Last week saw a number of broker notes hitting the wires once again. Three buy ratings that investors might want to be aware of are summarised below.

Here’s why brokers think investors ought to buy them next week:

Core Lithium Ltd (ASX: CXO)

According to a note out of Macquarie, its analysts have retained their outperform rating and $1.30 price target on this lithium developer’s shares. This follows the release of the company’s quarterly update. Macquarie was pleased with what it saw and notes that spodumene production is expected to commence during the second half of FY 2023. It expects this milestone to boost its shares when it happens. The Core Lithium share price ended the week at $1.13.

Megaport Ltd (ASX: MP1)

A note out of Goldman Sachs reveals that its analysts have retained their buy rating on this network as a service provider’s shares with a lowered price target of $8.10. Although Goldman wasn’t impressed with operational trends during the first half, the broker remains positive. This is because of Megaport’s clear product advantage versus peers and its decade-long runway for growth. The Megaport share price was fetching $5.97 at Friday’s close.

Telstra Group Ltd (ASX: TLS)

Another note out of Goldman Sachs reveals that its analysts have upgraded this telco giant’s shares to a buy rating with a $4.60 price target. The broker sees Telstra as an attractive option for investors right now due to the defensive nature of telecoms in an uncertain environment. In addition, Goldman has highlighted Telstra’s low risk earnings (and dividend) growth over the coming years and the favourable outlook for the mobile market. The latter follows price rises from competitors. The Telstra share price ended the week at $4.15 today.

The post Top brokers name 3 ASX shares to buy next week appeared first on The Motley Fool Australia.

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More reading

• Here’s how I’d start building a second income this February, for $30 a week
• Here are the 3 most heavily traded ASX 200 shares on Friday
• Core Lithium: An ASX 200 share to buy in February? 
• Brokers name 3 ASX shares to buy now
• Tech boom! Buy these ASX tech shares before it’s too late: broker

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 Megaport. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended Megaport. 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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If you’re searching for dividend shares to buy when the market reopens, then it could be worth checking out the two listed below.

Here’s why they have been tipped as buys:

Accent Group Ltd (ASX: AX1)

The first ASX dividend share that has been tipped as a buy is footwear and apparel retailer Accent. It is the owner of a growing portfolio of retail brands such as Hype DC, The Athlete’s Foot, Glue, Platypus, Sneaker Lab, and Stylerunner.

Its shares have been on fire in recent weeks thanks to a particularly positive trading update. Goldman Sachs was impressed, commenting:

AX1 has provided a trading update which was a +12% beat on revenue and +35% beat on EBIT for 1H23 vs. GSe. The revenue beat was consistent across key banners, and commentary on trading through January suggests strong trading is ongoing. January and back to school is a key period for AX1, so this gives us confidence in FY23.

In response to the update, the broker has reiterated its buy rating with an improved price target of $2.75.

As for dividends, the broker is forecasting a fully franked dividend of 12.2 cents per share in FY 2023. Based on the current Accent share price of $2.28, this will mean a yield of 5.4%.

Pilbara Minerals Ltd (ASX: PLS)

Another ASX share to consider is Pilbara Minerals. Although the lithium miner has yet to pay a dividend, one is expected to be declared later this month.

This follows the announcement of the company’s capital management framework late last year. This was put into place in response to the miner generating mountains of cash from its lithium. It commented:

A target dividend payout ratio of 20-30% of free cash flow has been adopted by the Company. This target payout ratio is designed to provide a sustainable dividend return to shareholders, but also reflects the early stages of Pilbara Minerals’ growth cycle, with the remaining cash flow able to be allocated to organic and inorganic growth opportunities.

According to a recent note out of Macquarie, its analysts are expecting the miner to be in a position to reward shareholders with a 30 cents per share dividend in FY 2023. So, with the Pilbara Minerals share price currently fetching $4.89, this equates to a 6.1% dividend yield.

Macquarie also sees plenty of upside for the company’s shares with its outperform rating and $7.50 price target.

