Artificial intelligence (AI) is no longer a future concept. It is already reshaping how data is processed, how infrastructure is built, and how businesses operate at scale. As we move through 2026, I am interested in companies enabling AI in practical, revenue-generating ways.

With that in mind, I have identified three ASX-listed options for gaining exposure to artificial intelligence this year, each from a distinct angle.

Megaport Ltd (ASX: MP1)

Megaport does not build AI models, but it plays a critical role in making AI usable.

Artificial intelligence workloads are extremely data-intensive. They require fast, flexible, and reliable connections between cloud providers, data centres, and enterprise networks. That is exactly what Megaport provides through its network-as-a-service platform.

As AI adoption accelerates, data is increasingly distributed across multiple clouds and locations. Megaport allows customers to dynamically connect and scale bandwidth as needed, rather than relying on fixed and inflexible infrastructure.

The company has also been expanding beyond connectivity into compute with the acquisition of Latitude, further embedding itself in the AI infrastructure stack. For me, that makes Megaport one of the more underappreciated AI enablers on the ASX in 2026.

Goodman Group (ASX: GMG)

Goodman Group offers a different way to invest in artificial intelligence, through physical infrastructure rather than software.

The growth of AI, cloud computing, and digital services is driving significant demand for data centres. These facilities require specialised locations, power access and long-term capital, all areas where Goodman has deep expertise.

Goodman has been actively repositioning its global industrial portfolio to meet this demand, including through large-scale data centre developments backed by institutional capital. This strategy allows Goodman to benefit from the AI boom without relying on the success of any single technology platform.

For investors, Goodman offers exposure to AI-driven growth, complemented by the stability of long-life assets and long-term leases.

BetaShares Global Robotics and Artificial Intelligence ETF (ASX: RBTZ)

For those who prefer diversification, the BetaShares Global Robotics and Artificial Intelligence ETF provides a straightforward way to invest in artificial intelligence and robotics worldwide.

The ETF invests in companies involved in industrial robotics, automation, artificial intelligence, unmanned vehicles, and drones. This provides exposure to a broad range of applications, rather than a single, narrow use case.

Its top holdings include some of the most influential companies in the AI and automation ecosystem, such as Nvidia, FANUC, ABB, Intuitive Surgical, Keyence, Daifuku, Pegasystems, SMC Corp, and AeroVironment.

What I like about the BetaShares Global Robotics and Artificial Intelligence ETF is that it is sector and geography-agnostic. It focuses purely on the robotics and AI theme, which remains underrepresented on the ASX, while spreading risk across multiple companies and regions.

Why this combination works

These three investments approach artificial intelligence from different directions.

Megaport enables the movement and processing of AI data. Goodman provides the physical infrastructure that supports AI at scale. BetaShares Global Robotics and Artificial Intelligence ETF provides diversified exposure to companies developing and deploying AI and robotics technologies globally.

Together, I believe they offer a balanced approach to investing in artificial intelligence, without relying on a single business model or outcome.

Foolish Takeaway

Artificial intelligence is a long-term trend, not a short-term trade.

In 2026, I want exposure to businesses that are already benefiting from AI adoption in tangible ways. Megaport, Goodman Group, and the Betashares Global Robotics and Artificial Intelligence ETF each offer a different path to that exposure.

For investors looking to position their portfolios for the continued growth of AI, these three ASX-listed options are well worth considering this year and beyond.

The post My top 3 artificial intelligence ASX stocks to buy for 2026 appeared first on The Motley Fool Australia.

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Motley Fool contributor Grace Alvino has positions in Intuitive Surgical. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Abb, AeroVironment, Goodman Group, Intuitive Surgical, Megaport, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Fanuc. The Motley Fool Australia has recommended Goodman Group and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

S&P/ASX 200 Index (ASX: XJO) gold stocks, including Northern Star Resources Ltd (ASX: NST) and Evolution Mining Ltd (ASX: EVN) shares, both paid out all-time high final dividends in 2025.

