Everyone knows ASX shares are prone to short-term fluctuations.

This has been especially applicable the past year as volatility ruled markets. And experts — both bulls and bears — unanimously agree that this will also be the case in 2023.

In such times it’s critical to keep focused on the long-term prospects of a company.

To demonstrate, Glenmore Asset Management portfolio manager Robert Gregory named one stock that went gangbusters in February and another that had a shocker — but explained why he’s happy to be invested in both.

Demand-supply balance seems ‘very favourable’

Car dealership network Eagers Automotive Ltd (ASX: APE) saw its shares soar 19.9% last month.

“Eagers delivered a solid full-year result, with underlying pre-tax profit of $405 million, up +1% vs prior comparable period, which itself was a very strong result,” Gregory said in a memo to clients.

“FY22 dividend was 71 cents per share, up 14%.”

Despite the boom result and market reaction, Gregory feels like there’s plenty left in the tank for the business.

“Eagers has targeted an uplift in revenue of ~$1 billion in FY23, with ~$400 million from acquisitions made in 2022, ~$450 million from BYD (Chinese electric vehicle manufacturer) deliveries and the balance from organic growth projects.”

The outlook for the retail car market looks positive for Eagers shares.

“The demand/supply balance in the new vehicle market continues to be very favourable, whilst Eagers’ order book continues to grow, driven by orders well in excess of deliveries.”

Many of Gregory’s peers are also bullish on the stock. Ten out 16 analysts currently covering Eagers reckon it’s a buy, according to CMC Markets.

Donut King leading the way

Retail Food Group Ltd (ASX: RFG) is the franchisor for many retail food brands ubiquitous in Australian shopping centres, such as Gloria Jean’s Coffee, Donut King, Michel’s Patisserie, and Crust Pizza.

Unfortunately for the group, the stock price plunged 13.3% in February.

That’s despite Gregory’s assessment that it had “delivered a strong 1H23 result”, with earnings up 47%.

“All brand systems across Retail Food Group’s portfolio reported strong same-store sales growth, with Donut King (+41% growth) a particular standout,” he said.

“Retail Food Group’s international division also performed well, with EBITDA of $2.0 million, up +39%.”

The portfolio manager was glad that RFG confirmed its previous forecast for the full year.

“FY23 profit guidance was reiterated, with EBITDA expected to fall within the upper end of $26 million to $29 million.”

The post ‘Very favourable’: 2 ASX shares Glenmore is riding to the top appeared first on The Motley Fool Australia.

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• Why 29Metals, Eagers Automotive, Northern Star, and Woodside shares are dropping today
• 5 things to watch on the ASX 200 on Wednesday
• 4 ASX 200 shares trading ex-dividend on Wednesday
• Start your engines: Fund backs 2 ASX shares to finish line
• 7 ASX All Ordinaries shares smashing new 52-week highs today

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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On Friday, the S&P/ASX 200 Index (ASX: XJO) finished the week on a positive note. The benchmark index rose 0.4% to 6,994.8 points.

Will the market be able to build on this on Monday? Here are five things to watch:

ASX 200 expected to sink

The Australian share market looks set to start the week in the red following a poor finish to the week on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the day 98 points or 1.4% lower this morning. On Wall Street, the Dow Jones was down 1.2%, the S&P 500 fell 1.1%, and the NASDAQ dropped 0.75%.

Oil prices fall again

Energy shares such as Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) could have a difficult start to the week after oil prices fell again on Friday. According to Bloomberg, the WTI crude oil price was down 2.35% to US$66.74 a barrel and the Brent crude oil price fell 2.3% to US$72.97 a barrel. This meant that oil prices shed US$10 a barrel over the space of the week.

Life360 shares are a buy

Life360 Inc (ASX: 360) shares could offer major upside according to analysts at Goldman Sachs. This morning, the broker has reiterated its buy rating on this location technology company’s shares with a buy rating and $7.85 price target. Commenting on Life360, which joins the ASX 200 today, the broker said: “[Life360] stands to generate significant earnings growth in coming years; all of which look underappreciated by the market.”

