Category: Stock Market

If you have room in your portfolio for some new additions, then it could be worth considering Washington H Soul Pattinson & Company Ltd (ASX: SOL) shares.

That’s the view of analysts at Morgans, which rate the investment house very highly.

What is Washington H Soul Pattinson & Company?

Washington H Soul Pattinson & Company, also known as Soul Patts, started life as an owner and operator of Australian pharmacies.

Since then, Soul Patts has evolved into a diversified investment house investing across a range of industries and asset classes. This includes listed equities, private equity, credit, and property.

It has a proud history and highlights that it has never missed a dividend payment to its shareholders since listing all the way back in 1903. In addition, it has delivered increasing dividends every year of this century.

And while its returns over the last three years have been disappointing, this hasn’t stopped Soul Patts’ shares from delivering an average 10% per annum return over the last decade.

The good news is that Morgans believes that the latter can continue for the foreseeable future. As a result, the broker currently has the company on its best ideas list. Its analysts commented:

SOL’s investment portfolio includes a diversified pool of assets ranging from listed equities (both large cap and emerging companies), private equity, property and structured yield. On a 20-year horizon, SOL’s annualised TSR is 12.5% vs the All Ords accumulation index of 9%. SOL has a 20-year history of increased dividend distributions, with a 20-year CAGR of c.8%. In our view, SOL’s management team continues to deliver both organic and inorganic growth over the long term. We continue to like the SOL story, particularly its track record of growing distributions.

Buy Soul Patts shares

Morgans believes that investors buying the company’s shares at current levels could get an above-average total return over the next 12 months.

Its analysts have put an add rating and $35.60 price target on the investment house’s shares. Based on its current share price of $32.36, this implies potential upside of 10% for investors between now and this time next year.

In addition, the broker is forecasting fully franked dividends of 94 cents per share in FY 2024 and then $1.05 per share in FY 2025. If this proves accurate, it will mean dividend yields of 2.9% and 3.2%, respectively.

This boosts the total potential 12-month return from Soul Patts shares to approximately 13%.

The post Can Soul Patts shares beat the market over the next 12 months? appeared first on The Motley Fool Australia.

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• 3 of the best ASX blue chip shares to buy in June
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• Why I’d back up the truck on Soul Patts shares right now
• Why this broker just upgraded Brickworks shares to a buy rating
• 5 things to watch on the ASX 200 on Monday

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

There are few S&P/ASX 200 Index (ASX: XJO) shares that can say their dividend payout has grown or been maintained every year for two decades. Owners of Brickworks Limited (ASX: BKW) shares have seen reliable dividend payments for almost five decades.

Dividends aren’t guaranteed, but companies that have built a history of sending solid dividends to shareholders could continue to deliver pleasing payouts.

There are a couple of reasons why I believe Brickworks’ strong dividend record can continue.

Incredible dividend streak

Brickworks says that it’s proud of its long history of dividend growth and the stability this provides to shareholders.

It has been 48 years since the last full-year ordinary dividend was decreased in 1976. Following the dividend hike in the FY24 first-half result, the company has grown its dividend every year for the past ten years.  

Total shareholder returns have been satisfactory as well – in the HY24 result, the ASX 200 share revealed that over the prior 25 years, it had achieved an average shareholder return per annum of 12.9%, compared to an 8.6% return per annum for the All Ordinaries Accumulation Index (ASX: XAOA).

What is funding the dividends?

Brickworks may be best known for its Australian and US building product divisions – it’s the country’s largest brickmaker, one of the largest roofing businesses and more.

However, two other segments are providing resilient cash flow to enable Brickworks to keep paying and growing its dividend.

First, the ASX 200 share owns approximately a quarter of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), an investment conglomerate that is invested across numerous industries including resources, telecommunications, swimming schools, agriculture, financial services and property. Soul Patts itself has grown its dividend ever year since 2000, providing growing cash flow to shareholders such as Brickworks.

Brickworks also owns a variety of property assets, with the crown jewel being its 50% share of an industrial property trust. The business is benefiting from organic rental increases with those properties, as well as the ongoing completion of new large industrial warehouses adding to the rental snowball. The FY24 first-half result saw net rental income rise 4% (including the headwind of higher-costing debt), while gross rental income increased 17%.

That combination of growing rental profits and a rising Soul Patts dividend is helping send the Brickworks dividend higher.

Brickworks currently has a grossed-up dividend yield of 3.5%, which I believe is a decent starting point.