Northern Star paid a fully-franked interim dividend of 25 cents a share on 27 March, followed by the record final dividend of 30 cents per share, paid out on 25 September.

Northern Star shares have gained 51% over the past year, currently trading for $25.34. That sees the ASX 200 gold stock trading on a fully-franked trailing dividend yield of 2.2%.

Evolution Mining shares have enjoyed an even stronger run, surging 150.1% over the past 12 months, currently changing hands for $13.11 each.

2025 also saw Evolution Mining pay a fully-franked interim dividend of 7 cents per share on 4 April and the all-time high final dividend of 13 cents per share on 3 October. That sees this ASX 200 gold stock trading on a fully-franked trailing dividend yield of 1.5%.

Now, when it comes to ASX passive income stocks, these yields are on the lower end. Though with those share price gains in mind, you’re unlikely to hear any stockholders complaining!

But with an eye on the year ahead, here’s why I think passive income investors should see these record dividend payouts exceeded in 2026.

Northern Star and Evolution Mining shares in the sweet spot

Both Northern Star and Evolution Mining shareholders have been benefiting from the rocketing gold price.

Gold is currently trading near all-time highs at US$4,573.07 per ounce (AU$6,825 per ounce). This sees the yellow metal up more than 68% since this time last year.

Among other factors, the gold price – and ASX 200 gold stocks – have enjoyed tailwinds from lower interest rates, ongoing geopolitical tensions, and strong central bank buying.

Gold purchasing among the world’s central banks is widely expected to remain elevated in 2026. That should help mitigate any pullbacks in the soaring gold price, with central banks generally holding onto their bullion for the long haul.

Now, as noted above, Northern Star shares have trailed the gains delivered by Evolution Mining shares this past year. This is in part due to Northern Star reducing its full-year FY 2026 gold sales guidance to between 1.6 million ounces and 1.7 million ounces at the start of this year. That was down from prior sales guidance of 1.7 million ounces to 1.85 million ounces.

But that’s still a heck of a lot of gold.

And with Northern Star sticking with its full-year all-in sustaining costs (AISC) guidance in the range of AU$2,300 to AU$2,700 per ounce, I think a growing profit margin should usher in higher dividends in the year ahead.

Can the gold price keep rallying in 2026?

While it’s unlikely we’ll see another 68% gain in the gold price in 2026, most analysts remain bullish on the outlook for the yellow metal. That should support further share price gains, and the dividend boosts I expect we’ll see from Northern Star and Evolution Mining shares and other leading ASX 200 gold stocks.

“We continue to expect gold to rally in 2026, as the drivers of its strong run remain intact,” Ian Samson, a portfolio manager at Fidelity International, said (quoted by Bloomberg).

Darwei Kung, head of commodities and a portfolio manager at DWS Group, added, “Of course, we don’t see the same upside potential of last year, when gold was basically the best asset class of all. But we are still bullish on gold.”

The post Why I expect a 2026 dividend boost from ASX 200 gold stocks like Northern Star and Evolution Mining shares appeared first on The Motley Fool Australia.

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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.

The S&P/ASX 200 Index (ASX: XJO) is having a positive start to the week. In afternoon trade, the benchmark index is up 0.4% to 8,752.9 points.

Four ASX shares that have failed to follow the market higher today are listed below. Here’s why they are falling:

4DMedical Ltd (ASX: 4DX)

The 4DMedical share price is down 6% to $4.34. This is despite there being no meaningful news out of the medical technology company. However, with its shares up over 700% since this time last year, there could be some profit taking going on from some investors today. In other news, 834,103 new shares were issued today by the company as part of the option underwriting agreement it entered into with Bell Potter. They had an issue price of $1.365 per new share, which is significantly lower than the current share price.

DroneShield Ltd (ASX: DRO)

The DroneShield share price is down 3% to $3.89. This could also have been driven by profit taking from some investors. The counter drone technology company’s shares remain up over 25% since the start of the year despite this pullback. On a 12-month basis, DroneShield shares are up over 400%.