Gold price nears US$2,000 an ounce

Gold miners Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a great start to the week after the gold price jumped on Friday night. According to CNBC, the spot gold price stormed 3.7% higher to $1,993.70 per ounce. Gold rose almost US$130 an ounce last week amid the global economic uncertainty.

Core Lithium shares still a sell

The recent Core Lithium Ltd (ASX: CXO) share price weakness hasn’t been enough for Goldman Sachs to become more positive. Its analysts have reiterated their sell rating and 90 cents price target on the lithium miner’s shares. Goldman notes that spot lithium prices have continued to weaken. The 6% spodumene spot price is currently fetching US$5,040 a tonne, down from 1.3% from US$5,110 a tonne a week earlier.

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

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• $400 in monthly passive income, buy 8,728 shares of this ASX 200 stock
• Here are the 3 most heavily traded ASX 200 shares on Friday
• 2 ASX 200 directors buying up their company shares this week
• Why Carsales, Evolution, Kelsian, and Synlait shares are dropping
• ASX 200 gold shares reverse the charge higher to tumble today. Here’s why

Motley Fool contributor James Mickleboro has positions in Life360. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Life360. 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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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:

Aristocrat Leisure Limited (ASX: ALL)

According to a note out of Citi, its analysts have retained their buy rating and $41.20 price target on this gaming technology company’s shares. Citi has been looking at Aristocrat’s digital business again/ And while it feels that February was a flat month for the industry, it notes that Aristocrat’s titles continued to outperform. Overall, the broker remains bullish and is forecasting strong earnings growth in the coming years. The Aristocrat share price ended the week at $34.71.

Qantas Airways Limited (ASX: QAN)

A note out of Goldman Sachs reveals that its analysts have retained their conviction buy rating and $8.30 price target on this airline operator’s shares. The broker continues to believe that the market is undervaluing Qantas, noting that its share price does not reflect the company’s improved earnings capacity. Goldman also advised that it expects Qantas’ capital management to continue in FY 2024, with another $800 million share buyback. The Qantas share price was fetching $6.47 at Friday’s close.

Woolworths Group Ltd (ASX: WOW)

Another note out of Citi reveals that its analysts have retained their buy rating and $42.20 price target on this retail giant’s shares. The broker feels relatively positive on consumer spending and has boosted its earnings estimates to reflect this. This means that Citi is now forecasting earnings per share growth of approximately 14% in both FY 2023 and FY 2024. The Woolworths share price ended the week at $37.06.

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

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• Buy these ASX growth shares now: analysts
• What’s with the Qantas share price on Thursday?
• 7 ASX shares flying under the radar to buy now: Goldman Sachs
• 5 things to watch on the ASX 200 on Wednesday
• Leading brokers name 3 ASX shares to buy today

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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Dividends from ASX shares are a beautiful thing – representing real cash flow from your capital in your pocket. And a large dividend from an ASX share, well, that’s even better.

But the higher a share’s dividend, the more investors have to lose. See, the market isn’t silly. If it’s pricing an ASX share with a high dividend yield (yes, the two are directly correlated), there’s probably a reason why.

So you should be very careful when you see an ASX share with a dividend yield of 8, 9 or even 10% or greater. You could be the victim of a dividend trap.

A dividend trap is set off when an investor buys an ASX share with the expectation of a high dividend continuing. When it doesn’t, we often see that share fall in value, reflecting the weakness that is obviously affecting said company. Thus, the investor is ‘trapped’ in a capital loss, with far less income than what was expected to keep them company.

So let’s discuss three ASX dividend shares that are offering high yields today, but that might be dividend traps.

3 ASX shares that could be a dividend trap

Magellan Financial Group Ltd (ASX: MFG)

ASX 200 fund manager Magellan has a truly monstrous dividend yield on display today — 14.31%. That comes from the $1.16 in fully-franked dividends per share this financial services company has paid out over the past 12 months. But here’s the problem.

Magellan shares have been in freefall for almost three years now. This company is bleeding funds under management almost every month. It has gone from managing more than $100 billion a few years ago to less than $50 billion today.

