Category: Stock Market

Vanguard US Total Market Shares Index ETF (ASX: VTS) shares (units) may be best known for the substantial capital growth it has delivered to investors. However, did you know it also pays dividends?

An exchange-traded fund (ETF) allows investors to buy a large group of businesses in a single investment. The ETF also acts as a conduit for any dividends and distributions it receives from holdings and passes to investors.

With this particular ETF invested in more than 3,700 US-listed businesses, it receives a lot of dividends!

Let’s examine how much dividend income the Vanguard US Total Market Shares Index ETF is paying.

VTS ETF dividend yield

The fund provider, Vanguard, tells investors about the fund’s key statistics every month. These include performance, the price/earnings and price-to-book ratios, the return on equity (ROE) ratio, the collective earnings growth rate of the underlying businesses, and the dividend yield.

The ASX dividend yield of the Vanguard US Total Market Shares Index ETF is directly influenced by the dividend yield of the underlying holdings. The greater the portfolio’s weighting to a particular company, the more it influences the dividend yield.

According to Vanguard, the VTS ETF dividend yield was 1.4% in April 2024.

That’s not an exciting dividend yield. It’s so low because the portfolio’s biggest holdings have low yields or don’t pay dividends at all.

For example, the biggest seven positions in the fund’s portfolio at 30 April 2024 were Microsoft, Apple, Nvidia, Alphabet, Amazon.com, Meta Platforms and Berkshire Hathaway. Company giants, but none of these stocks have a material yield. So, it’s not surprising the VTS ETF can’t provide much passive income to investors.

It is fairly common for technology companies — which make up around a third of the fund’s allocation –to reinvest much of the profit generated back into the business for further growth rather than distributing it to shareholders.

Can the fund generate cash flow?

Over the past five years, the VTS ETF has delivered an average return per annum of 14.2%. Past performance shouldn’t be relied on for future performance, of course.

With that sort of return, an investor could decide to sell around 3% or 4% of the fund’s value each year, and the remaining balance could still rise over time thanks to capital growth if the ETF’s total returns are more than 4% per annum. That means an ASX dividend yield of 3% or 4% could be achieved through sales, though any gains would be taxable (just like dividends are).

That strategy would only work for a meaningful balance, though, such as above $10,000. Selling $40 of units, for example, would mean the brokerage costs may take up too much of the sale proceeds to be worthwhile.

The post Does the Vanguard US Total Market Shares Index ETF (VTS) pay a decent ASX dividend? appeared first on The Motley Fool Australia.

More reading

• Why Vanguard US Total Market Shares Index ETF (VTS) is a top buy for retirement
• Own the ASX’s Vanguard US Total Markets ETF (VTS)? Here’s what you’re invested in
• Here’s what makes the Vanguard US Total Market ETF (VTS) stand out from other index funds
• How much money should I put in one ASX ETF?

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, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Over the last 12 months, the ASX 200 index has risen over 7%. While this is a decent return, it pales in comparison to some of the returns that have been recorded by ASX shares.

For example, the three ASX shares listed below have absolutely smashed the market. And the good news is that there may be more to come according to analysts. Here’s what you need to know:

Life360 Inc (ASX: 360)

The Life360 share price is up almost 130% since this time last year. Investors have been fighting to get hold of the location technology company’s shares thanks to its explosive growth and transition to positive cash flow.

The good news is that analysts don’t believe it is too late to climb on board. For example, Bell Potter has a buy rating and $17.75 price target on the ASX share. This implies potential upside of 15% for investors over the next 12 months.

It highlights that the company has “the potential to leverage its large and growing user base to enter new markets and disrupt the legacy incumbents.” Bell Potter also believes that its performance during COVID highlights “the potential for continued strong growth in the base with market conditions now back to normal.”

Telix Pharmaceuticals Ltd (ASX: TLX)

The Telix share price has smashed the market and climbed 62% over the last 12 months.

The catalyst for this has been a combination of exceptionally strong sales and earnings growth from the radiopharmaceuticals company and very promising trial updates.

In respect to its financial performance, last month the company released its first quarter update and revealed a 75% increase in revenue to $175 million. Telix’s gross profit grew even quicker and was up 84% to $115.4 million.

This went down well with analysts at UBS. The broker has put a buy rating and $19.30 price target on its shares. This implies potential upside of almost 9% for investors.