Super Retail Group Ltd (ASX: SUL)

The Super Retail share price is down 5.5% to $14.83. Investors have been selling this retail conglomerate’s shares after it released a trading update. The Supercheap Auto, BCF, Rebel, and Macpac owners revealed that it expects to report a 4.2% increase in total sales to a record of $2.2 billion for the first half. However, due to margin pressures from discounting, Super Retail’s normalised profit before tax is expected to be $172 million to $175 million. This is a reduction from $186 million in the prior corresponding period and $206 million a year before that.

Tamboran Resources (ASX: TBN)

The Tamboran Resources share price is down 5% to 19.5 cents. This is despite the independent natural gas exploration and production company announcing the appointment of its new CEO this morning. Tamboran revealed that Todd Abbott has been appointed to the top job, effective 15 January. He has over 25 years’ upstream oil and gas experience spanning unconventional shale operations, business planning, corporate finance, and strategy. The company’s chair, Richard Stoneburner, said: “Todd brings over two decades of upstream experience with a strong record of operational leadership, capital discipline, safety and stewardship. His background at Seneca, Marathon and Pioneer demonstrates an ability to improve productivity while lowering costs, which aligns with our focus on safe and efficient execution and delivering value for shareholders from our Beetaloo Basin development.”

The post Why 4DMedical, DroneShield, Super Retail, and Tamboran shares are falling 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 positions in and has recommended DroneShield and Super Retail Group. The Motley Fool Australia has positions in and has recommended Super Retail Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to start the week with a small gain. At the time of writing, the benchmark index is up 0.3% to 8,745.1 points.

Four ASX shares that are rising more than most today are listed below. Here’s why they are storming higher:

Develop Global Ltd (ASX: DVP)

The Develop Global share price is up 7% to $5.30. Investors have been buying this mining and mining services company’s shares following the release of a bullish broker note out of Bell Potter. According to the note, the broker has retained its buy rating on the company’s shares with an improved price target of $5.80. This implies further potential upside of 9.5% over the next 12 months. It said: “With Woodlawn de-risking behind us, DVP presents a unique small-cap copper-zinc exposure that is relatively undervalued compared with peers in the Resources space.”

Imricor Medical Systems Inc (ASX: IMR)

The Imricor Medical Systems share price is up 18% to $1.86. This has been driven by news that the medical device company has received clearance by the US Food and Drug Administration (FDA) for its Vision-MR Diagnostic Catheter. The catheter is designed to be used under real-time magnetic resonance imaging (MRI) guidance. Imricor’s CEO, Steve Wedan, said: “This is obviously a tremendous milestone for the Imricor team, and I want to acknowledge the outstanding work of the entire team in reaching this achievement. Most of us have worked at companies that have existing medical devices on the US market, and getting a new device on the market is always a big deal.”

Light & Wonder Inc (ASX: LNW)

The Light & Wonder share price is up 16% to $179.10. Investors have been fighting to get hold of the gaming technology company’s shares after agreeing to pay $190 million to settle the Aristocrat Leisure Ltd (ASX: ALL) litigation. Light & Wonder’s CEO, Matt Wilson, said: “Light & Wonder is pleased to resolve this matter and move forward. We are firmly committed to doing business the right way – respecting our competitors’ intellectual property rights while protecting our own rights. This matter arose when a former employee inappropriately used certain Aristocrat math without our knowledge and in direct violation of our policies.”

PWR Holdings Ltd (ASX: PWH)

The PWR Holdings share price is up over 10% to $9.64. This morning, this advanced cooling products and solutions provider announced a US$9.1 million (~A$13.5 million) follow-on defence and aerospace contract. This will see it supply advanced cooling solutions for a US government project. The company’s acting CEO, Matthew Bryson, said: “PWR announced the initial US$5.5 million order for this project in January 2025 and securing a follow-on order reflects the successful delivery of that first phase and demonstrates our ability to execute reliably and adapt to evolving program requirements on complex projects.”

