Three S&P/ASX 200 Index (ASX: XJO) shares have just been upgraded by top brokers following this week’s earnings results.

According to these brokers, the three ASX 200 shares in question could enjoy gains of 15% to 21% in the year ahead. And that’s not including the dividends some of the companies pay.

Without further ado, here are the three stocks in question.

(Broker upgrade data, courtesy of The Australian.)

ASX 200 shares tipped for significant 2024 gains

The first company getting a broker upgrade today is online furniture and homewares retailer Temple & Webster Group Ltd (ASX: TPW).

The ASX 200 share closed up 9.8% yesterday after reporting some strong half-year results.

Highlights included all-time high half-year revenue of $254 million, up 23% from the prior corresponding period. And earnings before interest, taxes, depreciation and amortisation (EBITDA) increased 3% year on year to $7.5 million.

The company also boasts a strong balance sheet, with a closing cash balance of $114 million and no debt as at 31 December.

Temple & Webster shares are currently trading for $11.01 apiece, up a whopping 204% in 12 months.

But Citi’s analysts see more growth to come.

The broker raised Temple & Webster to a ‘buy’ rating with a $13 price target. That represents a potential upside of more than 18% from current levels.

Which brings us to the second ASX 200 share getting a broker upgrade, building materials supplier James Hardie Industries PLC (ASX: JHX).

The James Hardie share price closed down a painful 8.5% yesterday after the company released its third-quarter update.

Expectations were clearly highs, as investors hit the sell button despite the company reporting a 14% year on year increase in quarterly global net sales of US$978 million. And adjusted EBITDA of US$280 million was up 34%.

James Hardie shares are currently trading for $54.20, up 79% in 12 months despite yesterday’s sell-off.

Citi also has a positive outlook for this stock, raising its target price by 14% to $63 a share. That’s more than 16% above the current share price.

Also getting a big broker upgrade following earnings results

Which brings us to the third ASX 200 share getting a sizeable broker upgrade, online jobs classified company Seek Ltd (ASX: SEK).

The Seek share price closed down 4.6% yesterday following the release of the company’s half-year results. The stock is down another 6.3% today, with shares trading for $24 apiece at the time of writing.

Investors were hitting the sell button after Seek reported a 5% year on year decline in revenue to $597 million. EBITDA was down 11% from the prior corresponding half to $253 million.

Although Seek noted that the decrease in job ad volume that pressured its revenue could continue into the second half, the company forecast a further 10% increase in yield. Management expects costs to come down significantly from their previous guidance of $670 million for FY 2024.

Following two days of heavy selling the Seek share price is now flat over 12 months but still up 19% since the recent 30 October lows.

Macquarie was not put off by the slip in half-year earnings and revenue. The broker raised the ASX 200 share to an ‘outperform’ rating with a $29 price target.

That represents a potential upside of almost 21% from current levels.

The post Why these 3 ASX 200 shares just earned some big broker upgrades appeared first on The Motley Fool Australia.

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More reading

• Why Challenger, Hansen, JB Hi-Fi, and Temple & Webster shares are surging today
• Why Breville, James Hardie, Seek, and Strike Energy shares are sinking like stones today
• 2 ASX All Ords shares getting crushed on earnings results
• Seek share price sinks 10% as hiring slowdown hits earnings
• Up 115% in a year, Temple & Webster share price soars again today on record revenue

Citigroup is an advertising partner of The Ascent, a Motley Fool company. 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 positions in and has recommended Macquarie Group and Temple & Webster Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Seek and Temple & Webster Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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All eyes will be on BHP Group Ltd (ASX: BHP) shares next week when the mining giant reports its eagerly anticipated half-year results.

Ahead of the release on Tuesday 20 February, let’s look at what the market is expecting from the Big Australian.

BHP half-year results preview

With iron ore prices trading at strong levels during the first half, expectations are high for BHP’s half-year results.

According to a note out of Goldman Sachs, its analysts are expecting the company to report first-half revenue of US$27,595.57 million. This will be an increase of 6.2% over the US$25,982 million that was reported a year ago.

It is expected to be a similar story for earnings, with the consensus estimate at US$1.43 per share. This is up 10% on the prior corresponding period.

However, investors hoping for a dividend windfall may be left disappointed.