The post This ASX 200 share has grown (or maintained) its dividend every year for almost 50 years! appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Few funds can compete with Vanguard US Total Market Shares Index ETF (ASX: VTS) for the title of best ASX exchange-traded fund (ETF), in my opinion.

When choosing an ETF to invest in, I’m looking for low fees, diversification and good returns. This fund, which provides exposure to a large array of US shares, looks very appealing to me.

There are several diversified ETFs that I’d be extremely happy to own including VanEck Morningstar Wide Moat ETF (ASX: MOAT), Betashares Global Quality Leaders ETF (ASX: QLTY), VanEck MSCI International Quality ETF (ASX: QUAL) and BetaShares Global Sustainability Leaders ETF (ASX: ETHI). But the VTS ETF arguably ticks the most boxes.

Let’s examine how Vanguard US Total Market Shares Index ETF rates on each of the factors I’m looking for.

Low fees

In terms of annual costs, this is the cheapest shares ETF that Aussies can buy on the ASX.

According to Vanguard, the yearly fee is a very minimal 0.03%.

In contrast, an active fund manager typically charges an annual fee of, say, 1% and then performance fees if they outperform their benchmark. The VTS ETF fund does not charge performance fees — it simply tracks the return of the US share market.  

Diversification

The Vanguard US Total Market Shares Index ETF has a total of more than 3,700 holdings. There are few ASX ETFs that provide as much exposure to that many businesses in a single fund.

Having this many holdings reduces the risk of being invested too much in one particular business.

I also like the level of sector allocation diversification. The technology sector has typically been the best-performing industry over the past decade because of its high margins and fast revenue growth.

Around a third of the VTS ETF is invested in technology shares, with consumer discretionary (14%), industrials (13.1%), healthcare (11.8%) and financials (10.9%) being the other sectors with a weighting of over 10%.

Good returns

While past performance is not a guarantee of future performance, the VTS ETF has done very well thanks to its biggest holdings driving the US share market higher.

I’m talking about some of the largest stocks in the world: Microsoft, Apple, Nvidia, Alphabet, Amazon.com, Meta Platforms and Berkshire Hathaway. These are high-quality businesses with extremely powerful market positions and the ability to re-invest for a high return within the business. This quality helps the VTS ETF deliver returns for investors.

In the 10 years to 31 May 2024, the Vanguard US Total Market Shares Index ETF has delivered an average annual return of 15.9%.

I can’t predict its level of return over the next 10 years, but its heavy weighting to strong technology stocks makes me believe the VTS ETF can continue outperforming the S&P/ASX 200 Index (ASX: XJO) over the long term.

The post Why the Vanguard US Total Market Shares Index ETF (VTS) is a top long-term buy appeared first on The Motley Fool Australia.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. 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 Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, and VanEck Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

BHP Group Ltd (ASX: BHP) may have failed with its takeover of UK-listed Anglo American (LSE: AAL) last month, but another ASX 200 mining stock has had more luck over there.

After the market close on Thursday, this miner revealed that it has had its takeover offer accepted, making a deal now quite likely.

Which ASX 200 mining stock is making an acquisition?

The company in question is Deterra Royalties Ltd (ASX: DRR). It is a mining royalties company that prints money without having to lift a shovel. The jewel in its crown at present is BHP’s Mining Area C operation.

But it could shortly be adding to this after Trident Royalties (LSE: TRR) recommended Deterra Royalties’ 49 pence or 144 million pounds (A$276 million) cash offer.

Trident Royalties is a diversified mining royalty company based in the UK and listed on the London Stock Exchange. It has a portfolio of 21 royalties and royalty-like offtake contracts providing exposure to base, precious, bulk and battery metals. This includes lithium, gold, silver, copper, zinc, mineral sands, and iron ore.

Its directors intend to unanimously recommend that Trident shareholders vote in favour of the takeover offer and have agreed to vote their shares in favour of it. Deterra has also received irrevocable undertakings and a letter of intent to vote in favour of the offer from key shareholders. Combined, they represent approximately 28.7%. of Trident’s issued share capital.

The release notes that the transaction will be implemented by way of a UK scheme of arrangement and is subject to Trident shareholder and court approvals, as well as other conditions precedent that are customary for a UK scheme.