The post Why Develop Global, Imricor Medical, Light & Wonder, and PWR shares are storming higher 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 positions in and has recommended Light & Wonder Inc and PWR Holdings. The Motley Fool Australia has positions in and has recommended PWR Holdings. The Motley Fool Australia has recommended Light & Wonder Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Telstra Group Ltd (ASX: TLS) is one of the most widely known companies in Australia, and thus one of the most famous stocks on the Australian share market. This ASX 200 telco has been listed on the ASX for decades now, and is a staple holding of many Australian investors’ share portfolios.

I have long touted the potential benefits of owning Tesltra shares as part of an income-focused portfolio. However, I am not an income investor, and I do not own Telstra shares myself at the present time.

I did own the company for a number of years. But I offloaded my Telstra position a while ago, due to my belief that there were better opportunities that better suited my investment goals elsewhere.

However, I still think Telstra is a high-quality company and a potentially lucrative investment. It is a dominant mature business, the clear market leader in its field and the possessor of a wide economic moat.

So what price would I buy Testlra shares again and add them to my portfolio?

At what price would I buy Telstra shares?

To answer this, let’s look at a few metrics.

Firstly, Telstra’s earnings. Between FY2020 and FY2025, Telstra grew its earnings per share (EPS) from 15.3 cents to 18.9 cents per share. That’s a compounded annual growth rate of 4.32% over those five years. Now, there’s no guarantee that Tesltra will be able to continue to hit that metric going forward. But I think it’s a solid baseline to work with.

If it is the case that Tesltra will be able to keep its EPS growth at 4.32% over the coming five years, we can reasonably assume that its share price will grow by a similar rate. Share prices tend to follow earnings growth over time.

That growth rate is decent. But it is not enough in itself to make Tesltra a market-beating investment. For context, the broader Australian share market has returned about 9.2% per annum over the past decade. For Telstra to outperform that, we would need its dividends to make up the difference.

Some quick maths will tell you that we would need Telstra shares to offer a yield of about 5% to put it into a market-beating position.

At the current Tesltra share price of $4.80 (at the time of writing), it is offering a dividend yield of just under 4%. That comes from the two fully-franked dividends the telco forked out last year. Each was worth 9.5 cents per share.

If Telstra doles out that amount again in 2026, its shares would need to trade at approximately $3.80 each to offer a forward yield of 5% today. That’s probably about the price I would feel comfortable buying Tesltra shares at. Obviously, that’s a long way from where the shares stand today. As such, I probably won’t be adding Telstra back to my portfolio anytime soon. Even if I still think it’s a great buy for income investors looking for reliable passive income.

The post This is the stock price I would buy Telstra shares at appeared first on The Motley Fool Australia.

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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 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.

Markets have a habit of moving quickly on political headlines. Sometimes too quickly.

That was on display recently when buy now, pay later stocks jumped on renewed discussion around a potential cap on US credit card interest rates, a proposal floated by US President Donald Trump during his campaign trail.

One Australian stock that caught investors’ attention was Zip Co Ltd (ASX: ZIP), which saw renewed buying interest as markets began to game out what a shake-up in US consumer credit might mean for alternative payment providers.

But while the initial reaction was swift, the reality may take far longer to unfold.

Why are BNPL stocks back in focus?

At the centre of the discussion is Trump’s suggestion that credit card interest rates in the US could be capped at around 10%.

Whether that proposal ever becomes policy is an open question. The US credit card industry is deeply entrenched, politically influential, and structurally complex. Any meaningful reform would likely face pushback from banks, lenders, and regulators.

Still, the idea alone was enough to get investors thinking.

If traditional credit cards were suddenly less profitable, or if lending standards tightened, consumers could look elsewhere for flexible payment options. That’s where buy now, pay later (BNPL) platforms potentially come back into the frame.

BNPL products typically avoid charging explicit interest, instead generating revenue from merchant fees and late payment charges. In a world where high-interest revolving credit becomes less attractive or less available, these platforms may appear comparatively more appealing.

What does this mean for Zip?