The post Buy Pilbara Minerals and this ASX dividend share: experts appeared first on The Motley Fool Australia.

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More reading

• 3 ASX 200 lithium stocks that leapt beyond 20% in January
• Can buying Pilbara Minerals shares today create long-term wealth?
• Dividend forecasts: 3 ASX 200 shares with 6%+ yields
• 3 ASX All Ordinaries stocks hitting new 52-week highs today
• Should I buy ASX 200 lithium shares now or not?

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 recommended Accent 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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ASX shares are divided into 11 market sectors which are represented by their own ASX 200 indexes.

If we take a look at the year-to-date performance of these 11 sectors in 2023, there are three categories that stand out for share price growth.

Seems like everyone is buying ASX 200 property shares — otherwise known as real estate investment trusts (REITs). Next on the list are ASX 200 retail shares and ASX 200 technology shares.

To date in 2023, the S&P/ASX 200 A-REIT Index (ASX: XPJ) is up 14%. Coming in close behind is the S&P/ASX 200 Consumer Discretionary Index (ASX: XDJ) which is up 12.9%.

The next sector in line is the S&P/ASX 200 Information Technology Index (ASX: XIJ) with a 10.9% gain.

Are you detecting a pattern here?

Why are these ASX 200 shares rocketing in 2023?

The answer is pretty simple. These three sectors were pummelled the most during the 2022 sell-off, so they’re having the biggest bounceback today in a newly optimistic market.

These S&P/ASX 200 Index (ASX: XJO) shares suffered the most last year because rising inflation and interest rates are particularly impactful in these sectors.

That turned investors off, which meant buyer demand fell, and some even decided to sell.

The result? A substantial fall in the prices of ASX 200 shares in these three indexes.

The technology index fell 34% over the 12 months of 2022, the A-REIT index fell 24%, and the consumer discretionary index fell 23%.

Here’s why these ASX 200 shares were hit hardest among the 11 market sectors.

Generally speaking, rising inflation is bad news for most companies. It means their input costs increase, and if they can’t raise the prices for their products and services, this usually reduces their margins.

In terms of rising interest rates, they hurt the economy on many fronts. Every company and household with debt faces rising costs, and people cut back spending on discretionary items.

Rising rates are especially bad for Australian tech companies and REITs.

Many listed Australian tech companies fit into the growth shares category. That means they’ve typically got a fair bit of debt and are spending a lot to get established while not necessarily making a profit.

Meanwhile, rising rates also bring property prices down because demand goes out of the market. While REITs managing shops, offices, commercial, and residential property can raise the rent when leases turn over, most leases outside residential are multi-year agreements that can’t be changed in the short term.

The ASX 200 appears to be turning

ASX 200 shares have lifted 8.8% already in January. That’s a clear indication of new confidence.

The Reserve Bank told us this week that inflation has peaked in Australia, and recent US inflation news was positive.

If inflation is coming under control, that means interest rates won’t have too much further to go.

That’s got investors excited enough to get back into the market in 2023 and buy the dip while they can.

Which shares in these sectors should you buy?

A good starting point when researching a market sector is to first look at the top ASX 200 shares by market capitalisation to see how they’re performing.

The biggest ASX property share by market cap is Goodman Group (ASX: GMG). It lost 35% in value in 2022. So far in 2023, Goodman Group shares are up by 21%.

The biggest ASX retail share is Wesfarmers Ltd (ASX: WES). Wesfarmers shares lost 23% in 2022. So far in 2023, the Wesfarmers share price is up by 12%.

The biggest ASX tech share is WiseTech Global Ltd (ASX: WTC). The Wisetech share price fell 13% in 2022. So far in 2023, the shares are up by 26%.

The post Which ASX 200 shares are rebounding fastest in 2023? appeared first on The Motley Fool Australia.

