The NIB Holdings Ltd (ASX: NHF) share price is edging slightly lower today following the company’s latest cash giveback.

At the time of writing, the private health insurance giant’s shares are swapping hands at $7.77, down 0.77%.

NIB returns additional savings to members

Investors are sending NIB shares into negative territory despite the S&P/ASX 200 Index (ASX: XJO) climbing today.

For context, the ASX 200 Index is up 1.11% to 6,794.4 points after Wall Street recorded strong gains overnight.

In its release, NIB advised it is returning an additional $40 million in health insurance claims savings to its members. This brings the total amount of support provided by the business since the start of the pandemic to roughly $145 million.

Last year, the company provided $15 million in a one-off COVID credit, reflecting claims savings made during that year. The credit was applied as a discount to premium payments from September 6 2021.

The latest cash back funds will be deposited into customers’ bank accounts by 30 November 2022.

However, the financial package is dependent on the policy and level of cover.

For members with Hospital and Extras combined policies, they will receive on average about $71.

For those with hospital only policies or extras only policies, they’ll get approximately $47 or $15, respectively.

NIB managing director, Mark Fitzgibbon commented:

The give back is in recognition of members’ reduced ability to access healthcare services during the COVID-19 pandemic.

We saw a significant reduction in hospital and healthcare treatment.

To date, the volume of catch up in claims has been lower and slower than expected, which is why we’re able to return a further $40 million to our members.

NIB share price summary

Over the last 12 months, the NIB share price has travelled 15% higher despite the recent market volatility.

In comparison, the benchmark ASX 200 index has fallen by 6% over the same time frame.

Based on today’s price, NIB presides a market capitalisation of roughly $3.57 billion.

The post Why is the NIB share price edging lower on Tuesday? appeared first on The Motley Fool Australia.

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More reading

• Why has the NIB share price leapt 14% in a month?
• Why is the NIB share price having such a lousy start to the week?
• Keen to bag the latest NIB dividend? Time is running out
• These ASX 200 shares are going ex-dividend on Monday
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Aaron Teboneras has positions in NIB Holdings Limited. 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 NIB Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Zenith Minerals Ltd (ASX: ZNC) share price is having a stellar day after returning from a trading halt.

In afternoon trade, the lithium explorer’s shares are up 12% to 33 cents.

Why is the Zenith Minerals share price surging higher?

Investors have been bidding the Zenith Minerals share price higher today after the company released drilling results from the Split Rocks project in Western Australia. This project is part of the Zenith Lithium Joint Venture with EV Metals Group.

According to the release, step-out drilling to establish the extent of lithium mineralisation in the northern part of the Split Rocks project has been a success.

Lithium mineralisation has now been outlined over >1200m of strike, remaining open to the north, south, east and at depth. Of the 22 holes drilled to date, 15 have either ended in pegmatite or are deemed to be too short to fully test the target zone.

What’s next?

Zenith advised that exploration will now be accelerated with the addition of a diamond drill rig that will enable testing of the full thickness of the lithium pegmatite target zone.

The company also advised that it has now received permits for a further 84 reverse circulation (RC) and 84 diamond holes, with its joint venture partner, EV Metals, approving the budget for a further 60 RC and 10 diamond holes that are aimed at initially defining the size of the Rio Pegmatite system.

Zenith’s managing director, Michael Clifford, was delighted with the results. He said:

I am delighted to report on lithium exploration success at the Split Rocks project. New results from an initial 22 holes, that are part of an ongoing follow-up drill campaign, confirms we are onto a very significant lithium mineralised pegmatite.

RC drilling over the past 6 weeks has been slower than planned, impacted by frequent high-rainfall events which necessitated moving the rig away from the Rio prospect to more accessible areas. The plan is to now accelerate drilling at Rio with a clear runway of greater than 160 permitted holes ahead of us. The RC rig will focus on 400m spaced step-out sections, working our way south, whilst a diamond drill rig explores the eastern and depth extents of the system.

The post Guess which tiny ASX mining share is soaring 12% on a major lithium discovery appeared first on The Motley Fool Australia.

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• 3 little-known ASX lithium shares that rocketed 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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The New Hope Corporation Limited (ASX: NHC) share price is launching higher on Tuesday after the company revealed a monster dividend offering.

