The ASX dividend stock APA Group (ASX: APA) has experienced significant pain in the last couple of years. As the chart below shows, the APA share price is down 30% from its peak in mid-2022.  

When a passive income-paying business drops in value, it can unlock a much higher level of dividends for prospective investors.

For example, if a business with a 4% dividend yield suffers a 10% share price drop then yield becomes 4.4%, a fall of 20% becomes 4.8% and so on. APA has suffered an even greater decline.

There are two key reasons why APA shares look like a compelling pick to me.

Excellent asset base in high demand

APA is one of the largest owners of energy assets in Australia and as energy is essential in the Australian economy, I’d suggest it provides defensive earnings.

Its gas infrastructure includes more than 15,000km of transmission pipeline, 12,000 tonnes of LNG and 18 PJ of gas storage, and 29,500km of gas mains and pipelines to more than 1.5 million gas customers. It transports more than half of the nation’s usage.

The ASX dividend stock owns a significant amount of power generation, including 342MW of wind, 311MW of solar, 39MW of battery energy storage and 884MW of gas-fired generation.

Electricity transmission is the final asset group for APA – it has more than 800km of high-voltage electricity transmission and 290km of deep-sea electricity cables.

APA continues to invest in these three areas — gas transmission, renewable energy generation, and electricity transmission — unlocking further cash flow.

The Australian federal government has recently confirmed gas is expected to play a part in Australia’s energy mix to 2050 and beyond, which highlights the importance of APA’s gas asset, in my opinion.

Another reason to be bullish about long-term energy demand is that new data centres may require significantly more energy in the coming years.

The ASX dividend stock’s excellent record

APA has grown its distribution every year over the past two decades. Growth is not guaranteed, but APA has delivered the right balance with its cash flow between rewarding shareholders and investing for growth.

The company’s growing cash flow is funding the growing payments. Pleasingly, APA says that over 90% of its revenue is linked to inflation. APA’s revenue has grown during this inflationary period, and with inflation continuing to remain high, its shorter-term revenue outlook is promising.

APA expects to grow its FY24 annual distribution by 1.8% to 56 cents, which is a forward distribution yield of 6.8%. I think that’s a very pleasing starting yield from the ASX dividend stock, with a high chance of further growth in the foreseeable future.  

The post 1 ASX dividend stock down 30% to buy right now appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Apa 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 wanting to build an income portfolio in June but don’t have sufficient funds to maintain a diverse portfolio, don’t worry.

That’s because there are exchange-traded funds (ETFs) out there that could potentially help you achieve this goal.

For example, the three ASX ETFs listed below offer investors exposure to a large collection of dividend-paying shares in one fell swoop. This can provide diversification for a portfolio.

Here’s what you need to know about these ETFs:

BetaShares S&P 500 Yield Maximiser (ASX: UMAX)

The first ASX ETF for income investors to consider buying this month is the BetaShares S&P 500 Yield Maximiser.

This actively managed fund provides investors with access to the top 500 companies listed on Wall Street. However, through its clever covered call strategy it is able to target quarterly income that is significantly greater than the dividend yield you would expect to receive from the underlying share portfolio.

For example, at present it trades with a trailing 4.6% distribution yield.

Vanguard Australian Shares Index ETF (ASX: VAS)

Another top ASX ETF for income investors to look this month is the Vanguard Australian Shares Index ETF.

It is an index based ETF that aims to track the local ASX 300 index. This means that you will be buying a slice of Australia’s leading 300 listed companies with a single click of the button. Among this diverse group of shares are giants like BHP Group Ltd (ASX: BHP) and smaller names including National Storage REIT (ASX: NSR) and Inghams Group Ltd (ASX: ING).

At present, it provides investors with a dividend yield of 3.7%.

Vanguard Australian Shares Index ETF (ASX: VHY)

A final ASX ETF that could be a good option for income investors in June is the Vanguard Australian Shares High Yield ETF.