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More reading

• Buying ASX shares as a beginner? Here are 3 things I wish I’d known
• 20+ years of growing dividends. Why I plan to buy more of this ASX 200 stock in 2023
• Here’s how I’d start building a second income this February, for $30 a week
• Here are the 3 most heavily traded ASX 200 shares on Friday
• A rare day in the green: Magellan share price soars 5%

Motley Fool contributor Bronwyn Allen has positions in Goodman Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended WiseTech Global. The Motley Fool Australia has positions in and has recommended Wesfarmers and WiseTech Global. The Motley Fool Australia has recommended Goodman 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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Are you buying ASX shares as a beginner? Congratulations! Investing in shares is one of the best ways to build long-term wealth, achieve passive income, and perhaps even retire early.

But, like any other asset class, investing in ASX shares successfully is not easy. There are many mistakes you can make along the way. It’s fine to make mistakes, how else would we learn?

So here are some of the things I’d wish I knew before I got started with investing in shares. Hopefully, you can avoid making the same errors as I did.

3 things I wish I’d known when I started investing

Index funds are your friend

An index fund like the Vanguard Australian Shares Index ETF (ASX: VAS) is a single investment that puts your money into a basket of shares. In most cases, it will be the 200 or 300 largest shares on the share market. With an index fund, you are getting the return of the broader market, no more, no less.

When I started out, I had grand plans of smashing the market, year in, year out. But being able to do this takes a lot of time and experience. I wish I started investing in an index fund as my first investment rather than choosing the individual shares I did at the start of my journey.

These days, I invest in both index funds and ASX shares. That way, I can get the market’s return on some of my capital while using the rest to try and achieve outperformance. But I wish I had started out that way. If I had, I would be in a better financial position today.

You can be too diversified

As a beginner investor, you will constantly hear about the benefits of diversification or ‘not putting your eggs in one basket’. This is sage advice. But it is possible to have too much diversification. When I started my investing journey, I wanted to have a finger in every pie.

I held dozens and dozens of shares after a few years, covering emerging markets, the US markets, the ASX, and ‘alternative assets’ like water rights and property.

But after a while, I realised I had too many investments in my portfolio to properly keep track of. And this started to hurt my returns. If I could go back and do things differently, I would stick to a portfolio of 15-20 investments that I have a deep understanding of from the start.

Boring can be best

When I first began my investing journey, I loved investing in exciting companies that were ‘disruptive’, were ‘doing things differently’ and that I found exciting. As the years went on, many of these investments turned out to be lemons.

Today, I have rediscovered the beauty of a boring investment. Companies that have been around for decades might not be the most exciting investments out there. But most old companies are old for a reason – they know how to run their business, sell their products, survive and thrive during the inevitable recession.

That’s why some of my favourite investments today do not feature the likes of Zip Co Ltd (ASX: ZIP), Brainchip Holdings Ltd (ASX: BRN) or Nuix Ltd (ASX: NXL)

Instead, some of my favourite investments include Washington H Soul Pattinson and Co Ltd (ASX: SOL), Coca-Cola Co (NYSE: KO), Wesfarmers Ltd (ASX: WES) and McDonald’s Inc (NYSE: MCD).

Sometimes, especially for new investors, boring can be better.

The post Buying ASX shares as a beginner? Here are 3 things I wish I’d known appeared first on The Motley Fool Australia.

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More reading

• 20+ years of growing dividends. Why I plan to buy more of this ASX 200 stock in 2023
• Here’s how I’d start building a second income this February, for $30 a week
• 3 of the safest ASX 200 dividend stocks in Australia
• Why did the Vanguard Australian Shares Index ETF lag the ASX 200 in January?
• These 2 ASX 200 shares yield 5% and 6% and I can’t wait to buy them

Motley Fool contributor Sebastian Bowen has positions in Coca-Cola, McDonald’s, Vanguard Australian Shares Index ETF, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Washington H. Soul Pattinson and Company Limited and Zip Co. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool Australia has positions in and has recommended Washington H. Soul Pattinson and Company Limited 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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There are plenty of exchange traded funds (ETFs) for investors to choose from on the Australian share market.