Magellan only makes money off of its funds under management, so if this continues to fall, the company will only be able to afford smaller and smaller dividends. As such, I think Magellan is a classic dividend trap.

Adairs Ltd (ASX: ADH)

Adairs is another ASX 200 dividend share that looks like a trap. It currently offers a dividend yield of 8.11%, hailing from the fully-franked 18 cents per share it has paid out over the past year.

As an ASX 200 consumer discretionary retailer, this is the kind of company that investors hate to own in an environment of rising interest rates, which explains its low share price.

However, I don’t think Adairs is a dividend trap, far from it. It has recently declared an interim dividend of 8 cents per share, matching last year’s payout. And Adairs just reported sales growth of 34.1% and an increase in net profit after tax of 23.9% to $21.8 million. This indicates its business model is growing healthily, which means the dividends should keep flowing.

WAM Capital Ltd (ASX: WAM)

Popular ASX listed investment company (LIC) WAM Capital is our last share worth a look at. This LIC has a trailing dividend yield of 9.39% right now, fully franked. This comes from WAM Capital’s 15.5 cents per share paid out over the past year.

However, this also looks like a dividend trap to me. For one, the WAM Capital share price has lost almost 33% of its value over the past five years. So although it’s paid out high dividends to its investors, they are paying for those out of the company’s poorly performing share price.

But this company’s dividends are looking shaky too. WAM Capital has paid out 15.5 cents per share for years now. Yet its latest report showed that, as of 28 February, it only held 14.7 cents per share in its profit reserves. That’s not even enough to cover the next 12 months of dividends at their current level. As such, this is another ASX dividend share I would be staying away from.

The post Is it a trap? 3 ASX shares with ultra-high dividend yields appeared first on The Motley Fool Australia.

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More reading

• 2 ASX 300 shares trading ex-dividend on Monday
• Buy 8,333 shares in this ASX growth stock for $1,500 in annual dividends
• Investing as little as $25 a week could help me retire with $104,000 a year in passive income!
• Magellan share price slumps 5% to 10-year low
• The highest-paying term deposit right now offers 4.5% interest. Here are 3 ASX dividend shares paying way more

Motley Fool contributor Sebastian Bowen has positions in Adairs. 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. 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 most popular exchange traded funds (ETFs) on the Australian share market is the Vanguard Australian Shares Index ETF (ASX: VAS).

This ETF aims to track the return of the S&P/ASX 300 Index before taking into account fees, expenses, and tax.

This means that when you buy this ETF, you will be buying a slice of a diverse group of ASX shares including giants like BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), and Woolworths Group Ltd (ASX: WOW), as well as smaller names such as Dicker Data Ltd (ASX: DDR) and Myer Holdings Ltd (ASX: MYR).

Earning income from the Vanguard Australian Shares Index ETF

The Australian share market is one of the more generous markets, with a high proportion of companies sharing their profits with investors.

The good news is that there are plenty of dividend payers in the Vanguard Australian Shares Index ETF, which explains why it is a popular option for income investors.

In fact, according to Vanguard, at present the ETF provides investors with a 4.4% dividend yield.

This means it would be possible for investors to generate a monthly income of $300 per month from its units.

The only issue, though, is that it pays its dividends in quarterly instalments. So, investors would have to be disciplined and distribute their dividends evenly each month.

With that in mind, if you wanted to generate $300 of passive income from the Vanguard Australian Shares Index ETF, you would need to receive total dividends of $3,600 a year.

Based on its current yield, investors would need to own approximately $82,000 worth of units. This equates to 937 units at current prices.

The post How to generate $300 of monthly income from the Vanguard Australian Shares Index ETF appeared first on The Motley Fool Australia.

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• Dividend dessert: Which ASX ETFs are the sweetest for a passive income?

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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APA Group (ASX: APA) is an S&P/ASX 200 Index (ASX: XJO) stock that can deliver strong monthly passive income to investors.