The S&P/ASX 200 Index (ASX: XJO) coal giant will hand investors a 31-cent final dividend for financial year 2022 – up a whopping 343% from last year’s 7-cent final dividend.

And that’s not all. It will also provide a 25-cent per share special dividend.

Together, the payouts will see those invested in New Hope shares receiving 700% more than they did at the same time last year.

Perhaps unsurprisingly, the New Hope share price is rejoicing on the news. It’s currently trading at $5.78, 5.86% higher than its previous close.

Though, earlier today it hit a new 52-week high of $5.91, representing an 8% gain.

Let’s take a closer look at all the details of New Hope’s latest dividend offering.

All investors need to know about the New Hope dividend

Record coal sales in financial year 2022 led New Hope to declare a record dividend payout – totalling a whopping 56 cents per share.

Combined with the 30 cents the company handed investors in April – made up of a 17-cent interim dividend and a 13-cent special dividend – New Hope will have paid out 86 cents per share for financial year 2022.

That leaves it trading with a 14.87% dividend yield, placing it among the S&P/ASX 200 Index (ASX: XJO)’s highest-dividend yielding shares right now.

On top of that, both of the company’s newly announced offerings will come fully franked. That means they could bring about additional benefits for some investors come tax time.

And those interested in snapping up stock in the company for its upcoming dividend have a while to do so. New Hope shares will trade ex-dividend on 24 October.

Market watchers have until then to buy into the company and still receive the payout, which will be handed out on 8 November.

The post Everything you need to know about the monster New Hope dividend appeared first on The Motley Fool Australia.

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• New Hope share price leaps 8% as profit skyrockets
• 3 ASX energy stocks up more than 100% so far this year
• 5 ASX energy shares powering portfolios with the highest dividend yields
• Here are the top 10 ASX 200 shares today
• Why are ASX 200 coal shares breaking records yet again?

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

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The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is off to a good start on Tuesday morning.

At the time of writing, the ASX bank share is up 1.1% at $23.82 a share, despite taking a hit across the past 12 months.

Now, with the interest rates cycle shifting to a new regime, the question is: what does this mean for the bank and its share price?

Are surging interest rates good for ANZ?

Since it began its monetary tightening policies earlier this year, the Reserve Bank of Australia (RBA) has outlined its commitment to stamp out inflation.

In May, it announced the first of five jumps to the cash rate, lifting it from a record low 0.10% to its current level of 2.35%.

While the rate is still relatively low — during 2012, it was at 4.25% — it is the substantial increase from such a low base that is relevant.

Banks have been quick to pass on the jump in base rates to customers via the various interest-bearing products they sell – in particular, mortgages.

Indeed, the surge in rates is typically viewed as a net positive for banks, such as ANZ, as it widens their net interest margins (NIMs) and net interest income (NII) they receive on loaned funds.

It’s simple – higher interest rates equals more NII to banks, given the higher mortgage payments borrowers must now make.

Therefore, investors would typically back the banking majors in times such as these as, theoretically, this is the banking sector’s time to shine.

Not all as it seems

Despite that theory, however, we have to look at real-world data. As it stands, Australia’s mortgage market is heavily saturated and very concentrated.

In 2021, for instance, the 10 largest mortgage providers in Australia made up more than 91% of the entire market.

In a speech to the Australian Financial Review Property Summit 2022 yesterday, head of domestic markets at the RBA Jonathan Kearns noted that commercial interest rates have ratcheted up alongside the cash rate.

Given this 225 basis point increase in the cash rate has been fully passed through to mortgage interest rates, it will have reduced borrowers’ maximum loan size by around 20%.

[T]he decrease in borrowing capacity is even larger for prospective borrowers who have existing debt, such as property investors.

In other words, the increase in interest rates impacts a borrower’s maximum loan size and their ability to service the repayments.

“Unsurprisingly, because higher interest rates reduce borrowing capacity and increase loan repayments, they typically result in a decline in new housing borrowing,” Kearns also remarked.

Undoubtedly, this offsets the perceived gains to ANZ, and other banks, through higher interest payments.

As such, it’s not as clear-cut as it seems. If we go by what Kearns says, then it’s understandable the ANZ share price has underperformed this year, despite expectations of the opposite.