The ASX 200 mining stock’s managing director, Julian Andrews, commented:

This Transaction is aligned with our growth strategy of building a diversified portfolio of royalties, with, amongst other benefits, leverage to our scalable operating cost structure. It is an opportunity to accelerate the growth of our portfolio through the addition of a high-quality portfolio of 21 royalties and royalty-like instruments, the majority of which are over North American domiciled assets, at an attractive time in the commodities cycle. This portfolio is consistent with our stated investment criteria, providing exposure to commodities within our target of bulk, base and battery metals from mining operations and projects located in primarily stable and established mining jurisdictions.

Dividend policy update

Potentially offsetting some of the good news above is that Deterra Royalties plans to make a major change to its dividend policy.

This change could potentially see the ASX 200 mining stock’s dividends become less generous in the coming years.

It currently operates with a dividend payout ratio of 100% of net profit after tax and will maintain this in FY 2024. However, moving forward, it will change to a minimum payout ratio of 50% of net profit after tax.

Andrews commented:

 We have a strong history of disciplined capital management, having delivered more than A$480 million of fully franked dividends to shareholders since our listing in late 2020. While consistent with our well established and overarching capital management strategy, today’s adjustment to our dividend policy is designed to better align it with Deterra’s targeted longer-term balance between capital growth and income returns. Importantly, our discipline to return capital when not required for investment or balance sheet management remains unchanged.

The post Guess which ASX 200 mining stock is making a $276m UK acquisition appeared first on The Motley Fool Australia.

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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.

Qantas Airways Ltd (ASX: QAN) has captured the attention of ASX investors as its share price has rallied more than 14% this year to date.

It closed the session slightly in the red yesterday at $6.11 apiece, not too far from its 52-week closing high of $6.30 in May.

Brokers are also bullish on the Qantas share price, with the consensus rating it a strong buy, according to CommSec. There are no sell ratings on the stock.

So, what’s driving this excitement? Let’s dive in.

Why is the Qantas share price soaring?

There have been numerous catalysts thrusting the Qantas share price higher in recent weeks. Goldman Sachs placed a buy rating on the airliner in a June note, with a price target of $8.05.

This target suggests a potential upside of over 31% from today’s share price. For context, if you invested $20,000 in Qantas shares today, and the broker’s projections are correct, the investment could grow to around $26,220.

It’s hard to ignore the investor sentiment either. The airliner was valued at $5.08 apiece just 3 months ago.

Experts say that Qantas’ potential earnings growth has improved compared to pre-COVID levels, yet this isn’t reflected in its current valuation.

For instance, Goldman Sachs notes that its FY 2024/2025 profit before tax (PBT) projections are 51% and 61% ahead of pre-COVID levels, respectively. This in itself may be one driver.

But, at the same time, the Qantas share price is also trading at a price-to-earnings (P/E) ratio of 6.7, much lower than the average P/E of 9.1 for its regional and US peers, Goldman says. It is also far lower than the iShares Core S&P/ASX 200 ETF (ASX: IOZ) P/E of 18.4. This ETF tracks the benchmark index.

Despite this 63% discount to the benchmark ETF, its earnings projections for the next two years are far ahead of FY 2019. To me, it remains attractively valued.

This suggests that the market has yet to fully recognise Qantas’ growth potential and might indicate that the share price is undervalued.

Promising future for Qantas

On Wednesday, the company announced it was buying the remaining 49% stake in online travel player TrpADeal.

For the stake, it paid $211 million. It had acquired the other 51% of the business two years ago. The rationale, it says, is to “deepen synergies”. It says the deal could provide up to $50 million in annual cost synergies, whilst expanding the airline’s customer network.

In my view, a positive outlook from management – especially regarding dividends â€“ could further lift the Qantas share price.

The airline has announced an increase in its on-market share buyback by up to $400 million. On top of this, over FY 2025-2027, Goldman expects total capital returns of $1.6 billion, including $1.2 billion in dividends.

If Qantas hits the projected EPS of 96 cents in FY 2025 and the P/E ratio increases to match its peers, the share price could reach above $8 per share in my view.

Given the combination of operational efficiency, strong earnings forecasts, and dividend potential, the Qantas share price looks set for a bright future. Broker estimates support that Qantas shares could end FY 2025 above $8.

The post Why are ASX investors so excited by the Qantas share price? appeared first on The Motley Fool Australia.

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

On Thursday, the S&P/ASX 200 Index (ASX: XJO) was back on form and charged 0.45% higher to 7,749.7 points.