Zip has spent the past few years reshaping its business after the post-pandemic BNPL boom faded.

The company has pulled back from loss-making regions, simplified its product offering, and focused on improving unit economics. Management has been clear that profitability and cash discipline now matter more than headline growth.

Importantly, the US remains a key market for Zip. Any structural shift that encourages consumers away from traditional credit cards could, in theory, increase engagement with alternative payment products, such as Zip’s instalment plans.

That said, it is far too early to draw straight lines between campaign rhetoric and long-term earnings outcomes.

Why caution still matters

Political proposals often sound very different on the campaign trail compared to what eventually makes it into legislation.

Even if a cap on credit card interest rates were pursued, it could take years to implement, face legal challenges, or be watered down significantly. Banks may also respond by tightening credit access, adjusting fees elsewhere, or redesigning products in ways that preserve profitability.

For BNPL providers, regulation remains a double-edged sword. Greater scrutiny of consumer lending has already reshaped the sector, and further intervention could just as easily increase compliance costs as improve competitive positioning.

In other words, Zip’s share price reaction reflects anticipation, not confirmation.

Foolish Takeaway

Zip’s recent move highlights how quickly sentiment can shift when macro or political narratives change.

There is a plausible case that buy now, pay later companies could become downstream beneficiaries if the US consumer credit landscape is meaningfully altered. But for now, that remains a possibility rather than a forecast.

For long-term investors, the more important story remains Zip’s operational execution: improving margins, controlling costs, and demonstrating that its business model can deliver sustainable returns through the cycle.

Political headlines may spark interest. Fundamentals are what ultimately decide outcomes.

The post Could the Zip share price benefit from Trump’s latest proposal? appeared first on The Motley Fool Australia.

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Motley Fool contributor Leigh Gant 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 Dateline Resources Ltd (ASX: DTR) share price is back in the spotlight on Monday. This comes after the company released a fresh drilling update from its flagship Colosseum project in California.

At the time of writing, the junior miner’s shares are up 8.18% to 29.8 cents in early afternoon trade, extending what has already been a remarkable rally.

Zooming out, Dateline shares are now up an astonishing 9,816% over the past 12 months and 32% year to date. This highlights just how sharply investor interest has returned to the stock.

So, what did the company announce, and why is the market reacting again?

Drilling pushes beyond current resource limits

The catalyst for today’s move was Dateline’s announcement of fresh drilling results from its Colosseum Gold-REE Project. These results confirmed wide zones of gold mineralisation extending beyond the current mineral resource boundaries.

The company reported multiple long and shallow intercepts from recent reverse circulation (RC) drilling, including:

• 295.64 metres at 1.04 g/t gold from surface
• 105.15 metres at 1.24 g/t gold from surface
• 300.21 metres at 0.66 g/t gold from surface
• 297.17 metres at 0.68 g/t gold from surface

Several of these results sit outside the existing resource envelope, suggesting there is scope for further resource growth.

Importantly, mineralisation remains open to the northeast, with Dateline highlighting ongoing expansion potential in that direction.

Deeper system still untested

Beyond the latest drilling results, the update also pointed to encouraging geological signals at depth.

RC drilling reached depths of around 300 metres, which is close to the practical limit for this drilling method. However, Dateline confirmed that mineralisation had not closed off at these depths.

Magneto-telluric conductivity data align with the new gold intercepts, reinforcing confidence that the system may extend further.

As a result, the company now plans to shift to diamond drilling to test deeper targets and better define the mineralised system.

Why investors are paying attention

Colosseum is a 100% owned project located in San Bernardino County, California, near the Mountain Pass rare earths mine. Dateline already has a JORC-compliant gold resource at the project, and management has been clear that its strategy is to expand that base.

After a year of explosive share price gains, volatility should be expected. Still, ongoing drilling success and clear exploration momentum explain why buyers continue to step in.

For now, it appears the market is keen to see just how big the Colosseum project could become.

The post Up 9,800% in a year, this ASX gold stock just delivered another major drilling surprise appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras 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.