It offers investors low-cost exposure to a portfolio of 70+ ASX shares that have higher forecast dividends relative to the market average based on broker research.

Vanguard highlights that security diversification is achieved by restricting the proportion invested in any one industry to 40% of the total ETF and 10% for any one company. In addition, Australian Real Estate Investment Trusts (A-REITS) are excluded from it.

This means you will be owning a portfolio of generous dividend-paying shares such as giants like BHP Group and Commonwealth Bank of Australia (ASX: CBA). In addition, there are plenty of smaller dividend-paying companies like Centuria Capital Group (ASX: CNI) and Dicker Data Ltd (ASX: DDR).

The ETF currently trades with a trailing dividend yield of 4.9%.

The post Buy these ASX ETFs for income in June 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 positions in and has recommended BetaShares S&P 500 Yield Maximiser Fund and Dicker Data. The Motley Fool Australia has recommended Vanguard Australian Shares High Yield ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The listed investment company (LIC) Australian Foundation Investment Co Ltd (ASX: AFI) (AFIC) is one of the biggest investment businesses in Australia. It has been operating since 1928 and there are several positive aspects about AFIC shares.

AFIC focuses its investments on a portfolio of ASX blue-chip shares, which have the potential to deliver a growing stream of fully franked dividends and enhance capital invested over the medium to long term.

Over the last five years, the AFIC net asset per share growth, plus dividends (including franking), has delivered an average return per annum of 9.8%. That compares to a 9.4% average return per annum for the S&P/ASX 200 Accumulation Index (ASX: XJOA), including franking, over the prior five years.

Let’s look at three positives about the business, including an attractive discount with the LIC’s shares.

Asset discount

LIC share prices can trade at a premium or discount to their underlying net tangible assets (NTA). To illustrate, if a LIC representing a basket of shares worth an NTA of $1 was trading at 90 cents, that would be a 10% discount. Likewise, a share price of $1.10 would represent a 10% premium.

Discounts are more appealing than premiums.

During the first two years of COVID-19, AFIC shares were often trading at a premium of more than 5% to the NTA and sometimes at a premium of more than 10%.

However, that premium has now turned into a discount. The last two monthly updates from AFIC showed it trading at a discount of more than 5%.

The current AFIC share price is at a 7% discount to the reported pre-tax NTA on 30 April 2024. This is close to the biggest discount it has traded at over the past decade.

Consistent dividends

No dividends are guaranteed, but AFIC has impressively maintained (or grown) its annual ordinary dividend every year over the past 20 years.

Owners of AFIC shares have experienced a high level of stability with their passive income.

Pleasingly, Transurban has increased its interim dividend in the last two financial years. In FY23, the half-year dividend was hiked by 10% to 11 cents per share. The recent FY24 half-year result saw the interim dividend increase by 4.5%.

Using the last two declared dividends, AFIC shares offer a fully franked dividend yield of 3.5% and a grossed-up dividend yield of 5.1%. Combined with the sizeable NTA discount, investors may be attracted to the LIC’s yield.

Large profit reserve

AFIC pays for its dividends from the profit it makes in that year or from the profit reserve it has built up from investment returns in previous financial years.

In the FY24 first-half result, AFIC reported its revaluation reserve was $3.27 billion, its realised capital gains reserve was $485.6 million and retained profits were $1.03 billion, compared to total equity of $7.98 billion.

In other words, well over half of the shareholder equity is made up of prior profits, meaning the business could continue paying the current dividend for many years before it runs out of profit, in accounting terms at least.

This also demonstrates that AFIC has a history of growing shareholder value and being conservative with its payouts.

The post What you need to know about AFIC shares in June appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has 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.

The Transurban Group (ASX: TCL) share price has dropped 15% in the past year, significantly underperforming the S&P/ASX 200 Index (ASX: XJO), which is up almost 8% in the same period.