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

ASX 200 to edge lower

The Australian share market looks set to end the week with a small decline despite a decent session on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open 9 points or 0.1% lower this morning. On Wall Street, the Dow Jones was down 0.2%, but the S&P 500 rose 0.2% and the NASDAQ pushed 0.35% higher.

Oil prices fall

It could be a subdued session for ASX 200 energy shares Beach Energy Ltd (ASX: BPT) and Karoon Energy Ltd (ASX: KAR) after oil prices fell overnight. According to Bloomberg, the WTI crude oil price is down 0.7% to US$77.96 a barrel and the Brent crude oil price is down 0.55% to US$82.13 a barrel. This may have been driven by profit taking after solid gains this week.

Sell Reece shares

The Reece Ltd (ASX: REH) share price could be overvalued according to analysts at Goldman Sachs. According to a note, the broker has initiated coverage on the plumbing parts company’s shares with a sell rating and $23.35 price target. This implies potential downside of 12% for investors. The broker said: “REH is trading in excess of its historical average premium to the S&P ASX200 (0.6x standard deviations above its 5yr average). Compared to its peer set, REH is also trading above its historic premiums despite lagging the peer set on metrics such as EBIT margins and EBIT growth (note we forecast a 5% EBIT CAGR for REH, in line with Visible Alpha consensus).”

Gold price tumbles

ASX 200 gold shares such as Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a tough finish to the week after the gold price tumbled overnight. According to CNBC, the spot gold price is down 1.5% to US$2,318.8 an ounce. This was despite the release of cooler-than-expected U.S. producer price data. Analysts are attributing the price drop to profit-taking.

Deterra Royalties announces $276 million acquisition

Deterra Royalties Ltd (ASX: DRR) shares will be on watch today after the ASX mining stock announced that Trident Royalties has accepted its 49 pence or 144 million pounds (A$276 million) cash offer. Trident Royalties is a diversified mining royalty company based in the UK. It owns a portfolio of 21 royalties and royalty-like offtake contracts providing exposure to base, precious, bulk and battery metals. This includes lithium, gold, silver, copper, zinc, mineral sands, and iron ore.

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

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

Although Telix Pharmaceuticals Ltd (ASX: TLX) shares have been on fire over the last 12 months, they have recently pulled back.

For example, since peaking at a record high of $19.06 earlier this month, the radiopharmaceuticals company’s shares have pulled back by approximately 14% to $16.46.

This hasn’t gone unnoticed by analysts at Bell Potter. So much so, the broker believes that investors should be taking advantage of this weakness to snap up the company’s shares.

What is the broker saying about Telix Pharmaceuticals shares?

According to the note, the broker has upgraded the company’s shares to a buy rating with a $19.00 price target.

Based on where Telix Pharmaceuticals shares currently trade, this implies potential upside of 15.5% for investors over the next 12 months.

Bell Potter believes the pullback is related to its plan to raise funds through a Nasdaq IPO, which is currently taking place. But it feels that smart investors will see this as an opportunity to pick up shares before some potentially positive news is released. It said:

Following the launch of the offer in early June, the stock is trading 14% below its recent high ($19.06) which is likely to be at least in part attributable to an overhang from the raise. The pullback represents an opportunity to buy the stock ahead of an exciting period of news flow over the second half of the CY24 which will include potential FDA approvals for Zircaix and Pixclara.

Clinical programs

The broker highlights that the company is making significant progress with its clinical programs and the funds raised from the Nasdaq listing will accelerate this. It commented:

The clinical trial risk associated with the readout of ProstACT Select is now behind the company. Commencement of enrolment in ProstACT Global in the US is expected to commence next quarter and this will be one of several clinical programs in prostate cancer across both therapy and imaging. The company will also move forward with the development of TLX592 (being its alpha emitter).

It also notes that STARLITE II data is expected in the coming months. It adds:

In renal cancer, the company is expected to readout data from STARLITE II in 2H24. Subject to these results, the renal cancer therapy program will become the third therapeutic candidate behind TLX591 (prostate) and TLX101 (Gliioblastoma). As each of these programs begins to readout data in the coming periods, there is a very significant potential for further value accretion. We highlight this potential with a brief summary of recent transactions in the space, noting that the therapies drive these transactions rather than imaging assets.

All in all, Bell Potter appears to believe these are promising times for Telix Pharmaceuticals shares and its shareholders.

The post Why this broker just upgraded Telix shares to a buy rating appeared first on The Motley Fool Australia.