But which ETFs might be top options right now? Listed below are three exciting ETFs that could be worth considering:

BetaShares Asia Technology Tigers ETF (ASX: ASIA)

The first ETF to look at is the BetaShares Asia Technology Tigers ETF. This ETF gives investors exposure to the best tech stocks in the Asian market. This means you’ll be buying the likes of ecommerce giant Alibaba, search engine company Baidu, and WeChat owner Tencent. And with tech stocks back in favour with investors, China reopening, and the BetaShares Asia Technology Tigers ETF still down meaningfully from its highs, this could be an opportune time to make an investment.

BetaShares NASDAQ 100 ETF (ASX: NDQ)

The BetaShares NASDAQ 100 ETF could be another ETF for investors to consider buying. This popular ETF gives investors exposure to the 100 largest (non-financial) stocks on Wall Street’s NASDAQ index. These are many of the largest companies in the world and household names such as Amazon, Alphabet, Apple, Meta, Microsoft, Netflix, Nvidia, and Tesla. And despite a recent rebound, the ETF is still down 16% over the last 12 months. This could make it a good time to consider an investment.

VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO)

A third and final ETF for ASX investors to consider buying is the VanEck Vectors Video Gaming and eSports ETF. This tech-focused ETF gives investors access to a global video game market estimated to comprise almost 3 billion active gamers and growing. Among its holdings are game developers such as Electronic Arts, Nintendo, Roblox, and Take-Two.

The post 3 scintillating ETFs for ASX investors to buy this month appeared first on The Motley Fool Australia.

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• ASX investors are buying up the Betashares Nasdaq 100 ETF. Should you?
• Need passive income? Turn $5,000 into $800 every month
• Invested $1,000 in the Betashares Nasdaq 100 ETF (NDQ) 5 years ago? Here’s how much dividend income you’ve earned
• 2 of the best ETFs for beginner investors to buy now
• 3 ASX ETFs you might not know pay dividends

Motley Fool contributor James Mickleboro has positions in BetaShares Nasdaq 100 ETF. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended BetaShares Nasdaq 100 ETF. The Motley Fool Australia has positions in and has recommended BetaShares Nasdaq 100 ETF. The Motley Fool Australia has recommended VanEck Vectors Video Gaming And eSports ETF and Betashares Capital – Asia Technology Tigers Etf. 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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Regular readers of The Motley Fool would not need reminding that technology shares took a brutal beating in 2022.

But with the S&P/ASX All Technology Index (ASX: XTX) up 15.5% already this year, one expert has declared the sector is back with a vengeance.

DeVere Group chief executive Nigel Green said that financial updates from US tech giants this week would commence “The Great Rotation back into growth stocks”.

“As market conditions shifted in 2022, investors dumped growth stocks, like tech, in favour of value stocks which were deemed more suitable to the challenging environment,” he said. 

“But what is happening now, we believe, is the beginning of a rebound.”

Mixed results for tech giants

Green did admit the short-term results for big tech were mixed.

“Facebook’s parent company Meta Platforms Inc (NASDAQ: META) has exceeded estimates for revenue in its fourth-quarter earnings report, with the stock soaring in extended trading on the results,” he said.

“While Amazon.com Inc (NASDAQ: AMZN)’s earnings are expected at $0.15 per share, which would be an 89% decrease from the same quarter in 2021.”

Green predicted that Apple Inc (NASDAQ: AAPL) would see declining revenue for the first time since early 2019.

“Alphabet Inc (NASDAQ: GOOGL), the parent company of Google, is expected to report a third consecutive quarter of declining earnings.”

But this won’t stop long-term investors piling back into the tech sector, according to Green.

He cited two reasons why The Great Rotation is on in earnest.

“First, valuations of tech and other growth stocks are currently low having been hit by the previous rotation into value stocks,” said Green.

“Investors are now eyeing these super attractive entry points to top-up their portfolios as the trend is reversing.”

