12 months.

There are some big problems for the banks to deal with. Their shareholders want them to keep making profit but the government and economy needs the banks to continue to shoulder a lot of the pain. I’m glad I’m not on a bank management team during this difficult period. I don’t think the banks are out of the woods yet, though Macquarie and CBA would be my preferred picks if I had to choose one or two banks.

More reading

• The best placed ASX stocks for the August reporting season
• These ASX dividend shares will help you beat low interest rates
• A good time to buy Commonwealth Bank shares?
• ASX 200 rebounds 1.5%, Qantas drops on capital raising
• Why Qantas and this other ASX 200 stock were just downgraded by top brokers

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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Last week saw a large number of broker notes hitting the wires once again. Three buy ratings that caught my eye are summarised below.

Here’s why brokers think investors ought to buy them next week:

Accent Group Ltd (ASX: AX1)

According to a note out of Morgan Stanley, its analysts have retained their overweight rating and lifted the price target on this footwear-focused retailer’s shares to $1.90. The broker was pleasantly surprised with Accent’s trading update and notes that its sales are well ahead of its expectations. This strong performance, which has been driven by impressive online sales growth, has led to Morgan Stanley lifting its estimates through to FY 2022. I agree with the broker and believe it could be a top option in the retail sector.

Bapcor Ltd (ASX: BAP)

Analysts at Credit Suisse have retained their outperform rating and lifted the price target on this autoparts company’s shares to $7.20. This follows the release of a trading update last week. According to the note, the broker believes that Bapcor’s shares are deserving of a re-rating thanks to its strong performance and positive industry outlook. I think that Credit Suisse makes some great points and Bapcor could be worth considering.

CSL Limited (ASX: CSL)

A note out of Goldman Sachs reveals that its analysts have retained their buy rating and $336.00 price target on this biotherapeutics company’s shares. This follows the announcement of the acquisition of AMT-061 from uniQure for US$450 million. AMT-061 is a gene therapy undergoing Phase 3 clinical trials for the treatment of patients with haemophilia B. Goldman notes that this therapy has the potential to transform the treatment paradigm. It expects this to complement and expand its existing franchise (Idelvion) and potentially extend its sustainability. I agree and would be a buyer of CSL’s shares.

More reading

• How I would construct a $50,000 growth portfolio
• 3 top ASX shares to buy for growth investors in July
• Brokers name 3 ASX 200 shares to buy today
• Here’s everything you need to know about CSL’s latest acquisition
• These are the 4 cheapest ETFs on the ASX

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia has recommended Accent Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

Fortescue Metals Group Limited (ASX: FMG)

According to a note out of Citi, its analysts have retained their sell rating and $11.70 price target on this iron ore producer’s shares. The broker has concerns over the iron ore price and believes it is likely to come under pressure in the near future. This is because Citi is forecasting steel production to peak and iron ore demand to soften. It feels this could weigh on the Fortescue share price. The Fortescue share price ended the week at $14.18.

Orocobre Limited (ASX: ORE)

A note out of the Macquarie equities desk reveals that its analysts have retained their underperform rating and $1.80 price target on this lithium miner’s shares. According to the note, Orocobre’s latest update revealed lower than expected sales and volumes. Unfortunately, Macquarie doesn’t expect things to improve quickly and suspects that high lithium carbonate inventory levels globally will continue to weigh on prices for some time to come. The Orocobre share price last traded at $2.37.

Shopping Centres Australasia Property Group Re Ltd (ASX: SCP)

Another note out of Citi reveals that its analysts have retained their sell rating and $1.87 price target on this shopping centre operator. The broker notes that Shopping Centres Australasia has reported a material shortfall in rent during the current quarter. And while rent collections are improving, the broker hasn’t seen enough to make a change to its rating. It continues to believe its shares are overvalued at the current level. The company’s shares ended the week at $2.27.

More reading

• The best placed ASX stocks for the August reporting season
• ASX 200 rebounds 1.5%, Qantas drops on capital raising
• 2 ASX dividend shares with yields over 8%
• Why Kogan, Myer, Orocobre, & Qantas shares are dropping lower
• Here are 5 rebound shares to buy with $5,000

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Shopping Centres Australasia Property Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Many investors think the possibility of generating a passive income from ASX shares is just a pipe dream.

However, it’s very possible to invest just $50 per day in your favourite companies and be able to retire with a strong portfolio.

How to generate a $50,000 passive income from ASX shares

$50 per day works out to be $18,250 per year invested in ASX shares. Let’s make some basic assumptions including no taxes or transaction costs and a steady 7% per annum return.

If we assume returns are calculated at the end of each year, we would invest $18,250 in ASX shares in year 1 with a return of $1,277.50 in the first year.

By continually reinvesting these returns into the share portfolio, and also maintaining the ongoing investment of $50 per day over 40 years, the portfolio would grow from $0 to $730,000 during this period.

This means that if you’re investing from the age of 25, you could retire with a $730,000 portfolio by age 65. That 7% return would then be worth a tidy $51,100 per year. Not bad for a passive income in retirement.

Which ASX shares could generate a 7% return?