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

Peter Lynch is renowned for his success as a mutual fund manager at Fidelity Investments and for his straightforward and practical investment philosophy.

Lynch’s approach emphasises thorough research, a long-term perspective, and an understanding of the businesses behind the stocks.

Here are three critical pieces of investment advice from the investing legend that can help investors navigate the complexities of the stock market.

If you like these Peter Lynch principles, don’t forget to check out my recent article about 3 investing mistakes as well.

Water the flowers, cut the weeds

Imagine reviewing your stock portfolio. Undoubtedly, there are stocks that haven’t performed as well as expected when you initially invested in them.

It’s intriguing how human psychology works. We often hold onto our losses more tightly than we celebrate gains elsewhere. This is known as ‘loss aversion’. Sometimes, we add to the losers, hoping that will lower the poor-performing stock’s average purchasing price.

In the contract, Lynch advises you to focus on the winners in your portfolio. In Lynch’s metaphor, flowers represent high-quality companies with solid fundamentals, growth potential, and a competitive edge in their industry. These companies are likely to thrive over the long term and generate significant returns for investors.

After all, it is those handful of stocks with oversized gains that will lift your portfolio’s overall performance, offsetting losses from some underperforming stocks.

Your portfolio could include Pro Medicus Limited (ASX: PME) or Washington H Soul Pattinson & Company Ltd (ASX: SOL). Make sure the winners keep on winning by adding them whenever appropriate share prices become available.

Invest in what you know

I think this must be one of Peter Lynch’s most famous pieces of advice. Lynch recommended investing in companies and industries that you understand. Lynch believes investors can have a significant advantage when investing in familiar industries. By doing this, they can make the most out of their knowledge and expertise gained from day-to-day jobs.

Let’s say you work in the medical imaging industry and notice your company is upgrading its systems to improve operational efficiency. If it happens to be products offered by Pro Medicus, you might be lucky enough to be one of the early investors of this fantastic growth stock.

As an insider of the industry, you would be able to understand the company’s products, market position, and competitive advantages over its competitors. And all of these can be valuable information when assessing your next investment ideas.

Do your homework

Once you find a candidate for your next investment, it is crucial to continue studying this company in depth. Just having an idea is insufficient. Lynch’s investment strategy centres around thorough research.

Lynch believed in digging deep into a company’s financial statements, understanding how it makes money and the quality of management. Another famous investor, Warren Buffett, likes to read everything available about a potential candidate company before making an investment decision.

For example, before investing in a company, Lynch recommended studying its annual reports, quarterly earnings releases, and industry publications. By understanding the company’s financial health, growth prospects, and potential risks, investors can better evaluate whether it aligns with their investment goals and risk tolerance.

Foolish takeaway

Peter Lynch’s timeless advice resonates with both novice and seasoned investors alike.

Investors can build a robust portfolio that stands the test of time by focusing on quality, leveraging their own expertise, and conducting thorough research.

The post 3 pieces of investment advice from Peter Lynch appeared first on The Motley Fool Australia.

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Motley Fool contributor Kate Lee 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 Pro Medicus and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Pro Medicus. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

In the competitive world of retail, strategic financial management is key to maintaining a strong market position.

Coles Group Ltd (ASX: COL), one of Australia’s leading supermarket chains, has navigated this landscape with operational strategies and financial manoeuvres.

However, in today’s financial landscape, characterised by rising interest rates, the importance of thorough balance sheet analysis has never been greater. Investors are increasingly focusing on the debt levels of companies to assess their financial health and long-term viability. This is because high interest rates can significantly impact a company’s cost of borrowing, cash flow, and overall financial stability.

With this background, I delve into Coles’ financial health, examine its debt profile, and explore the potential implications in this article.

Debt-to-equity ratio

The debt-to-equity ratio is a way to see how much a company is borrowing compared to how much it owns. Think of it like this:

• Debt is money the company has borrowed and needs to pay back.
• Equity is money that the company’s owners have put into the business.

The debt-to-equity ratio compares these two amounts. It shows how much debt the company has for every dollar of equity.

As at 31 December 2023, Coles has a total debt of $9.4 billion, including lease liabilities of $7.7 billion. Adjusting for its cash and short-term investment balance of $1.1 billion, its net debt reduces to $8.3 billion. The retailer managed to reduce its net debt levels gradually over time, from $9.4 billion in June 2020 to $7.7 billion in December 2023.