APA is an energy infrastructure player that owns very large gas pipelines around Australia. It also owns or has stakes in a number of gas assets, including gas storage and gas-powered energy generation.

The company is also expanding its electricity transmission and renewable energy portfolio. It’s involved in solar panel farms and recently acquired the Basslink – an electricity cable that connects Tasmania with the mainland.

How much dividend income will ASX 200 stock pay?

APA has been steadily growing its dividend payments each year for more than a decade and a half. It has funded these increases with growing cash flow from its asset portfolio.

In FY23, the company expects to pay a full-year distribution of 55 cents per security, which would represent an increase of 3.8% compared to FY22.

Receiving $400 per month would equate to $4,800 per year. Keep in mind that APA doesn’t pay every month, it’s just that investors need to translate that annual figure into 12 equal parts.

To gain $4,800 per year, we’d need 8,728 APA shares.

To buy 8,728 APA shares, we’re currently talking about a total cost of around $89,000 after the 6% fall of the APA share price over the last month.

The ASX 200 stock is expected to pay an annual distribution per security of 62 cents in FY25, according to Commsec. With that payment, we’d only need 7,742 APA shares for the passive income target.

What is the yield of APA shares?

Thanks to the ongoing dividend growth and the reduction of the APA share price, the FY23 dividend yield is expected to be 5.4%. That’s solid passive income.

If the distribution does grow to 62 cents per security by FY25, then this would translate into a dividend yield of 6.1%.

This is a stronger yield from the ASX 200 stock than what people can get from savings accounts or term deposits while also offering growth.

APA continues to invest in new pipelines, as well as renewable projects, that could unlock further cash flow for the business. It’s also exploring the possibility of using its pipelines for hydrogen, which could lead to a greener future.

APA share price snapshot

Since the start of 2023, the APA share price has fallen by 3%.

The post $400 in monthly passive income, buy 8,728 shares of this ASX 200 stock appeared first on The Motley Fool Australia.

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• Here are the 3 most heavily traded ASX 200 shares on Friday
• 2 ASX 200 directors buying up their company shares this week
• 5 things to watch on the ASX 200 on Friday
• What’s with the Qantas share price on Thursday?
• Here are the 3 most heavily traded ASX 200 shares 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 no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Apa Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Looking for a passive income boost? Then these ASX dividend shares could be worth considering.

Here’s why analysts rate them as buys right now:

Dalrymple Bay Infrastructure Ltd (ASX: DBI)

The first ASX dividend share that has been named as a buy is Dalrymple Bay Infrastructure.

It is an infrastructure company that operates the Dalrymple Bay Coal Terminal (DBCT) on a long term agreement.

Morgans is a fan of the company and believes it is well-placed to pay big dividends in the near term. This is thanks to the strong demand for coal and its position as the cheapest export route-to-market for users within the Bowen Basin catchment region. It said:

DBCT offers the cheapest export route-to-market for users within its Bowen Basin catchment region. DBCT is fully contracted from 2023 to 2028. Following the successful outcome to its customer tariff negotiations, DBI should be able to deliver resilient, inflation-linked, and very high margin revenues and has provided distribution guidance that implies c.8% cash yield growing at 3-7% pa.

The broker currently has an add rating and $2.63 price target on its shares.

As for dividends, its analysts are forecasting dividends per share of approximately 21 cents in FY 2023 and 22 cents in FY 2024. Based on the latest Dalrymple Bay Infrastructure share price of $2.63, this will mean very generous yields of 8% and 8.35%, respectively.

Transurban Group (ASX: TCL)

Another ASX dividend share for investors to consider buying next week is Transurban.

It manages and develops urban toll road networks in Australia and the United States of America. In its portfolio are Citylink, Cross city tunnel, the Eastern Distributor, and AirportlinkM7.

Citi is feeling positive about the company. Its analysts highlight the company’s positive exposure to inflation. The broker commented:

We believe TCLs’ 7.5% FY23 DPS guidance beat was driven by a range of one-off factors, along with improved traffic recovery. While this is positive for near term, longer term estimates remain largely unchanged. However, CPI-linked increases come through with a delay indicating a strong growth path ahead and we forecast c.6% p.a. DPS CAGR from FY23-FY26.