ANZ share price snapshot

Shares in ANZ remain down almost 13% year to date and 11.6% lower over the past 12 months.

Meantime, the S&P/ASX 200 Financials Index (ASX: XFJ) is down 5.7% and 6.3% respectively over the same time frames.

ANZ has a current market capitalisation of around $71 billion.

The post Can the ANZ share price stretch higher if interest rates keep rising? appeared first on The Motley Fool Australia.

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• Here’s why I decided to buy each of the big 4 ASX 200 bank shares
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• Top brokers name 3 ASX shares to buy next week
• Why has the ANZ share price been outperforming the ASX 200 this week?
• Here are the top 10 ASX 200 shares today

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

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The Galileo Mining Ltd (ASX: GAL) share price is up 1.3%, after earlier posting gains of more than 8%.

Galileo Mining shares closed yesterday trading for $1.20 and are currently trading for $1.22 apiece.

So, what’s driving investor interest in the ASX resource explorer?

What’s piquing ASX investor interest today?

The Galileo Mining share price is marching higher after the miner reported new high grade assay results.

The assays come from Galileo’s ongoing reverse circulation (RC) drill campaign at its Callisto palladium-platinum-gold-rhodium-copper-nickel discovery. Callisto is situated within Galileo’s 100% owned Norseman project, located in Western Australia.

According to the release, the latest assays confirm consistent high grade palladium mineralisation at the discovery. The drill holes also intersected platinum and gold.

Galileo has now completed 8,600 metres of RC drilling and 1,400 metres of diamond drilling in the ongoing exploration campaign. The company is awaiting assays on all the diamond drill holes, which include a massive sulphide intersection. It expects the first diamond core drill assays within four weeks.

Commenting on the results that are driving the Galileo Mining share price higher today, managing director Brad Underwood said:

Assay results from a further four drill holes each returned consistent palladium grades over greater than 20 metre thickness with every palladium zone accompanied by platinum, gold, copper, and nickel.

We are also seeing copper and nickel zones in [drill hole] NRC299 above 0.6% and 0.5% respectively. This is a great sign for the potential development of even higher-grade zones particularly where we have previously encountered massive sulphides.

The miner has an RC rig and a diamond rig continuing to drill at the Callisto discovery.

“We have a lot to learn about the overall mineralised system and the opportunities that may present themselves as we continue with our large-scale drill campaigns,” Underwood said.

Galileo Mining share price snapshot

The Galileo Mining share price has been a stellar performer this year, up a whopping 439%. And that’s in a calendar year that’s seen the All Ordinaries Index (ASX: XAO) fall by 11%.

The post Why is the Galileo Mining share price marching higher on Tuesday? appeared first on The Motley Fool Australia.

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• Up 500% since May, can the Galileo Mining share price keep shooting for the stars?
• Expert names 2 ASX shares to buy for ‘extended, uninterrupted’ good times

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

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The BHP Group Ltd (ASX: BHP) share price has been a positive performer on Tuesday.

At the time of writing, the mining giant’s shares are up 1.5% to $38.40.

Where next for the BHP share price?

The good news for investors is that one leading broker believes the BHP share price gains are only just getting started.

According to a recent note out of Morgans, its analysts have an add rating and $48.00 price target on the Big Australian’s shares.

Based on the current BHP share price, this implies potential upside of 25% for investors over the next 12 months.

But it gets better. The broker is forecasting a fully franked ~$3.97 per share dividend in FY 2023. This equates to a yield of 10.3%, which stretches the total return on offer with BHP’s shares to over 35%.

What did the broker say?

Morgans likes BHP due to the diversity of its operations, which it believes make the miner a lower risk option for investors in the mining sector.

In fact, it is thanks to these qualities and its attractive valuation that the broker has put the company’s shares on its coveted best ideas list again this month.

Its analysts commented:

We view BHP as relatively low risk given its superior diversification relative to its major global mining peers. The spread of BHP’s operations also supplies some defence against direct COVID-19 impact on earnings contributors. While there are more leveraged plays sensitive to a global recovery scenario, we see BHP as holding an attractive combination of upside sensitivity, balance sheet strength and resilient dividend profile.