Net debt excluding lease liabilities was $1.2 billion, up $133 million from June 2023 due to increased capital expenditures.

During this period, Coles’ equity has risen from $2.6 billion to $3.5 billion, indicating its debt-to-equity ratios have improved from 3.6x to 2.4x. In other words, Coles has $2.4 of debt for every $1 of equity.

This is higher than what I would like to see from a retailer, but it is optimistic that this ratio is improving. This is also slightly better than its rival Woolworths Group Ltd (ASX: WOW) at 2.8x based on its December 2023 financials.

Is Coles making sufficient profits to cover interest payments?

Another important metric to measure a company’s financial health is the interest coverage ratio. It is a measure of how easily a company can pay the interest on its debts using its operating income.

For the last 12 months to December 2023, Coles generated an operating income of $1.7 billion. In fact, its operating profits have stayed consistently between $1.6 billion and $1.8 billion over the last four years.

From the operating profits, Coles spent $397 million on net financing costs during the same period. This expense has reduced from $431 million in FY20 as its improved debt levels offset the impact of interest rate increases.

These two figures give us an interest coverage ratio of 4.4x, indicating its current income is sufficient to cover interest expenses.

On the cash flow side, which can be different from the income statement, Coles makes an operating cash flow of $2.7 billion a year, which has been consistently moving between $2.7 billion and $2.8 billion since FY21. This is sufficient to cover its increased needs for capital expenditure (capex) of $1.7 billion and lease obligations of approximately $900 million a year.

Foolish takeaway

In this article, we reviewed a few important metrics to assess the financial health of Coles’ balance sheet.

While its debt-to-equity ratio appears to be high, the company generates sufficient income to cover debt servicing expenses for now, in my opinion.

The post Buying Coles shares? Here are key metrics you’ll want to know appeared first on The Motley Fool Australia.

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

Commonwealth Bank of Australia (ASX: CBA) shares closed up 1.11% yesterday, trading for $125.48 apiece.

That sees shares in the S&P/ASX 200 Index (ASX: XJO) bank stock up an impressive 30% since this time last year, not including the two fully franked dividends eligible shareholders will have received.

And it sees Australia’s biggest bank commanding a market cap of $210 billion.

Now investors who’ve listened to the chorus of bearish analyst views on the valuation of CBA shares may have been spooked into selling their holdings and missed out on some of those outsized gains.

Investors who’ve kept their long-term goals in mind and held onto shares, on the other hand, should be sitting pretty.

How pretty?

Let’s dig in.

500 CBA shares at 2014 prices please

One year ago, on 13 June 2014, I could have snapped up CBA shares for $81.39 apiece.

Meaning my 500 shares would have set me back an even $40,695.

A tidy sum, to be sure. But an investment that would have paid off in spades.

At yesterday’s closing price of $125.48 a share, my 500 shares would now be worth an even $62,740.

That equates to a 54.17% gain on my initial investment.

Not bad.

But let’s not forget the dividends.

Why passive income investors like CommBank stock

CBA shares have long been a favourite among passive income investors.

That’s because the big four bank has a lengthy track record of paying two annual, fully franked dividends a year. A record that reaches back more than a decade. And one that includes the pandemic addled year of 2020.

If I’d bought CommBank stock on 13 June 2014, I would have been eligible to receive the $2.18 final dividend. That welcome passive income would have hit my bank account on 2 October 2014.

I would then also have received 19 more dividend payouts to date.

Turning to my trusty calculator, that works out to a total 10-year payout of $40.47 per CBA share. With some potential tax benefits from those franking credits.

Now, I’d likely have done better by reinvesting those dividends as they came in.

But we’ll assume I spent that passive income on some extra little luxuries instead.

So, we’ll just add that $40.47 in dividends into yesterday’s closing share price of $125.48, which brings the accumulated value of my CBA shares bought 10 years ago to $165.95.

Meaning my 500 shares, purchased for $40,695, would now be worth an accumulated $82,975.

That represents a gain of 103.90%.

Happy investing!

The post Here’s how much I’d have if I’d bought 500 CBA shares 10 years ago appeared first on The Motley Fool Australia.

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• Big bank bargain: Are this week’s tumbling ASX 200 bank shares a good buy?
• 1 popular ASX stock I’m steering clear of
• Are CBA shares losing their passive income credentials?
• Unstoppable! CBA share price smashes yet another record high
• Why you should sell CBA, Westpac, and Bank of Queensland shares in June

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.