A number of brokers believe that the miner will be forced to reduce its payout ratio meaningfully to account of a sizeable jump in capital expenditure.

Commenting on the upcoming result, the team at Morgans recently said:

Moderating dividend. We expect a lower dividend payout ratio of 55% in the first half, which would be the lowest level of earnings paid out since 2018. We base this assumption on rising investment (capex +60% yoy) and net debt (US$12.5 – $13.0bn vs target range of US$5 – $15bn). While this would see a lower dividend, and on a stronger share price yoy, BHP still offers an enticing dividend yield profile.

If this proves accurate and BHP delivers on the consensus estimate for earnings, it will mean a dividend of 78.65 US cents per share. This would be down from 90 US cents a year earlier.

The post Own BHP shares? Here’s your first-half results preview appeared first on The Motley Fool Australia.

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Passive income investors take note, this ASX All Ords stock just boosted its dividend by more than 33%.

The big lift in the interim dividend, driven by strong H1 FY 2024 results, looks to be helping the company outperform the broader market today.

In late morning trade on Wednesday, the All Ordinaries Index (ASX: XAO) is down 1.2%, while this ASX All Ords stock is up 3.4%, trading for $25.90 a share.

Any guesses?

If you said Computershare Ltd (ASX: CPU) give yourself a virtual gold star.

Shares in the administration services company are charging higher today following on Computershare’s half-year results, released after market close yesterday.

Here are the highlights.

ASX All Ords stock supersizes its dividend

• Half-year management revenue increased 6.2% year on year to $1.6 billion
• Margin income increased by 24.8% to a record $429.4 million
• Management earnings before interest and tax (EBIT) excluding margin income increased 20.7% to $116.5 million
• Interim dividend of 40 cents per share, 20% franked, up 33.3% from H1 FY 2023

Atop the passive income boost what else happened during the half year?

Passive income investors looking to score the boosted dividend from this ASX All Ords stock will need to own shares at market close next Monday, 19 February. Computershare trades ex-dividend on Tuesday.

Management noted that with debt leverage down to 0.85 times, the company’s strong balance sheet supported the big dividend increase, along with the ongoing share buyback and disciplined M&A.

The company cited tailwinds over the six months including growth in recurring fee revenues and recovery in some of its events and transactional revenues. Higher yields and stable client balances delivered the record half-year margin income.

What did management say?

Commenting on the results that are boosting the ASX All Ords stock today, Computershare CEO Stuart Irving said:

We are making good progress executing on our strategies to invest in and strengthen our core businesses and divest non-core assets. We are building a simpler Computershare with stronger and more consistent returns.

In October, we successfully completed the transition of the Corporate Trust (CCT) business we acquired from Wells Fargo. Now the technology and operating environment are in our control we can get on with realising the full planned synergies and integration benefits.

What’s next for Computershare?

Looking at what could impact the ASX All Ords share in the months ahead, Irving said the sale of its United States Mortgage Servicing business was “progressing well and is due to close in March 2024”.

He noted that internal separation activities are nearing completion, with 80% of key state and agency regulatory approvals and client consents having now been received.

The company also reaffirmed its FY 2024 guidance of a roughly 7.5% increase in management earnings per share (EPS) to around $1.16 cents per share.

Computer share expects second-half EPS to be more than 11% higher than the first half. That could bode well for the passive income outlook for 2H.

Irving elaborated:

Margin income is expected to be around $825 million, with the levels of interest rates and balances being our largest earnings sensitivities. Guidance does not include the benefit of the share buyback.

We also assume we retain US Mortgage Services for the full six months of 2H, although we expect to close the transaction in March. The sale is expected to be earnings neutral this year and we will update investors on completion.

How has this ASX All Ords stock been tracking?

The Computershare share price has gained 6% over the past 12 months, not including the dividend payouts.

The ASX All Ords stock is up 26% since last year’s 21 March lows.

The post Looking for passive income? This ASX All Ords stock just boosted its dividend by 33%! appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Wednesday
• Here are the top 10 ASX 200 shares today

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

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It’s been a horrible hump day for the S&P/ASX 300 Index (ASX: XKO) and most ASX 300 shares so far this Wednesday. At present, the ASX 300 has tanked by a painful 1.19%, pulling the index down to just under 7,460 points. But one gold share is doing far worse than that today. Let’s see what’s going on.