It goes without saying that investment returns are never guaranteed. 

A 7% return seems high but it is the approximate, long-run average return for global share markets. ASX income shares like Scentre Group (ASX: SCG) or Harvey Norman Holdings Limited (ASX: HVN) boast some pretty strong dividend yields.

But it’s not just income shares that could hold the the key to delivering 7% gains. ASX growth shares like Afterpay Ltd (ASX: APT) have rocketed higher in recent years and have easily exceeded 7% per annum gains.

Foolish takeaway

When it comes to investing, I still think diversification is the name of the game, especially over a 40-year time horizon. 

If this quick example shows us anything, it’s clear that patience and discipline are the key to building long-term wealth.

If you want to set yourself up for retirement, keeping a long-term view of your goals is critical to success.

More reading

• A good time to buy Commonwealth Bank shares?
• Could the Afterpay share price really be good value right now?
• Why National Storage shares are a great “set and forget” option for your portfolio
• Purchasing Openpay shares in March in would have pocketed you this return
• Why the Scentre share price could rise 88% in 2020

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 stocks after a market crash may sound like a risky strategy for anyone who is seeking to build a portfolio valued at over a million. It could produce paper losses in the short run due to the unpredictability still present across the stock market.

However, a market downturn provides investors with the opportunity to buy stocks at lower prices. It may also strengthen the competitive positions of dominant businesses in a range of industries, and allow them to generate high returns in the coming years.

As such, investing in the stock market today could increase your chances of making a million in the long run.

Buying after a market crash

Many investors adopt a strategy where they aim to buy stocks when they are priced at low levels. They then seek to hold them until such a time that they trade at a much higher price.

The main problem with that strategy is that the periods when stock prices are at their lowest have historically coincided with economic downturns. At such times, risks facing investors are at their highest.

For example, the most recent notable market crash prior to that experienced in 2020 occurred in 2008/09. At that time, a great number of companies traded at prices that had not been seen for many years.

Following the market crash, a large proportion of them delivered successful stock price recoveries. However, many investors did not buy stocks when they traded at low prices due to the short-term risks they faced. This meant that they were unable to access the wide margins of safety that were on offer for a limited time, with their returns in the following years likely to have suffered as a result.

Although at the present time there are significant risks facing investors over the short run, in the long term the stock market is likely to recover. Therefore, buying a diverse range of companies during the current market could allow investors to fulfil the first part of their ‘buy low/sell high’ strategy.

Industry positions

The recent market crash could also cause stronger companies within a specific industry to improve upon their competitive positions. For example, those businesses that are better equipped to survive a prolonged economic downturn may gain market share. This may allow them to generate higher returns in the coming years.

As such, investors who can not only purchase cheap stocks, but also the highest-quality companies in an industry, may improve their chances of generating high returns in the coming years.

The market crash may highlight weaknesses in companies that had previously been overlooked by investors, such as high debt levels and inefficient business models. Investors may now focus their capital on the strongest companies within a sector that offer the most appealing risk/reward ratios. This could boost their returns over the long run.

Millionaire potential

Risks may continue to be present over the coming months across the stock market. However, buying high-quality businesses with dominant market positions while they trade at lower prices could be a sound strategy. It may boost your portfolio’s returns and increase your chances of making a million over the coming years.

More reading

• ASX beware: RBA warns on bank loan deferrals
• Top brokers name 3 ASX shares to buy next week
• Top brokers name 3 ASX shares to sell next week
• Invest $50 per day in ASX shares to generate a $50,000 passive income
• 3 great ASX dividend shares for FY21

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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We are nearly into FY21. I think there are some great ASX dividend shares which could generate attractive capital growth and pay good dividends over the next 12 months and the long-term.

I think it can be dangerous to just invest for a dividend yield. I believe we need to go for dividend shares that have the ability to generate a good stream of dividends as well as grow earnings (and eventually the share price).

Here are some dividend ideas for FY21:

Dividend share 1: Duxton Water Ltd (ASX: D2O)

Duxton Water is a company which purely owns water entitlements and leases them to agricultural businesses.

Water is obviously an integral part of the farming process. Farmers need access to water entitlements unless it’s a relatively wet year.

The last few years in Australia have been quite dry, which is partly why water values have been pushed up so much.

However, Duxton Water also points to the ongoing maturity of permanent plantings which are causing greater water demand. High value crops such as almonds and citrus are two areas where water demand is very high.

The ASX dividend share’s board is committed to pay bi-annual dividends. It intends to increase its dividend every six months. It wants to pay a dividend of 2.9 cents per share in September 2020 and by March 2022 it wants to pay a 3.2 cents per share dividend.

However, be aware that a wetter year can reduce water values. Also, the ACCC is going to release a report in July 2020 about the water system. The release of the report may prove to be a buying opportunity.

Duxton Water has an estimated forward grossed-up dividend yield of 6.2%.

Dividend share 2: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

If you regularly read my articles you’ll know that Soul Patts is an ASX dividend share favourite of mine.

I think the investment conglomerate could have a solid next 12 months.