Secondly, investors are looking forward to how macroeconomic factors might change.

“Inflation has seemingly peaked and interest rates are set to stabilise, which takes away a major obstacle for tech stocks.”

Bet on still-cheap tech for strong returns 

Green thus declared that “tech stocks are back” and urged punters to take advantage.

“Rotation into the right growth stocks will provide strong returns.”

He warned, though, that this is not a time for investors to “buy everything”.

“There will be big winners and losers. They must concentrate on high quality, profitable companies which can consistently maintain or steadily grow margin[s].”

And despite lukewarm results, the tech giants shouldn’t be written off.

“[They] still have piles of cash, in some cases hundreds of billions of dollars, and remain enormously profitable,” said Green.

“In addition, these companies maintain considerable user bases, world-class research and development, plus some of the smartest talent on the planet.”

The post ‘The Great Rotation’ has begun: Expert declares tech shares will provide ‘strong returns’ in 2023 appeared first on The Motley Fool Australia.

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• Meta stock price rockets 19% on $56 billion buyback
• 3 ASX 200 tech shares going gangbusters on Thursday
• What to watch on the US stock market this week: ANZ
• Forget lithium! I’m using the Warren Buffett method to help find winning ASX shares in 2023
• Why Fortescue shares could be facing a Meta-like problem

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tony Yoo has positions in Alphabet and Amazon.com. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon.com, Apple, and Meta Platforms. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Alphabet, Amazon.com, Apple, and Meta Platforms. 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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An ASX 200 dividend stock with a five or ten-year streak of raising their dividends is usually a good sign that you’ve found a quality income stock. But an ASX 200 dividend stock with a 20-year-plus streak? That’s ASX dividend royalty.

That’s exactly what the Washington H. Soul Pattinson Co Ltd (ASX: SOL) share price has on offer for income investors today.

Why Soul Patts is a quality ASX 200 dividend stock

I already own Soul Patts shares – in fact, the company is one of my top ASX holdings. But I plan to add far more of this would-be ASX dividend aristocrat to my portfolio in 2023, if the pricing allows it.

I would go one step further and argue that if I had to own just one ASX 200 dividend stock in my portfolio, this would be it.

But let’s backtrack a little and get into the weeds of what makes this company such a special ASX dividend share.

So Soul Patts is one of the oldest companies on the ASX 200. It first put down roots way back in 1872, but become the company we know today in 1903. Its first calling was pharmacies, but today, Soul Patts is a bit of a hard company to pigeonhole.

Its primary business is owning large stakes in other investments for the benefit of its shareholders. In this way, it arguably functions closer to a listed investment company (LIC) or a managed fund rather than the typical kinds of companies we see on the ASX.

Soul Patts invests prudently in a large and diversified portfolio of assets. These include a portfolio of blue-chip shares gained in the LIC Milton Corporation acquisition in 2021. But it also includes its large, strategic investments in a handful of ASX shares. 

For example, Soul Patts owns 12.6% of TPG Telecom Ltd (ASX: TPG), 39.9% of New Hope Corporation Limited (ASX: NHC) and 43.3% of Brickworks Limited (ASX: BKW).

The company also owns a stable of unlisted assets, which includes assets ranging from industrial property to swim schools.

An ASX dividend aristocrat?

This diversified investment portfolio has given Soul Patts the unique distinction of being able to fund annual dividend increases every single year since the year 2000. That’s throughout both the global financial crisis of 2007-2009, as well as the COVID pandemic.

This is an ASX dividend record unmatched on the ASX 200 or, indeed, on the entire ASX. It’s the closest thing the ASX has to a United States-style ‘dividend aristocrat’, which is a US share that has increased its dividends every year for 25 years.

Back in December last year, Soul Patts announced during its annual general meeting that its total shareholder return (share price gains and dividends) came to an average of 12.5% per annum over the 20 years to 30 November 2022.

That was a good 3.4% per annum above what the ASX All Ordinaries Accumulation Index had achieved over the same period.