The ASX 300 share in question is SSR Mining Inc (ASX: SSR). SSR shares are having just about the worst day than an ASX share can have.

Yesterday, this gold miner closed at $14.84 a share. But this morning, those same shares opened at just $7.58, and are down to $7.47 at the time of writing. That’s a loss worth a shocking 50.1%.

It’s not often that we see a share lose half of its market capitalisation in just a couple of hours of trading. So what on earth is going on here?

Why has this ASX 300 share just lost 50% of its value?

Well, this catastrophic share price loss seems to be a consequence of an announcement that SSR made this morning before market open.

The announcement was brief, but painful for investors:

SSR Mining Inc… announces a suspension of operations at the Çöpler mine as a result of a large slip on the heap leach pad. This event occurred in the morning of February 13, 2024 at approximately 6:30 am EST, and all operations at Çöpler have been suspended as a result.

The Çöpler mine is one of five profitable operations that SSR Mining runs. It is located in Turkey and produces both gold and copper ore. Over the three months ending 30 September 2023, Çöpler produced 56,768 ounces of gold at an all-in-sustaining cost (AISC) of US$1,378 per ounce.

However, Çöpler is not SSR Mining’s most valuable gold asset. Over the same quarter, its Marigold mine, located in Nevada, USA, produced 83,272 ounces at an AISC of US$1,106 per ounce.

Even so, ASX 300 investors are certainly not appreciating the news coming out of SSR today regarding its Çöpler mine, if the share price performance is anything to go off.

SSR Mining share price snapshot

Even before today’s calamitous share price drop, it had been a tough year for SSR Mining shares. As of yesterday’s close, the miner had lost more than 28% of its value over the preceding 12 months. That figure now stands at 63.7%. The company is now also down more than 77% since April 2022.

The post How has this ASX 300 gold share managed to crash 50% today? appeared first on The Motley Fool Australia.

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More reading

• Why are these 3 ASX 200 shares tumbling 6% to 15% today?
• This ASX 200 stock is surging 10% following a return to profit
• AMP share price rockets 10% amid 2023 earnings boost
• CBA shares tumble 3% on half-year profit decline and margin pain
• Why is the ASX 200 index crashing 1.5% on Wednesday?

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

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The ASX 200 index is falling hard today after a selloff on Wall Street overnight.

But three ASX 200 shares that are catching the eye with particularly big declines are listed below.

Let’s see what is making investors hit the sell button:

Domain Holdings Australia Ltd (ASX: DHG)

This property listings company’s shares are down 6% to $3.25 at the time of writing.

Investors have been selling down the ASX 200 share despite it posting strong revenue and earnings growth during the first half.

Domain posted an 11% increase in revenue to $202.2 million, a 32.1% lift in EBITDA to $68.4 million, and a 48.7% jump in net profit to $25.8 million.

As strong as this is on paper, the market was expecting Domain’s EBITDA to be approximately 4% higher than what was delivered.

Graincorp Ltd (ASX: GNC)

This grain exporter’s shares are down 15% to $6.98. This follows the release of its guidance for FY 2024 at its annual general meeting.

Graincorp advised that it expects to report FY 2024 underlying EBITDA in the range of $270 million to $310 million and underlying net profit after tax of $65 million to $95 million.

This will be down sharply from the $565 million and $250 million it reported in FY 2023. Management advised that this reflects the normalisation of East Coast Australia (ECA) growing conditions.

GUD Holdings Limited (ASX: GUD)

This diversified products company’s shares are down 11% to $10.65. This follows the release of its half-year results.

GUD reported an 11.6% increase in underlying EBITA to $98.0 million for the half. This was thanks to strong growth from the APG business and the ongoing resilience of the Automotive business.

In addition, underlying NPATA and earnings per share both increased 10.5%, which allowed the ASX 200 share to increase its interim dividend by 8.8% to 18.5 cents per share.

The share price weakness may have been driven by commentary around the outlook of APG. It said:

Still expecting strong revenue and EBITA growth in FY24 but short-term deferrals of replenishment orders (Toyota) means that H2 EBITA is expected to be slightly below H1.

The post Why are these 3 ASX 200 shares tumbling 6% to 15% today? 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.