Citi has a buy rating and $16.00 price target on its shares.

In respect to dividends, the broker is forecasting dividends per share of 58 cents in FY 2023 and then 60 cents in FY 2024. Based on the current Transurban share price of $14.17, this will mean yields of 4.1% and 4.2%, respectively.

The post Buy these ASX dividend shares next week: analysts appeared first on The Motley Fool Australia.

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• 2 ASX 300 shares cracking record highs on Friday
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• Why you need defensive ASX shares in your portfolio right now: WAM
• Give yourself a passive income boost with these ASX dividend shares: experts
• Morgans names 2 ASX dividend shares to buy with big yields

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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Sometimes it can be hard to decide which ASX shares to buy. Especially if you’re wanting to make long-term buy and hold investments.

The good news is that exchange traded funds (ETFs) are here to the rescue. These are financial instruments that allow investors to put their money into diverse groups of shares through a single investment.

But which ETFs would be good buy and hold options? Two to consider are listed below:

BetaShares NASDAQ 100 ETF (ASX: NDQ)

It’s hard to look past the BetaShares NASDAQ 100 ETF when you’re talking about buy and hold investing.

That’s because this ETF gives investors easy access to the 100 largest non-financial stocks on the NASDAQ stock exchange.

These are many of the highest quality companies in the world that look likely to dominate the business world long into the future. This includes names such as Alphabet (Google) Amazon, Apple, ASML, Meta (Facebook), Microsoft, Netflix, Starbucks, Nvidia, and Tesla.

Vanguard Australian Shares High Yield ETF (ASX: VHY)

If your focus is more on income, then you might want to consider the Vanguard Australian Shares High Yield ETF.

As you might have guessed from its name, this ETF aims to provide investors with big dividends year in, year out.

Rather than focusing on the dividends that have been and gone, this ETF leverages broker research to identify the ASX shares that are forecast to provide the biggest dividend yields over the next 12 months. It then brings these together into a diverse portfolio designed to offer a higher than average yield.

Among its holdings at present are Rio Tinto Ltd (ASX: RIO), Telstra Corporation Ltd (ASX: TLS), and Westpac Banking Corp (ASX: WBC). Combined with other holdings, they are collectively expected to provide a forward dividend yield of 5.4%.

The post These ETFs could be top options for buy and hold investors appeared first on The Motley Fool Australia.

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More reading

• How I’d aim to retire rich enough to live on passive income from my ASX dividend shares
• 2 ASX 200 bank shares to buy after the selloff: experts
• Here are the 3 most heavily traded ASX 200 shares on Friday
• ASX 200 bank stocks lift after Credit Suisse share price soars 19%
• How to generate $500 of monthly income from Rio Tinto shares

Motley Fool contributor James Mickleboro has positions in BetaShares Nasdaq 100 ETF and Westpac Banking. 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 and Telstra Group. The Motley Fool Australia has recommended Vanguard Australian Shares High Yield ETF and Westpac Banking. 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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Warren Buffett is one of the richest people in the world. He started at a young age and has built a huge amount of wealth by being frugal and investing for the long term in businesses that can compound over many years.

While there is plenty to worry investors about, I think now can prove to be a great time to invest despite the inflation, banking concerns in the United States and Europe, and so on. Share prices don’t fall heavily for no reason – it’s only when there are real concerns that the market goes noticeably backwards.

Indeed, Warren Buffett said one of the world’s often-quoted pieces of advice about investing:

Be fearful when others are greedy, and greedy when others are fearful.

As individual investors, we can’t control what management teams will do in their businesses. However, we can control when we invest and the price we pay. It’s times like this that can open up much-cheaper prices for some of the best investments out there.

Invest like Warren Buffett

Warren Buffett hasn’t precisely told investors what his formula is for investing. But, he has revealed a number of factors that he keeps in mind.

He typically stays within his ‘circle of competence’. What that means is that he only invests in businesses and industries that he understands. I think it keeps things simpler, it makes it easier to understand if things are going well, and it may mean it’s easier to know when to sell.