As a toll road operator in Australia and North America, investors may wonder whether the ASX 200 stock is a buying opportunity, considering its potential to be a defensive ASX share.

The first step is to examine Transurban’s operational performance and then consider whether its valuation is cheap enough to invest in. Let’s dig in.

Quarterly recap

In its quarterly report for the three months to 31 March 2024, Transurban reported that group average daily traffic (ADT) increased by 0.9% year over year compared to the third quarter of FY23.

Looking at year-over-year ADT growth for the individual markets, Sydney was up 0.7%, Melbourne increased 1.6%, Brisbane ADT fell 1.1%, and North American ADT grew 4.9%.

The timing of Easter in 2024 compared to 2023 reduced ADT by approximately 1.5% across the group in the FY24 third quarter. Excluding the Easter timing impact, the group would have seen 2.4% total ADT growth, with 2.1% growth for Sydney, 2.9% for Melbourne, 0.9% for Brisbane and 6.5% for North America.

The defensive ASX 200 stock reported the quarter’s traffic uplift was largely driven by a higher workday ADT and airport-related travel, offset by construction and weather impacts.

In Sydney, WestConnex traffic increased 9.7%, including a full quarter contribution from the Rozelle Interchange. Higher traffic on the WestConnex was supported by an estimated 10,000 trips per day redistributed from across the Sydney portfolio following the opening of the Rozelle Interchange.

Is the Transurban share price a buy?

The ASX 200 share says macroeconomic projections continue to indicate larger, denser, and wealthier futures for the cities in which Transurban operates. This is expected to drive the “need for increased travel, the continued development of new roads and increased congestion”.

Transurban isn’t growing rapidly, and a higher cost of debt over the long term may be a headwind, but I think this lower Transurban share price can appeal to income-focused investors.

The defensive ASX 200 share is expected to pay a full-year distribution of 62 cents per security, translating into a forward distribution yield of around 5%.

I’d call it a conservative buy. I don’t think it’s going to materially outperform the market until interest rates start coming down. However, it continues to see traffic growth, and it’s working on projects that can expand its total capacity, which could help it climb slowly but steadily.

The post Should you buy this defensive ASX 200 stock on a pullback? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Transurban 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.

Brickworks Limited (ASX: BKW) shares could be great value at current levels.

That’s the view of analysts at Bell Potter, which believe investors should be picking up the building products company’s shares while they can.

What is the broker saying about Brickworks shares?

According to a note this morning, the broker thinks that the company’s important stake in Washington H Soul Pattinson & Company Ltd (ASX: SOL) is the reason to invest. It highlights:

The biggest driver of value in our BKW valuation is the company’s 26.1% shareholding in SOL, which we estimate represents ~50% of the current EV of the business. However, while SOL may be the primary driver of value, the headstock of BKW can at times trade independent of SOL (~70% correlation) and associates such as NHC (~29% correlation) given its equal or greater relationship to domestic building exposures such as JHX (84%) and CSR (70%).

Bell Potter believes the stake is being undervalued by the market at present. It adds:

We believe that an attractive look-through opportunity has recently presented in BKW, with our mark to market valuation of SOL indicating that the stock is currently trading at a 3.6% discount to pre-tax NTA. This compares to an average pre-tax premium to NTA of 3.9% (post the MLT merger) and represents the widest valuation gap since Jul’22.

Upgraded

In light of the above, Bell Potter has upgraded Brickworks’ shares to a buy rating (from hold) with an improved price target of $29.50.

Based on its current share price of $25.76, this implies potential upside of almost 15% for investors over the next 12 months.

In addition, the broker is forecasting fully franked dividends of 67 cents per share in FY 2024 and then 69 cents per share in FY 2025. This equates to 2.6% and 2.7% dividend yields, respectively, for investors.

This means a total potential return of over 17% for investors between now and this time next year, which would turn a $10,000 investment into approximately $11,700 if it proves to be accurate.