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Downer EDI Ltd (ASX: DOW) shares are catching the eye on Wednesday morning.

At the time of writing, the ASX 200 stock is up 10% to $4.74.

Investors have been scrambling to buy the integrated services provider’s shares following the release of its half-year results.

What did the ASX 200 stock report?

• Total revenue down 1.9% to $6 billion
• Underlying EBITA up 12.6% to $150.5 million
• Underlying NPATA up 11.9% to 76.1 million
• Statutory profit after tax up 5.9% to $72.1 million
• Interim dividend up 20% to 6 cents per share

What happened during the half?

For the six months ended 31 December, the ASX 200 stock returned to profit with a 5.9% increase in statutory profit after tax to $72.1 million. That was despite Downer reporting a 1.9% decline in revenue for the period.

Management advised that this was primarily driven by a recovery in earnings from the Utilities business compared to a loss in the prior year. In addition, an improved performance in the Projects business in New Zealand also helped.

In light of this profit rebound, the Downer board was able to increase its dividend by 20% to 6 cents per share. This represents a 58% payout ratio.

The ASX 200 stock’s CEO, Peter Tompkins, was pleased with the half. He said:

We said that FY24 would be an important transition year for Downer as we address areas of underperformance, stabilise, and reposition the business for future profitable growth.

Delivering double digit underlying EBITA and NPATA growth alongside solid underlying cash conversion during the half highlights the momentum we are building as we address underperformance and execute on our transformation agenda.

Outlook

No guidance was given for the full year but management has reiterated “that FY24 is an important year in the company’s turnaround program.”

Though, one positive is that “Downer anticipates continued EBITA margin percentage improvement in H2 through a combination of cost out and improving operational performance towards its management target of >4.5% in FY25.”

Downer shares are now up 21% over the last 12 months.

The post This ASX 200 stock is surging 10% following a return to profit appeared first on The Motley Fool Australia.

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More reading

• AMP share price rockets 10% amid 2023 earnings boost
• CBA shares tumble 3% on half-year profit decline and margin pain
• Why is the ASX 200 index crashing 1.5% on Wednesday?
• IDP Education share price jumps 15% after crushing first-half expectations
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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.

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The AMP Ltd (ASX: AMP) share price is soaring today.

Shares in the S&P/ASX 200 Index (ASX: XJO) financial stock closed yesterday trading for 97 cents. At the time of writing on Wednesday morning, shares are swapping hands for $1.07 apiece, up 10.3%.

For some context, the ASX 200 is down 1.4% at this same time.

This comes following the release of AMP’s full-year results for 2023.

Read on for the highlights.

AMP share price soars on earnings beat

• Underlying net profit after tax (NPAT) of $196 million, up 6.5% from $184 million in 2022
• Statutory NPAT of $265 million, down from $387 million year on year
• Net debt reduced by $337 million
• Underlying earnings per share of 6.8 cents, up 19.3% from the prior year
• Final dividend of 2.0 cents 20% franked, down from 2.5 cents per share in 2022

What else happened with AMP during the year?

The AMP share price is flying higher today, spurred in part by AMP’s Platforms segment, where NPAT jumped 38.5% year on year to $90 million. The company said this was driven by positive North Guarantee movement from favourable market conditions.

Its AMP Bank segment went the other way, with NPAT falling to 9.7% from 2022 to $93 million in 2023. This reflected net interest margin (NIM) compression and growth moderation, which the company has previously addressed.

The Advice segment booked an underlying NPAT loss of $47 million, an improvement of 30.9% year on year.

And the group underlying NPAT loss of $27 million compared to a loss of $1 million in 2022. This was partly due to lower strategic partnership earnings and regulatory changes impacting its China partnership earnings.

Another core metric that could be boosting the AMP share price was the return of $750 million of capital to shareholders since August 2022, with more capital returns on the horizon.

The year also saw the sale of AMP Capital and SuperConcepts, as well as the resolution of legacy legal issues, including the shareholder class action and the agreement to settle an adviser class action.

What did management say?

Commenting on the results sending the AMP share price soaring today, CEO Alexis George said:

2023 was a year of progress for AMP. We have repositioned the portfolio with the completion of the AMP Capital sales, built momentum in our cost-out program, and resolved a number of significant legacy legal matters.