All in all, this could make BHP a top option for investors looking for dividends or mining sector exposure right now.

The post Here’s what this top broker is saying about the BHP share price appeared first on The Motley Fool Australia.

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• Why China’s slowdown isn’t as bad as it looks for ASX 200 mining shares
• BHP share price gains amid improved Oz Minerals takeover rumours
• 5 things to watch on the ASX 200 on Monday
• Analysts name 2 ASX 200 mining shares to buy
• Could the latest news out of China bode well for ASX 200 iron ore shares?

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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Building up a quarterly stream of passive income through shares of dividend-paying stocks is a dream for many investors, but a lot of people approach it the wrong way. You can’t expect to build up a huge amount of passive revenue overnight, and you’ll need to have the right strategy to accumulate shares of dividend stocks that will be stable in the long-term.

Let’s examine three passive-income secrets to bolster your dividend flows and ensure that they aren’t eroded.

1. You don’t have to receive your dividends now

The most important passive-income secret is that you don’t need to actually accept any dividends in the form of cash if you’d prefer to make a larger amount of cash down the line. By setting up a dividend reinvestment plan (DRP), you can keep adding to your position automatically quarter after quarter, meaning that you’ll have more shares producing dividend income than you would if you had spent the money rather than reinvesting it.

Let’s work through an example with the pharmaceutical company AbbVie Inc. (NYSE: ABBV) to see how dividend reinvestment can boost your returns. Over the past five years, AbbVie has achieved a total return of 96.5%; however, the price of its shares alone only gained a bit more than 61%. In the same period, the company hiked its dividend by 120%, thanks to profitable sales of its ever-increasing portfolio of medicines.

If you’re not familiar, the total return of a stock accounts for the impact of dividend payments as well as share price appreciation, so it’s a good proxy for how much you’d make if you were reinvesting rather than spending the cash. Therefore, if you simply accept the company’s payments and spend them, you’ll have significantly less than if you set up a DRIP and wait the equivalent amount of time.

So when you’re thinking about passive income, it makes sense to think about when you will want to spend the money. The longer you can defer spending and keep reinvesting, the larger your income will ultimately be.

2. You don’t need to worry about beating the market 

But as a passive-income investor, outperformance shouldn’t be your goal, nor should it be something you expect to achieve most of the time. The reason: You’re invested for the cash flow, not the stock price returns. As long as the cash flow keeps rolling in at the same rate, the rest doesn’t matter so much.

Everyone talks about outperforming the market with their portfolio, and much ink is spilled about which stocks are likely to grow faster than the market’s long-term average of around 10% annually.

The type of companies that have highly stable cash flows to make long-term passive income tend to be more interested in returning capital to shareholders than other companies that are more focused on deploying capital to grow. Take Innovative Industrial Properties (NYSE: IIPR), a real estate investment trust (REIT), as an example. Its business model is to buy marijuana cultivation facilities, then rent them back to their former owners to capture a long trail of income. 

The company has underperformed the market over the last three years, but its dividend has risen by 124% in that time. Right now, its forward dividend yield is near 7.7%, which is quite high.

If you plan to invest in Innovative Industrial Properties expecting a certain amount in cash annually based on your initial purchase, its performance relative to the market is a moot point. You’ll get your cash flow regardless of what the market does, as long as the business can support the payout. 

3. Diversify your holdings to avoid wipeouts

A third secret of passive-income investing is that you need to diversify your selection of income stocks, just as with your portfolio as a whole. It’s pretty obvious why: If you derive all of your passive cash flow from a single business, and that business goes bust or faces stiff headwinds that require it to slash its payout, you’re out of luck. And since dividend cuts are often a harbinger of further difficult times, you might even need to take steep losses on the price of your shares, not to mention the actual money into your account every quarter. 

So don’t invest all of your passive-income capital into one stock. Try to have at least a dozen. And if possible, make sure that they’re in various different industries and use different business models.

For instance, Innovative Industrial Properties and AbbVie compete in entirely different areas, and they aren’t vulnerable to the same types of risk. So they’d be suitable options to buy for diversified passive income. When the economy is struggling or one of your companies hits a major stumble, you’ll be grateful that only a portion of your dividend revenue takes a hit.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 3 passive-income stock secrets you’ll wish you knew earlier appeared first on The Motley Fool Australia.