So, in conclusion, this is an ASX 200 dividend stock I will never own enough of. I can’t wait to add to my position in 2023. If there’s a compelling price point, I’ll be loading the boat with this top-notch company.

The post 20+ years of growing dividends. Why I plan to buy more of this ASX 200 stock in 2023 appeared first on The Motley Fool Australia.

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More reading

• 3 of the safest ASX 200 dividend stocks in Australia
• Here are the 3 most heavily traded ASX 200 shares on Friday
• A rare day in the green: Magellan share price soars 5%
• Why did the Vanguard Australian Shares Index ETF lag the ASX 200 in January?
• Why are ASX 200 iron ore shares being hammered hard on Friday?

Motley Fool contributor Sebastian Bowen has positions in Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Tpg Telecom. 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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One of the world’s most famous investors is Warren Buffett.

Over several decades, through his Berkshire Hathaway business, the Oracle of Omaha has delivered stunning returns for investors.

The good news is that Buffett has achieved these feats without any fancy high frequency trading strategy. Instead, he has made long term investments in high quality companies and let compounding work its magic.

The even better news is that there’s nothing to stop you from following Buffett’s investment style to grow your own wealth.

But which ASX shares could be Buffett-style investments right now? Two that tick a lot of boxes are listed below. Here’s what you need to know about them:

Transurban Group (ASX: TCL)

One quality that Buffett looks for when making investments is a competitive advantage or moat. This is something that this toll road operator has with its portfolio of key assets across Australia and North America. If you want to drive across Melbourne and Sydney quickly, you’re probably going to have to use its roads. In fact, the company estimates that customers using Transurban roads (compared to alternative routes) saved a total of 323,000 hours of travel time each workday in FY 2022.

Citi is a fan of Transurban and has a buy rating and $15.70 price target on its shares. Its analysts are also forecasting consistent dividend growth through to FY 2025, which is likely to go down well with an investor like Warren Buffett.

VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)

Another (simple) way to invest like Buffett is to buy the VanEck Vectors Morningstar Wide Moat ETF. This is a Warren Buffett-inspired ETF that gives investors access to a diversified portfolio of companies with sustainable competitive advantages and fair valuations. At present, its holdings include businesses with strong moats such as Amazon, Intel, Microsoft, and Walt Disney.

Over the last 10 years, the index that the fund tracks has beaten the market with a total average return of 18.11% per annum. This would have turned a $10,000 investment into over $50,000.

The post Invest like Warren Buffett with these ASX shares 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 Berkshire Hathaway. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2023 $200 calls on Berkshire Hathaway, short January 2023 $200 puts on Berkshire Hathaway, and short January 2023 $265 calls on Berkshire Hathaway. The Motley Fool Australia has recommended Berkshire Hathaway and VanEck Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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February 2023 could be an excellent time to start building a second income through ASX dividend shares. It can be done with a small amount of money each week, using the power of compounding to help grow wealth.

I think that investing in ASX shares is one of the best ways to grow our net worth. Many leading companies on the ASX make good profits, but plenty of them also pay dividends.

Australian companies have the added benefit of attaching franking credits to dividends that are paid, boosting the after-tax returns.

Start by saving

Investors don’t need a lot of money to start investing in ASX shares. You can open a share trading account with as little as $500. However, it could make more sense to invest more than $500 at one time so that the brokerage fee is a smaller percentage of the cost.

Bank accounts are finally offering better interest rates, with good ones offering a rate of more than 3%. While we may want to invest our money as soon as possible, our cash can make a decent return while it builds.

Putting aside $30 a week translates to a yearly total of $1,560. Saving this amount each week may be easy for some people and a task for others. It may involve finding cheaper alternatives for products or services, getting extra income from a part-time job, or whatever it takes.

Begin investing

Investing that $1,560 into an ASX share that pays a 5% dividend yield would make $78 of annual dividends in year one. Picking a share with a dividend yield of 10% would generate $156 of annual dividend income. That’s not bad for the start of a second income.