Buffett also likes to find value, he says it’s best to invest in great businesses at fair prices rather than trying to invest in fair businesses at cheap prices. He also likes those businesses to have a strong economic moat, or a strong competitive advantage. That means they’re more resilient to competitors trying to ‘invade’ and hopefully strong enough to get through times like this unscathed.

When there is widespread fear in the market, it gives investors the chance to buy almost every investment at a cheaper price. As the investment environment recovers, as it always has in the past, share prices can then rise.

How to build a $1 million portfolio starting at 40

Between 1965 to 2022, Warren Buffett’s company Berkshire Hathaway has returned an average of around 20% per year. However, the last five years haven’t been as solid as that because it becomes increasingly difficult to perform strongly as the portfolio becomes bigger.

It wouldn’t be easy for you and me to try to achieve gains like that. So, just achieving a return of 10% per annum could turn out very well for wealth-building at the starting age of 40. Or any age for that matter.

Investing $500 a month, returning an average of 10% per annum, would turn into $590,000 after 25 years – taking the investor to 65 years old.

If we bump that up to investing $1,000 per month, it would become $1.18 million after 25 years if it returned an average of 10% per annum.

That’s not quite the same wealth as Warren Buffett, but it’d achieve an adequate lifestyle for investors.

However, remember that investing in great businesses can still mean volatility. Just look at what has happened to the Wesfarmers Ltd (ASX: WES) share price in recent times.

But, just because a share price moves down in the short term doesn’t mean that the company has turned rubbish. There will likely be market declines over a 25-year period, but those could be the best times to buy.

The post No savings at 40? Use the Warren Buffett method in 2023 to target financial freedom appeared first on The Motley Fool Australia.

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More reading

• How to generate $10,000 of passive income from Fortescue shares
• Which real estate ASX shares should you buy now as interest rates top out?
• How I’d aim to retire rich enough to live on passive income from my ASX dividend shares
• Buy Macquarie and this high yield ASX dividend share: brokers
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Berkshire Hathaway. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool Australia has recommended Berkshire Hathaway. 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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Fortescue Metals Group Ltd (ASX: FMG) shares are a popular option for income investors.

This is because the mining giant returns a good portion of its earnings to shareholders in the form of dividends each year.

The good news is that another big dividend yield is expected from the miner this year based on its current share price.

So, what would it take to get $10,000 of passive income from Fortescue shares?

Passive income from Fortescue shares

According to a recent note out of Goldman Sachs, its analysts are forecasting a US$1.18 (A$1.76) per share fully franked dividend in FY 2023.

Based on the current Fortescue share price of $21.42, this will mean a yield of 8.2%. This is more than double the Australian share market’s typical average dividend yield.

With that in mind, in order to generate $10,000 of passive income, you would need to buy approximately 5,682 Fortescue shares. This equates to a sizeable investment of almost $122,000.

A word of warning

It is worth noting that this level of income may not last. This is due to Fortescue’s huge decarbonisation spend, which is expected to consume a significant portion of its free cash flow and weigh on its dividends.

For example, Goldman is forecasting dividends of only 62 US cents (A$0.92) per share in FY 2024 and then 40 US cents (A$0.595) per share in FY 2025.

This means that for those two financial years investors would receive paychecks of approximately $5,230 and $3,380, respectively.

It’s partly for this reason that Goldman has a sell rating and $15.50 price target on Fortescue shares. Which, incidentally, suggests that your $122,000 original investment could reduce to just over $88,000.

Lower income and capital losses are not a great mix even if the current yield is attractive.

The post How to generate $10,000 of passive income from Fortescue shares appeared first on The Motley Fool Australia.

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More reading

• Is it time to buy ASX 200 iron ore shares right now?
• Fortescue share price marching higher as green hydrogen plans heat up
• Are Fortescue shares back on the menu amid job cuts?
• Could buying Fortescue shares at under $22 make me rich?
• How can I hope to retire rich when the share market is falling?

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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