The merger between TPG Telecom Ltd (ASX: TPM) and Vodafone Australia is about to go ahead. TPG is Soul Patts’ biggest position, so what happens with TPG is important. Since 1 May 2020 the TPG share price has gone up 26%. I think TPG could generate even more returns for Soul Patts from the upcoming special dividend, higher regular dividends and plenty of cost and revenue merger benefits.

I think another of Soul Patts’ holdings has an exciting 12 months ahead. The Brickworks Limited (ASX: BKW) share price is down 24% since the start of the COVID-19 selloff. Its underlying non-construction assets look as solid as ever. I believe at some point demand for building products will start to return, perhaps as early as FY21. I expect the share price will reflect the optimism sooner than the earnings.

Soul Patts has grown its dividend every year since 2000. I think the ASX dividend share can keep growing its dividend annually for a long time to come.

It currently offers a grossed-up dividend yield of 4.3%.

Dividend share 3: APA Group (ASX: APA)

This ASX dividend share is my preferred infrastructure play. I do think Sydney Airport Holdings Pty Ltd (ASX: SYD) is an interesting idea at this low price, but the income portion of the FY21 returns is very unclear at the moment, so I’m not sure I can pick it yet as a ‘dividend’ idea.

APA owns a vast network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). APA owns, or manages and operates, a portfolio of assets worth more than $21 billion and delivers half the nation’s natural gas usage.

The energy infrastructure giant generates reliable cashflow each year, which allows it to fund the ever-increasing distribution. It has grown its distribution every year for the past decade and a half. It currently has a FY20 distribution yield of 4.4%.

Foolish takeaway

Each of these ASX dividend shares have solid income potential over the next 12 months. I think the share prices can rise too. At the current value I’d go for Soul Patts, I think its exposure to TPG will be very useful as the telco profits from the merger.

More reading

• 4 top ASX dividend shares you should never sell
• How I’d build a $100,000 portfolio for ASX dividend shares
• Australian businesses are running out of cash
• Bapcor and 1 other quality ASX share to add to your portfolio
• Is the share market facing another February 2020 moment?

Motley Fool contributor Tristan Harrison owns shares of DUXTON FPO and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of APA Group. The Motley Fool Australia has recommended DUXTON FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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Inflation is not a term we hear much of these days. Well, in terms of its current impact. In fact, with the economy still in a coronavirus-induced shock and interest rates at a record low of 0.25%, it’s fair to say that the powers that be are more worried about deflation (or negative inflation) right now.

But there are signs that some investors are preparing for a return of inflation to the world of investing. Just last weekend, I wrote about how the ultra-rich are hoarding gold whilst other investors are enjoying the resurging share market. Gold is often touted for its supposed ‘inflation-proof’ nature, which is one of the reasons the rich are finding the yellow metal alluring.

What is inflation and why is it bad?

Inflation is defined by the slow-but-steady increasing of prices, or conversely, the weakening of a currencies’ value over time. It’s the reason why a loaf of bread cost 10 cents 50 years’ ago, but $3 today. Inflation is one of the greatest fears of an investor — and for good reason. In periods of high inflation (like in the 1970s–80s), the ‘real’ value of our hard-earned dollars declines, fast. That means that any cash lying dormant isn’t earning an inflation-beating return is losing real purchasing power. If inflation is 6% per annum and you receive a return of 5% from an investment, your money is going backwards in real terms.

Of course,  a little inflation is generally accepted as good for the economy. It encourages spending and credit growth. That’s why the Reserve Bank of Australia (RBA)’s official inflation policy is to aim for an inflation ‘bandwidth’ of 2-3% per annum.

But too much inflation is destabilising. If prices rise by 6% PA, every ASX company will have to increase their good and services’ pricing by at least 6%. And that’s just to break even. They will also be under pressure to grow their wages and other costs to keep up as well.

Are we heading for inflation on the ASX?

Actions by central banks around the world to combat the coronavirus is the biggest reason many investors are fearing future inflation. Specifically, investors are worried about the controversial monetary policy procedure; ‘quantitative easing’ (or QE).

Quantitative easing involves the central bank creating liquidity (also called money printing) which it uses to buy government bonds. As most of us would know, printing money has historically been a surefire way to create inflation. According to the Australian Financial Review (AFR), the US Fed has increased the value of its balance sheet from US$4 trillion before the pandemic hit to around US$8 trillion today. It took the global financial crisis and 11 years afterwards to get to US$4 trillion. Now the US has doubled it in 3 months.

The US isn’t feeling the inflationary effects of this extraordinary cash injection now. But it might well do at some point down the road. I’m not an economist, but what the US is doing is dangerous in my opinion. Sure, all governments have to protect their economies from the coronavirus fallout. But nothing is free in this world, and I wouldn’t be too surprised if inflation rears its head once more in the coming years. And if the US is hit with inflation, you can be sure is effects will be felt on the ASX, too.

The best solution in my view? Buy good-quality ASX shares, of course!

More reading

• 3 great ASX dividend shares for FY21
• The best placed ASX stocks for the August reporting season
• 3 of the best blue chip ASX 200 shares to buy in July
• Where to invest $5,000 into ASX shares in July
• These ASX dividend shares will help you beat low interest rates

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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