Universal Store Holdings Ltd (ASX: UNI)

The Universal Store share price has also risen 62% over the last 12 months. This has been driven by a solid performance so far in FY 2024 and the belief that its shares were undervalued last year.

In respect to the former, the youth fashion retailer reported an 8.5% increase in group sales and a 16.7% jump in net profit after tax during the first half.

Despite its strong rise, Morgans believes this ASX share can keep climbing. It has put an add rating and $6.50 price target on its shares, which implies potential upside of 30% for investors from current levels.

The post 3 high-flying ASX shares that could keep on climbing appeared first on The Motley Fool Australia.

More reading

• Here are the top 10 ASX 200 shares today
• Why Clarity Pharmaceuticals, Life360, Ramsay Health Care, and Spartan Resources shares are rising today
• Life360 shares jump 7% on Nasdaq IPO launch
• 5 things to watch on the ASX 200 on Tuesday
• How ASX shares vs. property performed in May

Motley Fool contributor James Mickleboro has positions in Life360, Telix Pharmaceuticals, and Universal Store. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Life360 and 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.

Income investors certainly are a lucky bunch. The Australian share market is filled to the brim with dividend-paying companies.

And while the average dividend yield usually sits at around 4%, some ASX dividend shares provide much juicier yields.

For example, the two shares listed below have been named as buys and tipped to offer yields greater than 6% this year and next. Here’s what you need to know about them:

Accent Group Ltd (ASX: AX1)

The first ASX dividend share that could be worth considering this month is Accent Group.

It is a market leading digitally integrated retail and distribution business in the performance and lifestyle market sectors. Its main focus is footwear, with the company operating a large number of retail banners such as HypeDC, Platypus, Sneaker Lab, Stylerunner, and The Athlete’s Foot.

At the last count, Accent Group had a network of over 800 stores. It also had 35 websites, 821 points of distribution, and almost 10 million contactable customers. This makes it the clear leader in the market.

Bell Potter is a very big fan of the company and sees significant value in its shares at current levels. The broker has a buy rating and $2.50 price target on them. This implies potential upside of approximately 30% for investors over the next 12 months.

But the returns won’t stop there. Bell Potter expects some very big dividend yields from its shares in the near term. It is forecasting fully franked dividends per share of 13 cents in FY 2024 and then 14.6 cents in FY 2025. Based on the latest Accent share price of $1.92, this represents dividend yields of 6.8% and 7.6%, respectively.

APA Group (ASX: APA)

Another ASX dividend share that could offer big yields for income investors in the near term is APA Group.

It is an energy infrastructure business that owns, manages, and operates a diverse portfolio of gas, electricity, solar and wind assets. This includes 15,000 kilometres of natural gas pipelines that connect sources of supply and markets across mainland Australia, delivering half the nation’s natural gas usage.

In addition, it owns or has interests in gas storage facilities, gas-fired power stations, and renewable energy generation. In total, the company owns or manages and operates a portfolio of assets valued at around $25 billion.

Analysts at Macquarie are positive on the company and have an outperform rating and $9.40 price target on its shares.

As for dividends, the broker believes the company’s long run of dividend increases can continue. It is forecasting dividends per share of 56 cents in FY 2024 and then 57.5 cents in FY 2025. Based on the current APA Group share price of $8.39, this equates to 6.7% and 6.85% dividend yields, respectively.

The post With 6%+ yields, here are 2 ASX dividend shares to consider buying now appeared first on The Motley Fool Australia.

More reading

• 1 ASX dividend stock down 30% to buy right now
• Forget NAB and buy these ASX dividend shares
• 3 Australian shares to help secure your future
• These buy-rated ASX dividend stocks offer 6%+ yields (and plenty of upside)
• 3 ASX shares with a long history of increasing dividends

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 Macquarie Group. The Motley Fool Australia has positions in and has recommended Apa Group and Macquarie Group. The Motley Fool Australia has recommended Accent Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

If you’re in the market for some new ASX shares in June, then it could be worth listening to what analysts at Bell Potter are saying.

That’s because they have just revealed their favoured picks for the month ahead. Three on its list this month are named below. Here’s what the broker is saying about them:

Coles Group Ltd (ASX: COL)

This supermarket giant could be an ASX share to buy this month according to the broker. It believes the company’s investment in its supply chain and online business will help strengthen its position in the market. It said:

Costs are expected to remain elevated but should moderate through FY24 and FY25 as general inflation tapers off. In the medium term, 1) higher immigration should support grocery spending, and 2) Coles is entering a period of elevated capex intensity as it reinvests to modernise its supply chain and to catch up to competitors on online and digital offerings, which should help Coles maintain its market position.