Bell Potter then concludes:

There are no material changes to forecasts, however we think the implied SOL discount and rent growth outlook on offer is attractive and upgrade our rating to Buy. Potential catalysts could include news flow regarding development of other surplus properties (e.g. USA). We see Building Products and near-term working capital reduction targets as the key risk, with our FY24e forecasts -6% below consensus.

The post Why this broker just upgraded Brickworks shares to a buy rating 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 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.

Are you wanting to invest in the beaten down lithium industry? If you are and have a high tolerance for risk, then it could be worth taking a look at Latin Resources Ltd (ASX: LRS).

That’s because analysts at Bell Potter believe the ASX lithium stock could deliver very big returns for investors over the next 12 months.

What is the broker saying about the ASX lithium stock?

Bell Potter notes that Latin Resources has updated the mineral resource estimate for its Salinas Lithium Project in Brazil. It was pleased to see that it has increased since its last update. It said:

LRS has announced an updated Mineral Resource Estimate for its 100% owned Salinas Lithium Project located in Minas Gerais, Brazil. The Salinas global MRE is now 77.7Mt grading 1.24% Li2O (compared with the December 2023 estimate of 70.3Mt at 1.27% Li2O). Importantly, the Measured & Indicated component of the Colina deposit (within the global MRE) is now 67.3Mt grading 1.27% Li2O (previously 41.0Mt at 1.36% Li2O). Infill drilling at Colina is now complete and this large M&I component will form the basis of an initial Reserve estimate and Definitive Feasibility Study due for release in the September 2024 quarter.

The broker highlights that the ASX lithium stock is now in the process of preparing a final investment decision by the end of the year. And if all goes to plan, development at Salinas could commence next year and production the year after. It adds:

LRS is actively progressing permitting, offtake and financing to support a Final Investment Decision at Salinas by the end of 2024. Commencement of development in 2025 could enable first production in 2026. Financing and lithium offtake proposals have been received and are being assessed. The DFS is expected to be based on a similar scale project to the September 2023 Preliminary Economic Assessment. The PEA outlined ramp-up to 3.6Mtpa mining and processing rates to ultimately support +500ktpa Spodumene Concentrate production. Based on the PEA throughput assumptions, the current M&I MRE could support a +15 year project life.

Big returns

Bell Potter has responded to the update by retaining its speculative buy rating and 40 cents price target on the ASX lithium stock.

Based on its current share price of 26 cents, this implies potential upside of 53% for investors over the next 12 months. If this proves accurate, a high risk investment of $10,000 would turn into over $15,000.

The broker then summarised its bullish view on the stock. It said:

Colina has the potential to deliver new lithium supply into what we expect to be structurally short markets. Uncommitted offtake and an open share register provide further strategic appeal.

The post Guess which ASX lithium stock could rise over 50% 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.

When it comes to investing in iron ore, Fortescue Ltd (ASX: FMG) shares are a popular option for investors.

But with almost all brokers saying that the mining giant’s shares are overvalued right now, it may not be the best ASX mining stock to buy to gain exposure to the steel making ingredient.

Instead, one of the best options in the space could be the often-overlooked Champion Iron Ltd (ASX: CIA).

That’s because analysts at Goldman Sachs have just named it as an ASX mining stock to buy and are tipping big returns over the next 12 months.

What is the broker saying about this ASX mining stock?

Goldman notes that Champion Iron recently released a solid full year result. It commented:

CIA reported record EBITDA of C$553mn for FY24, up 11% YoY, broadly in-line with GSe of C$541mn but +9% vs. VA consensus. The balance sheet remains well-placed to fund growth and ongoing capital returns with net debt of ~C$140mn, and CIA declared their sixth consecutive C10cps semi-annual dividend. Improvements in rail volumes and drawdown in iron ore inventory at site is still expected from Sep Q 2024.

In light of this in-line performance from the Canada-based miner, the broker has retained its buy rating and $9.30 price target on its shares.