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• 3 things you shouldn’t do if the stock market crashes

Alex Carchidi has positions in Innovative Industrial Properties. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Innovative Industrial Properties. 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.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Shares in Cochlear Ltd (ASX: COH) have backtracked since the release of the company’s full-year results last month.

On the operational side, the company reported a solid performance as it continues its recovery from COVID-19.

Cochlear implant units grew 5% across the board – around 10% above pre-pandemic levels. Western Europe was the best performing region.

As for financials, the hearing solutions company achieved sales revenue of $1,641 million, up 9% in constant currency.

The bottom line rose by 18% to $277 million with key drivers being strong sales revenue and continued investment in market growth activities.

This led the board to ramp up its final dividend.

Investors were quick to react to the results, sending the Cochlear share price 2.18% higher to $218.86 on the day.

Despite climbing again the following day, the share has fallen wayside ever since due to market volatility and inflationary pressures.

At the time of writing, Cochlear shares are trading at $208.85 – down 0.96% so far today.

Let’s take a look at the details that you need to know about the upcoming dividend.

Almost out of time to secure the Cochlear dividend

The Cochlear share price is edging lower today despite investors looking to scoop up the company’s final dividend.

In case you weren’t aware, the ex-dividend date is tomorrow, Wednesday 21 September.

This means you have until today to buy Cochlear shares to be eligible for the dividend – provided you keep them until tomorrow morning.

Keep in mind that when a company’s shares trade ex-dividend, the share price tends to fall in proportion to the dividend paid out. However, this can vary depending on how the market is tracking for the day as well as investor sentiment.

If you make the cut, you’ll receive a partially franked dividend payment of $1.45 per share on 17 October.

This brings the total dividend for FY 2022 to $3 per share, reflecting an 18% increase from the $2.55 per share declared in the prior corresponding year.

If you are looking to add more shares to your holdings, Cochlear is not currently offering a dividend reinvestment plan (DRP).

Cochlear share price snapshot

The Cochlear share price has fallen 2% this year and is down 10% over the last 12 months.

This is a better performance than the S&P/ASX 200 Health Care (ASX: XHJ) sector. It’s down 9% in 2022 and 13% since September 2021.

Cochlear commands a market capitalisation of approximately $13.87 billion and has a dividend yield of 1.38%.

The post Here’s how to grab your piece of the latest Cochlear dividend appeared first on The Motley Fool Australia.

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• Here are 3 ASX 200 shares turning ex-dividend tomorrow
• ASX 200 better buy: Cochlear or CSL shares?
• Goldman Sachs says these ASX shares are flying under the radar post-results
• How do CSL shares stack up against Cochlear following earnings season?
• Here’s why analysts say these blue chip ASX 200 shares are buys

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

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The Brickworks Limited (ASX: BKW) share price has been a strong performer on Tuesday.

In morning trade, the building materials company’s shares are up 6% to $21.76.

Why is the Brickworks share price zooming higher?

There have been a couple of catalysts for the strong gain by the Brickworks share price today.

The first is the release of the New Hope Corporation Limited (ASX: NHC) full year result this morning.

Brickworks is a major shareholder of the coal miner, which means it will be benefiting from the bumper dividend payment announced today.

The company was able to declare a fully franked 31 cents per share final dividend and a 25 cents per share special dividend thanks to sky high coal prices.

What else?

Also giving the Brickworks share price a big boost this morning is a broker note out of Morgans.

According to the note, the broker has upgraded the company’s shares to an add rating with a trimmed price target of $23.00.

Morgans commented:

The stock trades at a c.30% discount to the last disclosed NTA-A (Jan-22) and an 11% discount to our valuation ($23.00/share). At the current share price investors can buy several quality businesses well below replacement cost, which are likely to deliver a consistent and increasing dividend stream through time.

Expectations reduced across the board. We estimate the US building products division is trading at a c.67% discount to NTA, the Australian building products at a c.40% discount and the property trusts at a c.40% discount to NTA.