Bell Potter has a buy rating and $19.00 price target on Coles’ shares.

Mineral Resources Ltd (ASX: MIN)

If you don’t mind investing in the mining sector, then it could be worth looking at this mining and mining services company. Bell Potter likes Mineral Resources due to its diverse operations and strong growth outlook. It explains:

Our Buy view is underpinned by MIN’s earnings diversification, strong insider ownership, clearly articulated strategies, expertise in contracting and internal growth options at Onslow as well as potential lithium expansions including into downstream. All up, MIN offers diversified exposure to steady income streams from the contracting business and market-driven commodity exposure coupled with earnings derived from both lithium and iron ore.

The broker has a buy rating and $85.00 price target on the ASX share.

Regal Partners Ltd (ASX: RPL)

A final ASX share that could be a buy is investment company Regal Partners. The broker highlights its strong investment performance and believes that the market is undervaluing this. It commented:

We continue to favour RPL, given its strong organic & inorganic growth potential, and entrepreneurial culture. In the last six months, and following the recent acquisition of PM Capital and Taurus (50%), the firm has shown an acceleration of inflows, strong investment performance (which will give rise to performance fees) and success in marketing new funds. We feel this strong performance is not reflected in the share price and see considerable upside

Bell Potter has a buy rating and $4.02 price target on its shares. It also expects a 6%+ dividend yield.

The post Bell Potter names the best ASX shares to buy in June appeared first on The Motley Fool Australia.

More reading

• Would I be crazy to buy Coles shares at $16?
• Mineral Resources is joining forces with this micro-cap lithium share
• Forget NAB and buy these ASX dividend shares
• Top brokers name 3 ASX shares to buy next week
• Here’s how the ASX 200 market sectors stacked up last week

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 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.

Medibank Private Ltd (ASX: MPL) shares have been on form over the last six months.

During this time, the private health insurer’s shares have risen almost 8%.

This leaves them trading at $3.75, which is just a stone’s throw away from their 52-week high of $3.94.

But can this run continue or have Medibank shares now peaked for the time being? Let’s take a look at what analysts at Goldman Sachs are saying about the company.

What is Goldman Sachs saying about Medibank shares?

Well, there’s good news and bad news for Medibank shareholders.

The good news is that Goldman doesn’t believe you should be rushing out to sell your shares. The bad news is that it does feel that they are now fully valued.

According to a note from late last month, the broker has reaffirmed its neutral rating and $3.70 price target. This is marginally lower than where they currently trade.

But thanks to dividends, Goldman expects a positive but modest total return over the next 12 months.

It is forecasting fully franked dividends of 16 cents per share in FY 2024 and 17 cents per share in FY 2025. This equates to dividend yields of 4.25% and 4.5%, respectively.

Goldman likes Medibank due to its defensive earnings and favourable operating conditions. However, due to its current valuation, it isn’t able to recommend its shares as a buy right now.

Instead, it prefers rival NIB Holdings Limited (ASX: NHF). It commented:

MPL is one of the largest private health insurers in Australia. We are Neutral rated on the stock. We like MPL given: 1) it offers defensive exposure to the private health insurance sector which is experiencing favourable operating trends, 2) the claims environment (utilisation / inflation) remains manageable, 3) policyholder give backs are supporting retention, 4) strong recovery in non-resident volumes – international students, workers and visitor arrivals. However, we are Neutral reflecting: 1) MPL’s policyholder growth vs NHF, 2) Valuation, 3) Some risk related to cyber security legal cases and investigations.

Goldman Sachs currently has a buy rating and $8.10 price target on NIB’s shares. This implies a potential return of 9.5% over the next 12 months before dividends and approximately 13.5% including them. It said:

We currently have a preference for NHF in this space reflecting strong underlying top line growth through policyholder growth and premium rate increases, greater diversity of earnings outside of regulated resident health insurance and valuation appeal.

The post What is Goldman Sachs saying about Medibank shares in June? appeared first on The Motley Fool Australia.

More reading

• Overinvested in CBA shares? Here are two alternative ASX dividend stocks
• Here’s how I’d target a $2,000 second income by investing $35 a week
• Here are 3 reliable ASX shares I’d buy instead of the big four banks right now
• With $1,000 to invest, should I buy ASX growth stocks or income shares?
• Why I’d buy high-yield ASX dividend shares for superannuation in retirement

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.