Buying S&P/ASX 200 Index (ASX: XJO) shares?

Then you’ve probably been keeping one eye on the shifting forecasts relating to Australia’s interest rate outlook for 2026.

For much of 2025, economists had been forecasting that ASX 200 investors could expect no less than two interest rate cuts from the Reserve Bank of Australia this year.

However, as inflation regained momentum over the latter months of 2025, it’s increasingly looking like the RBA will not just hold interest rates tight at the current 3.60%, but likely be forced to raise rates at least once in 2026.

With this picture in mind, here’s what the latest consumer spending data means for that outlook.

ASX 200 slides on household spending uptick

The Australian Bureau of Statistics released its November household spending report at 11:30am AEDT today. And the ASX 200 slipped 0.3% over the next half-hour.

That may be because investors fear the uptick in household spending could further cement an RBA interest rate hike when the central bank next meets on 3 February.

According to the ABS, Aussie household spending increased by 1.0% in November. This follows a 1.4% increase in Spending in October and a 0.4% lift in September.

As at the end of November, this sees Australia’s household spending up 6.3% year on year, which could help rekindle inflation.

Commenting on the latest spending data that looks to be pressuring the ASX 200 this afternoon, Tom Lay, ABS head of business statistics, said:

Household spending remained strong in November, continuing the strong rises in services and goods spending seen in October.

Services spending rose by 1.2%, driven by major events, including concerts and sporting fixtures. These events are linked to higher spending on catering, transport, and recreation and cultural activities.

Growth in goods spending, which lifted 0.9%, was driven by Black Friday sales. Clothing, footwear, furnishings, and electronics seeing the biggest gains as consumers took advantage of widespread discounts.

Household spending grew in all eight states and territories.

Miscellaneous goods and services led the spending boom for the 12 months to November, up 10.6% year-on-year. This was followed by recreation and culture, where spending surged 8.6% over the 12 months.

Prepare for higher interest rates

Last week, prior to the release of today’s ABS spending data, Commonwealth Bank of Australia (ASX: CBA) reiterated its expectations that ASX 200 investors will see the RBA lift the official cash rate in February.

“We maintain our view that the RBA will increase the cash rate by 25 basis points to 3.85% in February,” CBA economist Harry Ottley said.

The post Buying ASX 200 shares? Here’s what the latest spending report means for interest rates in 2026 appeared first on The Motley Fool Australia.

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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.

When ASX shares want to return capital to their shareholders, they typically have two choices. The first, and most beloved, method is by paying a dividend. The second, undertaking a share buyback program.

Dividends are easily the preferred method of capital return for most ASX investors. That’s understandable. After all, nothing quite compares to that feeling of receiving cold, hard cash in return for a past investment.

Share buybacks don’t involve a direct transfer of wealth from the company to the investor. As such, many investors prefer that a company pay out a dividend if it has money to spare. But I would prefer most of my investments to undertake buybacks. Let’s talk about why.

Share buybacks vs. dividends

Buybacks and dividends are similar in origin. Both can only be undertaken, at least sustainably, if a company is healthily profitable. And both methods benefit shareholders, obviously. But that’s where the similarities end.

Dividends represent one-off cash payments, with that cash taken directly out of the company’s bank account. Dividends are fantastic for shareholders, but it is important for investors to recognise that they inherently weaken a company. That cash that is paid out in dividends can only be used once. Once it is paid out, it cannot be reinvested into the business or used to pay down debt.

Investors should keep this in mind. If a company is choosing to use its cash to incentivise shareholders at the expense of paying down high-interest debt or investing in lucrative business opportunities, if possible, then shareholders are likely to suffer down the road.

Share buybacks involve using a company’s cash to purchase its own shares from the open market. Once these shares are bought, they are destroyed. This reduces the company’s overall share count, and thus boosts the ownership stakes of all remaining shareholders.

If done correctly, I think share buybacks are more beneficial to both shareholders and the company than paying out a dividend.