In addition, we have continued to reduce net debt, implemented further business simplification initiatives, invested in sustainable growth and returned surplus capital to shareholders.

George added:

The simplification program and investment we’ve undertaken across the portfolio is delivering positive outcomes for our customers and provides a foundation for sustainable growth…

We have a strong balance sheet and remain focused on optimising capital – including returning surplus capital to shareholders where possible.

What’s next for AMP?

Looking at what might impact the AMP share price in the year ahead, the company flagged momentum in its cost reduction program targeting a $120 million reduction in AMP’s cost base by the end of 2025.

There’s also the $350 million tranche 3 capital return. Management said this will progress with a combination of the final dividend (totalling $55 million) alongside further dividends and/or an on-market share buyback of up to $295 million.

The company also noted it was “well-positioned to benefit from the long-term trends in banking and wealth in Australia”. Those trends include the super guarantee increase to 12% in July 2025.

AMP share price snapshot

Despite today’s big lift, the AMP share price remains down 19% since this time last year.

Shares are up 26% since 22 November.

The post AMP share price rockets 10% amid 2023 earnings boost appeared first on The Motley Fool Australia.

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• Here are the top 10 ASX 200 shares today

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

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Commonwealth Bank of Australia (ASX: CBA) shares are under pressure on Wednesday morning.

In early trade, the banking giant’s shares dropped 3% to $112.65.

This follows a broad market selloff on inflation concerns and the release of its half year results.

CBA shares under pressure

As we covered here earlier, CBA reported a modest 0.2% increase in operating income to $13,649 million but a 3% decline in cash net profit after tax to $5,019 million.

Management advised that its operating income reflects volume growth and higher volume-based fee income, offset by margin compression. CBA’s net interest margin was down 6 basis points since the end of FY 2023 to 1.99%. This was driven by increased deposit price competition and deposit switching.

Australia’s largest bank’s cash profits were down 3% to $5,019 million after operating expenses increased 4% to $6,011 million. Management advised that this was due to inflationary pressures and additional spending on technology to support the delivery of strategic priorities.

One positive that is failing to lift the CBA share price today was its dividend. The CBA board decided to increase its fully franked dividend by 2.4% to $2.15 per share despite the profit decline.

What are analysts saying?

Analysts at Goldman Sachs have responded relatively positively to the bank’s results. They said:

CBA’s 1H24 cash earnings (company basis) from continued operations grew by 2.6% hoh to A$5,019 mn, and was -0.8%/+1.6% versus GSe / Visible Alpha consensus expectations (VAe). The quality of the result was good, with PPOP +1.6/+1.3% vs. GSe/VAe, largely on account of expenses. Versus GSe, the higher-than-expected BDD charge was entirely on account of our expectations of provisions releases, which CBA has remained conservative on this half. […] The interim ordinary DPS of A215¢ was higher than GSe (A210¢), and implies a 1H24 payout ratio of 72% GSe: 70%).

Goldman currently has a sell rating and $82.37 price target on CBA’s shares.

The post CBA shares tumble 3% on half-year profit decline and margin pain appeared first on The Motley Fool Australia.

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• CBA share price on watch following $5b cash profit and dividend boost
• 5 things to watch on the ASX 200 on Wednesday
• Why the CBA dividend fountain will be in focus this week
• 3 top ASX bank shares hit 52-week highs today: Is there still value to be found?
• CBA could be eyeing record profits if first-half results echo the past

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.

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The S&P/ASX 200 Index (ASX: XJO) is breaking hearts on Valentine’s Day and is a sea of red in early trade.

At the time of writing, the benchmark index is down 1.5% to 7,491 points.

Almost all sectors are deep in the red, with investors selling shares indiscriminately.

Here’s a quick summary of how a number of popular ASX 200 shares are performing:

• BHP Group Ltd (ASX: BHP) shares have dropped 1.5%
• JB Hi-Fi Limited (ASX: JBH) shares are down 3%
• Pilbara Minerals Ltd (ASX: PLS) shares have fallen 3%
• Westpac Banking Corp (ASX: WBC) shares are down 1.5%
• Xero Ltd (ASX: XRO) shares are 2% lower

Why is the ASX 200 sinking?

Investors have been hitting the sell button in a panic today following a selloff on Wall Street which saw the Dow Jones drop 1.35%, the S&P 500 index fall 1.4%, and the Nasdaq index crash 1.8%.