There are some quality blue chips that pay dividend yields of around 5% to 7%, such as Wesfarmers Ltd (ASX: WES), Telstra Group Ltd (ASX: TLS) and Coles Group Ltd (ASX: COL). These are the sorts of names that could do well with a long-term investment strategy.

Investors may consider ASX shares with higher dividend yields than that, but ideally, those names could grow earnings over the long term. Companies with very high dividend yields include Adairs Ltd (ASX: ADH), Shaver Shop Group Ltd (ASX: SSG), Best & Less Group Holdings Ltd (ASX: BST) and Pacific Current Group Ltd (ASX: PAC).

The second income can benefit from compounding

One year of investing is unlikely to unlock all of the passive income that investors are looking for.

Starting off with $75 of annual income after year one is good. Building that to $150 in year two, $225 in year three and so on, by continuing to invest, would build an impressive stream of dividends.

Good businesses tend to keep growing their profit and dividends. If a $100 dividend payment grows by 5% each year because the company increased the dividend, it would be $105 in the second year, $110.25 in the third year, $115.76 in the fourth year and so on.

Investors can benefit from organic dividend growth from their investments, as well as adding more money over time.

The more time we give — and the more money we add — to our investment portfolio, the bigger the dividend cash flow that can be created.

The post Here’s how I’d start building a second income this February, for $30 a week appeared first on The Motley Fool Australia.

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More reading

• Here are the 3 most heavily traded ASX 200 shares on Friday
• Should I buy Coles shares before this month’s ASX earnings update?
• These 2 ASX 200 shares yield 5% and 6% and I can’t wait to buy them
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• Happy days! 8 ASX 200 shares smashing new 52-week highs on Thursday

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 Adairs. The Motley Fool Australia has positions in and has recommended Adairs, Coles Group, 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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Most investors would think two factors have the biggest influence on their ability to reach financial independence: income and investment returns.

But US financial expert and buy-and-hold advocate Brian Feroldi sees it differently.

He cites a famous economic rule to explain.

“In the 1920s, Italian economist Vilfredo Pareto noticed something in his garden,” Feroldi said in his Long-Term Mindset newsletter.

“80% of his peas came from just 20% of his plants.”

He then also noticed the same pattern in his day job.

“80% of the land was owned by just 20% of the people.”

That was the birth of the Pareto Principle. 

“It’s since become a powerful tool that helps to separate ‘signal’ from ‘noise’. By zeroing in on the small — but impactful — inputs, you can gain incredible leverage.”

How the Pareto Principle applies to building wealth

The principle also applies to investing.

And this is where the notion that income and investment returns are the most important variables towards financial independence.

They’re not, according to Feroldi.

“Those two factors are important, but they are more ‘noise’ than ‘signal’.”

He said the most important factor to building wealth, the critical 20%, is one’s savings rate as a proportion of take-home pay.

Sure, a massive income is certainly helpful, but Feroldi says it’s not “a cure-all”.

“Just ask some of the highly-paid celebrities and athletes who [end] up filing for bankruptcy protection — Mike Tyson, Nicholas Cage, Lindsay Lohan.”

And high investment returns also help, but it’s absolutely useless if one’s savings rate is miniscule.

“This is why your savings rate is so important. It’s the small input that can [reliably] predict your ability to become wealthy.”

Feroldi admitted concentrating on saving is not an exciting message. But if you do it well then it will be “hard not to become wealthy” over time.

“Over the long run, you have far more control over it than your salary or investment returns.”

The post Expert reveals THE most critical thing to building wealth (and it’s not what you think) appeared first on The Motley Fool Australia.

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More reading

• Morgans names the best ASX growth shares to buy in February
• A new bull market is coming: 3 ASX shares I’d load up on before it gets here
• Morgans names 2 high yield ASX dividend shares to buy this month
• Here are the top 10 ASX 200 shares today
• 3 of the safest ASX 200 dividend stocks in Australia

Motley Fool contributor Tony Yoo 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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