The banking sector has been a great place to invest over the last six months.

During this time, a number of Australian banks have significantly outperformed, delivering big returns for investors.

For example, Commonwealth Bank of Australia (ASX: CBA) shares are up 16% and Westpac Banking Corp (ASX: WBC) shares are up 25%.

Regional bank Bank of Queensland Ltd (ASX: BOQ) has also been on form, rising by 9% over the six months.

However, the team at Goldman Sachs has just reiterated its view that investors should be locking in their gains and moving out of the banking sector.

What is Goldman saying at the banks?

It notes that bank valuations in Australia have always been higher than their global peers. And this has been somewhat justifiable given their higher returns on equity (ROE). But the latter no longer is the case. It explains:

In CY15A, the Australian banks earned the second highest average ROTE/ROE of global comparable banks, slightly below that of the Canadian banks. However, between 2015 and 2023, Australian bank ROTE/ROE underperformed global comparable banks by c. 50%, such that Australian banks now actually earn the lowest ROTE of global comparable banks, and among the lowest ROE.

Unfortunately, Goldman doesn’t believe this trend will change any time soon. It adds:

Interestingly, the underperformance on returns can largely be attributed to NIM and the exit from sources of low capital intensive non-interest income, neither of which we expect to improve over the forecast period. Furthermore, we note that balance sheet gearing has actually been a relative returns tailwind for Australian bank returns.

ASX banks look expensive

Despite the above, Australian investors have been prepared to buy CBA and other ASX bank shares even though they are the most expensive in the world. It adds:

Despite this relatively poor ROTE/ROE performance, the fall in Australian bank price-to-book multiples has largely matched that of their global comparable peers, such that they collectively remain the most expensive global banks (1.9x P/BV for 11% ROE vs. global comparable banks 1.3x P/BV for 13% ROE). With all this in mind, we estimate the Australian banks, relative to global comparable peers, on a ROE vs. price-to-book multiples basis, are currently trading at the 96th percentile versus history (95th percentile ex-CBA).

Sell Westpac, Bank of Queensland, and CBA shares

In light of the above, it will come as no surprise to learn that Goldman has put sell ratings on CBA, Bank of Queensland, and Westpac.

It has a sell rating and $82.61 price target on CBA’s shares, a sell rating and $24.10 price target on Westpac’s shares, and a sell rating and $5.44 price target on Bank of Queensland’s shares.

The post Why you should sell CBA, Westpac, and Bank of Queensland shares in June appeared first on The Motley Fool Australia.

More reading

• 2 high-yield ASX shares I’d buy right now for dividends
• Are ASX 200 bank shares a good investment right now?
• Here are the top 10 ASX 200 shares today
• How the CBA share price defied the bears to surge in May
• Is the Westpac share price at a stretched valuation right now?

Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation. 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.

Investors searching for passive income could do very well with high-yield ASX shares. In fact, one of the advantages of buying companies for dividends is that there is a second source of investment return other than capital gains – income.

And in a world of high inflation, high interest rates, and geopolitical instability – cash remains king in my view.

Here are two standout options to consider in the dividend debate: Bank of Queensland Ltd (ASX: BOQ) and Westpac Banking Corp (ASX: WBC). Let’s take a look.

Why Bank of Queensland is a high-yield ASX share

BOQ serves around 1.4 million customers and holds a 2.73% share of the Australian residential mortgage market.

Bank of Queensland is currently trading at $5.93 per share, boasting a trailing dividend yield of 6.41% from dividends of 38 cents per share in the last 12 months.

This yield is among the highest in the ASX banking sector, making it an attractive option for income-focused investors, in my opinion.

Despite varying economic environments over the years, BOQ has maintained stable, robust dividend payouts. A $10,000 investment in BOQ stock today would yield approximately $660 annually based on its trailing dividend rate (no franking credits considered). If the dividend yield drops however – so too would this yield.

For comparison, the iShares Core S&P/ASX 200 ETF (ASX: IOZ) – an ETF tracking the Australian benchmark index – currently pays dividends at a trailing yield of 3.59%.

Westpac – another top high-yield ASX share

Westpac is another high-yield ASX share worth noting. At the time of publication, its trailing dividend yield is 5.5%.