This was driven by the release of inflation data that was much hotter than expected, sparking fears that interest rate cuts are still some way off.

According to CNBC, the US consumer price index rose 0.3% in January from December and 3.1% on an annual basis. Whereas economists were expecting CPI to have increased by 0.2% month over month in January and 2.9% from a year earlier.

Furthermore, excluding volatile food and energy prices, core CPI accelerated 0.4% in January and was up 3.9% from a year ago.

Quincy Krosby, chief global strategist at LPL Financial, commented:

The much-anticipated CPI report is a disappointment for those who expected inflation to edge lower allowing the Fed to begin easing rates sooner rather than later. Across the board numbers were hotter than expected making certain that the Fed will need more data before initiating a rate cutting cycle.

The post Why is the ASX 200 index crashing 1.5% on Wednesday? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Wednesday
• Here are the top 10 ASX 200 shares today
• Big news: 15 ASX 200 shares smashing 52-week highs this Tuesday
• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today

Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation 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 has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Soaring interest rates have made the return from term deposits much more attractive. However, ASX shares should also be considered for the long term.

The Reserve Bank of Australia (RBA) cash rate has gone from almost 0% to 4.35%. Aussies can now get good term deposit rates compared to two years ago.

According to Canstar, there are some term deposits that offer an interest rate of at least 5% for 12 months.

I’d always recommend that some people should always keep some cash aside as an emergency fund. I think cash, deposited in a government-guaranteed savings account with a safe bank, is the safest and most flexible in the short term.

But, over the long term, it could make a lot of sense to invest in ASX shares. Let’s compare term deposits to ASX shares.

Term deposit return

If we put $10,000 into a term deposit for a 12-month period which pays annually, we typically have to wait until the end of the term to get the interest and for the bank to return the money.

A $10,000 investment would generate $500 of annual interest and the capital amount would still be worth $10,000 at the end of the period. If they spent that $500 and did another 12-month term with the remaining $10,000, it’d make another $500 (if the interest rate was still 5%).

The term deposit holder could decide to re-invest the $500 instead and it’d be $10,500 making interest, but they wouldn’t be able to spend any of that money. If $10,500 earned 5%, they’d get $525 of interest at the end of the period.

What about ASX shares?

ASX shares have the ability to pay dividends and deliver growth.

Investing in the stock market does come with volatility – share prices can go down, but they can also go up over time.

Let’s think about an ASX blue-chip share like Telstra Group Ltd (ASX: TLS), which has an enviable market position in the mobile market. Steady growth of subscribers and other revenue is helping drive the company’s profit higher.

I don’t have a crystal ball, but Telstra has been steadily growing its dividend in the last few results and it could keep growing. Analyst estimates on Commsec suggest Telstra could pay a fully franked dividend yield of 4.5%, or a grossed-up dividend yield of 6.5%, in FY24.

If someone invested $10,000 into Telstra shares, they’re projected to get $650 of grossed-up income for FY24. That person could spend all of that money and could still get a bigger dividend in FY25. The Commsec projection suggests a fully franked dividend yield of 4.8% or a grossed-up dividend yield of 6.8% for FY25 at the current Telstra share price. That would be grossed-up income of $680.

Good ASX shares can pay appealing dividends and also deliver dividend growth.

That’s not even mentioning the potential to supercharge compounding by re-investing the dividends into more shares. An investor can decide to receive the dividends and invest in different ASX shares, or activate the dividend reinvestment plan (DRP) of a company (if it has one) and receive more shares (brokerage free) instead of cash.

In my mind, if people are looking for their money to make a return, I’d choose ASX shares because of that long-term growth element. One of my favourite blue chips for potential long-term dividends and growth is Wesfarmers Ltd (ASX: WES) – the owner of Bunnings and Kmart – which I recently wrote about here.

The post How does investing in a term deposit compare with buying ASX shares? appeared first on The Motley Fool Australia.

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More reading

• Forget Westpac and buy these top ASX dividend stocks
• Will these ASX 200 shares help you retire rich?
• Transform $50 into monthly income: The best ASX dividend stocks under $50
• 3 ASX 200 dividend shares to buy with great yields
• 3 things ASX investors should watch this week

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

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