We estimate the building product divisions are trading at an implied c.7.5x FY23F EBIT, with the property trust reflecting an implied cap rate of 5.19% (10-year levered IRR of c.10%). This leaves the interest in Washington H Soul Pattinson & Company Ltd (SOL), which we estimate trades at a 10% discount to our marked-to-market NTA of $14.88/BKW share.

The post Why is the Brickworks share price racing 6% 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 Brickworks. The Motley Fool Australia has positions in and has recommended Brickworks. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Wesfarmers Ltd (ASX: WES) share price is in the red this year. It has dropped by more than 20% amid a decline for many of the ASX’s shares and sectors.

The S&P/ASX 200 Index (ASX: XJO) as a whole has fallen by more than 10% this year.

There are plenty of retail names that have fallen noticeably in 2022. The JB Hi-Fi Limited (ASX: JBH) share price has fallen 15%, the Harvey Norman Holdings Limited (ASX: HVN) share price has declined 15%, the Nick Scali Limited (ASX: NCK) share price has dropped around 30%, the Super Retail Group Ltd (ASX: SUL) share price has fallen around 20%. And so on, you get the picture.

Why are ASX retail shares hurting?

Retail isn’t the only sector that’s hurting, but it’s facing a combination of factors that could be hurting the valuation.

Central banks are raising interest rates to try to tame inflation. Higher interest rates may be good for savers, but in investment terms, it meant to lower the valuation of assets. That’s the theory anyway.

This would explain the lower valuations that many assets are seeing.

But, retailers are facing a particular set of difficult circumstances. Inflation could increase the costs of retailers in areas like rent, wages, the supply chain, the production costs of the products themselves and so on. The higher interest rates and inflation could also mean that households decide to spend less on retail (and perhaps allocate their discretionary spending to ‘experiences’ after COVID impacts of the past two years).

The prospect of higher costs and lower revenue certainly wouldn’t be ideal. However, don’t forget that for some retailers they were cycling against lockdowns in the last six months of 2021, so open stores could be a positive for sales growth in the first half of FY23.

Why the Wesfarmers share price could be an opportunity

Fund manager Airlie Funds Management is a fan of Wesfarmers shares. Airlie holds shares of the owner of Bunnings, Kmart, Officeworks and Priceline in its portfolio.

Vinay Ranjan from Airlie has pointed out to Livewire that the business is a quality company with a strong balance sheet. Bunnings in particular is a standout to him. Commenting on the FY22 result and Bunnings, he said:

Bunnings, which is the core earnings driver of the business and the most important division, grew sales 9% in the second half. To give you some context, across a three-year period Bunnings sales have now grown about 35%, from FY19 to FY22, so it’s a pretty impressive result.

He and the Airlie team were impressed by the resilience of the retail businesses that Wesfarmers owns, but also noted the performance of some non-retail businesses. For example, Wesfarmers chemicals, energy and fertilisers (WesCEF) increased profit by 40% “on the back of some pretty strong commodity prices for ammonia, natural gas and fertilisers.”

One interesting takeaway was that earnings growth was below sales growth for Bunnings, suggesting that Bunnings is “investing a lot back into price and making sure the customer is getting some really good value.” Ranjan said that it’s important for the long-term strategic value for Bunnings, so it was “good to see”.

Wesfarmers share price rated as a buy

Ranjan said:

We’d be adding on any weakness. We are cognizant of the outlook for the consumer being a bit tougher and more challenging from here. But in saying that, if there is a business to own in this space, this is the one.

The brands they own, particularly Bunnings and Kmart, provide a lot of value to the customer and in an inflationary environment we expect those brands to outperform. They are real destination, highly resilient type businesses.

The post Down 23% in 2022, are ASX investors throwing Wesfarmers shares out with the bathwater? appeared first on The Motley Fool Australia.

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More reading

• 2 excellent ASX dividend shares experts rate as buys
• Wesfarmers shares: Buy, hold, or fold?
• Wesfarmers share price drops 4%: Time to buy?
• Why this top broker is tipping 15% upside for the Wesfarmers share price
• How I’d invest $10,000 in ASX shares if I were saving for a house

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 Harvey Norman Holdings Ltd. and Super Retail Group Limited. The Motley Fool Australia has positions in and has recommended Harvey Norman Holdings Ltd., Super Retail Group Limited, and Wesfarmers Limited. 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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