Westpac, one of Australia’s “big four” banks, has a strong track record of paying solid, fully-franked dividends, making it a reliable choice for dividend-seeking investors, in my view.

The bank has also demonstrated resilience in a number of economic cycles, maintaining strong net interest margins along with the broad sector, according to my colleague Bernd. This performance, coupled with ongoing share buybacks, is a vote of confidence in my estimation.

If Westpac continues to pay dividends at the same yield of around 5.5%, a $10,000 investment would return around $560 in passive income annually (not considering any franking credits).

Conclusion

Both Bank of Queensland and Westpac offer attractive high yields for ASX investors. BOQ’s 6.41% trailing yield and Westpac’s 5.5% trailing yield could make them compelling options for those seeking strong, consistent dividends, in my view.

As a precaution – even though the banks are tipped to continue paying strong dividends moving forward, past performance is no guarantee of future results.

The post 2 high-yield ASX shares I’d buy right now for dividends appeared first on The Motley Fool Australia.

More reading

• Are ASX 200 bank shares a good investment right now?
• Here are the top 10 ASX 200 shares today
• Is the Westpac share price at a stretched valuation right now?
• Here’s the average wealth of Aussies who manage their own superannuation
• Buy one, sell the other: Goldman’s take on these 2 ASX bank shares

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 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.

On Tuesday, the S&P/ASX 200 Index (ASX: XJO) had an underwhelming session and dropped into the red. The benchmark index fell 0.3% to 7,737.1 points.

Will the market be able to bounce back from this on Wednesday? Here are five things to watch:

ASX 200 expected to edge lower

It looks set to be another subdued day for the Australian share market on Wednesday despite a reasonably positive session in the United States. According to the latest SPI futures, the ASX 200 is expected to open the day 11 points or 0.15% lower. On Wall Street, the Dow Jones climbed 0.35%, the S&P 500 rose 0.15% higher, and the Nasdaq pushed 0.2% higher.

Oil prices drop again

ASX 200 energy shares Beach Energy Ltd (ASX: BPT) and Woodside Energy Group Ltd (ASX: WDS) could have another tough session after oil prices dropped again overnight. According to Bloomberg, the WTI crude oil price is down 1.2% to US$73.30 a barrel and the Brent crude oil price is down 1% to US$77.56 a barrel. Oil prices have been under pressure this week after OPEC+ announced an end to voluntary production cuts.

Treasury Wine update

The Treasury Wine Estates Ltd (ASX: TWE) share price will be on watch today. That’s because the wine giant released an update after the market close on Tuesday. As well as talking up its sizeable opportunity in North America, the Penfolds owner reaffirmed its guidance for FY 2024. Treasury Wine continues to expect mid-high single digit EBITS growth for the year. This excludes the EBITS contribution from DAOU in the second half, which is expected to be US$24 million. This is in line with management’s expectations.

Gold price tumbles

ASX 200 gold shares Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a difficult day after the gold price tumbled overnight. According to CNBC, the spot gold price is down 1% to US$2,346.6 an ounce. A stronger US dollar put pressure on the precious metal.

Xero’s notes offering

Xero Ltd (ASX: XRO) shares will be in focus today after the cloud accounting platform provider launched a new convertible notes offering. Xero is raising US$850 million (A$1.28 billion) through fixed coupon guaranteed senior unsecured convertible notes due in 2031. Management advised that the net proceeds will be used to repurchase its existing notes, for potential acquisitions and strategic investments, and for general corporate purposes.

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

More reading

• Here are the top 10 ASX 200 shares today
• Why is the Woodside share price tumbling on Tuesday?
• Buying shares? Don’t fall prey to this commonly disastrous mistake
• This ASX index is up 13% in 2024. Is there more up its sleeve?
• 4 high quality ASX 200 growth shares to buy in June

Motley Fool contributor James Mickleboro has positions in Treasury Wine Estates, Woodside Energy Group, and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool Australia has recommended Treasury Wine Estates. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Telstra Group Ltd (ASX: TLS) share price has been sluggish over the past year, falling by 20%. This leading telco stock has underperformed the S&P/ASX 200 Index (ASX: XJO), which is up 7% during the same period. At the time of writing, the Telstra share price is trading at $3.48.

Telstra offers a dividend yield of 5.03%, surpassing the Reserve Bank of Australia’s official cash rate of 4.35%. Can this be a good investment opportunity for dividend-focused investors? 