This is because a share buyback program offers investors ongoing benefits, while a dividend payment does not. Once a dividend has been declared and funded, that cash goes out the company door, never to return and never to benefit the company again.

But in the case of a share buyback, that reduced share count is a permanent change to the company’s investment profile. For the following year, as well as all years that come after, that reduced share count stays. This means there are perpetually fewer shares to divide earnings and profits amongst going forward, meaning earnings per share (EPS) will enjoy an everlasting boost from the reduced share count. Further, there are now fewer shares to pay dividends to going forward, meaning any future dividend declaration will be cheaper for the company to fund.

When do share purchases make sense?

So it’s for this reason that I would prefer to see most of my ASX shares use their cash to fund share buyback programs rather than larger dividends.

There is one caveat to this, though. That would be pricing. Like you or I, companies that buy their own shares usually have to do so at market pricing. The efficiency of using the company’s own funds to buy back its shares is higher when the company’s valuation is lower, and vice versa.

Buybacks only benefit shareholders when they are done at compelling valuations. If I saw that Commonwealth Bank of Australia (ASX: CBA), for example, was buying back its own stock when it hit $193 a share last year, I would regard it as an exceptionally poor use of capital, given how expensive its shares were, relative to its earnings, at that price.

If CBA undertook a buyback when its shares went under $90 each back in 2022 though, I would have been in full support.

Like all investors, companies should only buy shares when the prices make it an attractive long-term investment. If they can do so, I’ll take it over a dividend any day.

The post Building wealth: Here’s why I prefer ASX share buybacks to dividends appeared first on The Motley Fool Australia.

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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.

Shares in Domino’s Pizza Enterprises Ltd (ASX: DMP) are trading higher on Monday after the company announced its new local Chief Executive Officer. The company remains on the hunt for someone to fill the top job at the company.

In a statement to the ASX on Monday morning the company said experienced Domino’s and quick service restaurant executive Merrill Pereyra would take over the role overseeing Australia and New Zealand effective 23 January.

Depth of knowledge

Mr Pereyra, the company said, had more than 30 years’ experience in the sector including regional leadership roles with McDonalds and as chief executive of Domino’s Pizza Indonesia.

The company added:

Since 2019 Mr Pereyra has been managing director of Pizza Hut, India, for Yum! Brands, where he led a turnaround of sales performance and halved store paybacks.

Domino’s executive chairman Jack Cowin said the company was “delighted” to appoint an executive of Mr Pereyra’s calibre to the role.

Merrill has a track record of building franchise relationships, growing same store sales and unit economics to return to network expansion – the board is confident he will work closely with our franchise partners to improve our business performance.

Domino’s also said that George Saoud, who was appointed chief financial officer in July last year, would also now take on the role of Chief Operating Officer.

The company added:

Mr Saoud’s expanded role will help to drive sustainable growth across Domino’s global operations, and reflects the company’s focus on disciplined execution, operational performance and cost management across the group.

In terms of filling the group Chief Executive role, Domino’s said the search is “progressing well”.

Work to be done

Domino’s will be looking to turn around its results from last year, when total sales fell 0.9% to $4.15 billion and EBIT was 4.6% lower at $198.1 million.

The company lost its previous Chief Executive, former Coca Cola executive, Mark van Dyck in July, with the company’s shares being sold down to their weakest levels in 11 years at the time.

Mr van Dyck had only been in the top role for eight months, and Mr Cowin stepped in during the interim period to oversee the company.  

Domino’s shares were trading 4.2% higher on the news on Monday, up 95 cents to $23.50. Domino’s shares have traded as low as $13.11 in the past year and as high as $36.68.

Domino’s was valued at $2.12 billion at the close of trade on Friday.

Domino’s is one of the most-shorted stocks on the ASX, with its short interest currently sitting at 17.7%.  

The post Domino’s shares trading higher as new local Chief Executive announced appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England 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 Domino’s Pizza Enterprises. The Motley Fool Australia has recommended Domino’s Pizza Enterprises. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.