Based on its current share price of $7.02, this implies potential upside of 32% for investors over the next 12 months.

In addition, the broker is forecasting dividends per share of 27.2 Canadian cents in FY 2025 and then 38.8 Canadian cents in FY 2026. At current exchange rates, this equates to dividend yields of 4% and 6%, respectively, for investors.

Why is the broker bullish?

Two key reasons that Goldman is bullish on this ASX mining stock are its valuation and production growth. It explains:

Supportive Valuation: the stock is trading at 0.8x NAV (A$8.8/sh) and ~4.4x EBITDA (NTM). Our NAV is based on a long run Fe price of ~US$105/t (real) for 65% Fe and ~US$75/t premium for DRPF above 62% Fe Index. For every ~US$10/t increase in our long run price, our CIA NAV would increase by ~A$1.5/sh.

Bloom Lake has operated above nameplate 15Mtpa, strong OCF in FY25, with de-bottlenecking options to 18Mtpa: CIA has now ramped-up Bloom Lake Phase II to 15Mtpa nameplate, and we expect this to support +50% EBITDA growth and doubling of Operating Cash Flow (OCF) in FY25, which could fund de-bottlenecking of Bloom Lake to 18Mtpa (not included in GSe base case).

All in all, this could make Champion Iron worth considering ahead of fellow ASX mining stock Fortescue. Incidentally, Goldman has a sell rating and $16.90 price target on the latter’s shares.

The post Forget Fortescue and buy this ASX mining stock now 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.

The Westpac Banking Corp (ASX: WBC) share price has been a strong performer over the last six months.

During this time, Australia’s oldest bank’s shares have risen over 21%.

In addition, Westpac rewarded its shareholders with a fully franked 72 cents per share final dividend in December and later this month will pay a 90 cents per share interim dividend.

But are the good times over for the time being and is the Westpac share price starting to look fully valued? Let’s find out.

Is the Westpac share price fully valued?

Unfortunately, the general consensus is that Westpac’s valuation is now becoming stretched.

For example, even Morgans, which has a hold rating on its shares, has a price target of $24.15. That is 7% below where the bank trades today.

Elsewhere, analysts at Citi recently put a sell rating and $24.75 price target on its shares, and Morgan Stanley put an underperform rating and $24.50 price target on them.

Rally over

Last month, Goldman Sachs called time on the Westpac share price rally largely on valuation grounds.

It believes that the bank valuations are now skewed heavily to the downside. It said:

With earnings risks more balanced, valuations skewed heavily to the downside, and our analysis suggesting previous sector deratings not being catalysed by absolute or relative earnings downgrades, we take a more negative view on the banks, reflected by downgrading: 1) WBC to Sell from Neutral, given i) execution, cost and timing risks relating to its technology simplification, ii) of the major banks, WBC’s balance sheet is the most overweight domestic housing, which we expect will be more growth constrained than commercial lending over the medium term, iii) NIM has been supported by a shorter duration replicating portfolio but this will give them less longevity, and d) WBC’s 14.2x 12-mo fwd PER is more than one standard deviation expensive vs. its 12.7x historic average.

Goldman has a sell rating and $24.10 price target on the bank’s shares. Based on the current Westpac share price of $25.98, this implies potential downside of 7.2% over the next 12 months.

Though, with Goldman forecasting dividends of $1.50 per share to be paid out over the next 12 months, which equates to a 5.8% dividend yield, the total potential loss on investment is a more modest 1.4%.

The broker concludes:

Valuations full: WBC’s 12-mo fwd PER of 14.2x is more than one standard deviation expensive vs. its 15-yr historic avg of 12.7x (Exhibit 11). While its relative PER vs. its peers has fallen to a 20% discount, vs. its 15-yr avg of a 5% discount, this largely correlates with the relative deterioration in its ROTE vs. peers.

The post Is the Westpac share price at a stretched valuation 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 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.