Telstra’s valuation has become cheaper

The declining share price has made Telstra cheaper in terms of the price-to-earnings ratio. According to S&P Cap IQ, the Telstra share price is now valued at 19x FY24’s estimated earnings, down from 24x a year ago and near the midpoint of its historical trading range of 10x to 28x. 

Telstra generates a robust operating cash flow of approximately $7 billion annually, supporting its substantial cash dividend payments. As mentioned above, Telstra offers a fully-franked dividend yield at the current price.

How about Telstra’s business outlook?  

The telecommunications industry necessitates continuous investment in capital assets to ensure a high quality of service. Telstra spends nearly $4 billion annually on capital expenditures (capex), leaving approximately $3 billion of free cash flow, which is the cash left after accounting for cash outflows to support operations and capex.

While Telstra’s free cash flow of $3 billion is sufficient to cover its current annual dividend payments of $2.3 billion, future earnings growth is crucial for raising its dividend payments. 

Unfortunately, Telstra faces growing competition from more affordable alternatives, driven by consumer efforts to manage living costs. Additionally, as the largest player in the Australian market, Telstra has limited domestic growth opportunities. 

With that said, Telstra is proactively finding ways to optimise its cost structure, as highlighted in its recent market update in May 2024. 

Foolish Takeaway

The Telstra share price has been disappointing this year. However, the company’s valuation has become more attractive, trading at 19 times, and it offers a dividend yield of 5%. 

With limited revenue growth opportunities, Telstra’s focus on cost optimisation is a promising strategy for enhancing net profits and sustaining future dividend payments.

The execution of Telstra’s cost optimisation and growth strategies will be critical going forward.

The post Are Telstra shares now a brilliant bargain? appeared first on The Motley Fool Australia.

More reading

• ‘Undervalued’: 3 ASX 300 shares to buy following significant share price falls
• Buy Rio Tinto and these ASX dividend stocks for 5%+ yields
• Here is the earnings forecast through to 2026 for Telstra shares
• How I’d try to turn an empty portfolio into $300k by buying cheap ASX shares, starting now
• How UBS expects Telstra shares to gain 27% and deliver dividend growth

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 Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

If you’re looking for new additions to your investment portfolio in June, then it could be worth considering QBE Insurance Group Ltd (ASX: QBE) shares.

That’s because analysts at Goldman Sachs believe that big returns could await investors that buy the insurance giant’s shares at current levels.

Why are QBE shares a buy?

Goldman has named a few reasons why it thinks that investors should be buying the company’s shares today.

The first reason is that “QBE has the strongest exposure to the commercial rate cycle.” Given the momentum that is being seen in the commercial premium rate cycle, Goldman expects QBE to benefit greatly.

Another reason that the broker is bullish on the insurer is that “QBE’s achieved rate increases continue to be strong & ahead of loss cost inflation.”

And a third reason is that its “valuation [is] not demanding.” Goldman estimates that its shares are changing hands for just 9.8x estimated FY 2024 earnings of US$1.22 per share (A$1.84 per share).

Big returns expected

Goldman has a buy rating and $20.90 price target on QBE’s shares. This implies potential upside of 16% for investors over the next 12 months.

In addition, the broker is forecasting a 62 US cents per share (93.3 Australian cents per share) dividend in FY 2024. This represents a 5.2% dividend yield based on its current share price and boosts the total potential return beyond 20%. A slightly larger 63 US cents per share dividend is then expected in FY 2025.

Is anyone else bullish?

Goldman isn’t alone with its view that QBE’s shares are good value at current levels.

UBS currently has a buy rating and $21.00 price target on its shares. Whereas the team at Citi has a buy rating and $20.00 price target on its shares and Morgans has an add rating with a $20.00 price target. These all imply double-digit upside from where its shares trade today.

Commenting on its add recommendation, Morgans said:

With strong rate increases still flowing through QBE’s insurance book, and further cost-out benefits to come, we expect QBE’s earnings profile to improve strongly over the next few years. The stock also has a robust balance sheet and remains relatively inexpensive overall trading on 8x FY24F PE.

Overall, the broker community appears to believe that the insurance giant could be a quality option for investors. Especially those looking for a source of income from the share market given its 5%+ dividend yields.

The post 3 reasons to buy QBE shares right now appeared first on The Motley Fool Australia.

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Citigroup is an advertising partner of The Ascent, a Motley Fool company. 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.