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.

A five-year chart of The Kraft Heinz (NASDAQ: KHC) stock offers a near-perfect reversed reflection of the S&P 500 index’s performance over the same time frame. Share prices of the food product giant have declined nearly 57% over the last five years, underperforming the 46% gain from the index. But Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B) has held to its shares in the company throughout that half-decade.

Berkshire is one of the company’s largest shareholders. As of March 2022, Berkshire owned 26.6% of Kraft Heinz. 

Why has Buffett continued to hold an underperforming stock? Well, for one thing, it’s not like there haven’t been any good reasons to sell. Here are a few things that went wrong following the merger between Kraft Foods and H.J. Heinz:

• Kraft saw its market share erode against the growth of private-label brands, leading to a decline in sales.
• In 2018, the company disclosed an SEC investigation into its accounting policies over supplier agreements.
• Kraft also cut its quarterly dividend to address more than $30 billion of long-term debt it held as of 2018. 

Most investors would have sold Kraft Heinz long ago, but not Buffett. In early 2019, Buffett told CNBC he would be happy to own the stock 10 years from now. 

Buffett has cut loose several stocks over the past several years that failed to perform to his expectations. He closed Berkshire’s position in IBM in 2017, after he bought $10.8 billion worth of shares in the computer hardware maker in 2011. But there is clearly something about Kraft Heinz that he values. Let’s look at three possible reasons why he has remained patient with this one.

1. Buffett likes to do business with people he trusts

Buffett admitted in 2019 he misjudged the competitive position of packaged food brands against Wal-mart Stores, Inc. (NYSE: WMT) and other retailers’ efforts to promote their own private labels. That was a big reason why Kraft saw its sales and profits decline through 2019. 

However, Buffett went into the Kraft Heinz merger in 2015 with a valued partner. Berkshire and 3G Capital own a combined 42% of Kraft Heinz. Buffett has been friends with 3G founder Jorge Paulo Lemann for many years. He first met Lemann while serving on the board at Gillette before it was acquired by Procter & Gamble. 

3G Capital has a long record of doing deals across industries and improving performance at the businesses it controls. The Brazilian investment firm famously orchestrated the combination of Anheuser-Busch Inbev in 2008. Buffett has always believed in doing business with people you trust, and that certainly applies to his investment in Kraft Heinz.

2. Kraft has “very, very strong brands”

While certain Kraft brands, such as Oscar Mayer, Jell-O, and CapriSun, no longer have the competitive edges they did many years ago, brands like H.J. Heinz, Kraft Mac & Cheese, Lunchables, and Philadelphia cream cheese still generate strong sales. Buffett has called these “very, very strong brands.” 

Indeed, these products have remained immune to the pull of private labels. Over the last three years, they delivered annualized growth in adjusted sales of 8%. 

3. Sales are growing under Kraft Heinz’s new CEO

To turn things around starting, Kraft Heinz turned to 3G’s farm team. In 2019, Kraft appoint former Anheuser-Busch Inbev’s Chief Marketing Officer, Miguel Patricio, as CEO. The results have been outstanding.

Patricio sold off underperforming brands, made improvements to Kraft’s packaging, marketing, and operating efficiency, and paid down debt. Not only have adjusted sales improved, but Kraft demonstrated excellent pricing power in this inflationary environment.

One reason Buffett favors investing in top brands is the ability to raise prices over time to offset the long-term erosion to shareholder returns caused by inflation. In the second quarter, Kraft reported a 10% year-over-year increase in adjusted sales, completely driven by higher selling prices. 

Kraft Heinz stock has outperformed the S&P 500 in 2022

Kraft appears to be finally performing to Buffett’s expectations. Under Patricio, Kraft stock is up 28% since the end of June 2019, including dividend reinvestment. That puts Kraft stock just ahead of the S&P 500’s 23.4% return over that three-year period. 

Kraft stock is outperforming the market year-to-date, down 6.6% compared to the S&P 500’s decline of 23.3%. Given Kraft’s improved business performance, Buffett probably won’t be selling out anytime soon. 

It’s not too late to buy Kraft Heinz stock. The business is positioned for more growth under Patricio. The stock also pays a dividend yield of 4.77%, and trades at a delicious price-to-earnings ratio of 12.6 based on this year’s earnings estimates, which is a discount to the S&P 500’s forward P/E of 17. 

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

The post Why Warren Buffett loves this US stock appeared first on The Motley Fool Australia.

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John Ballard 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 Walmart Inc. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended The Kraft Heinz Company. 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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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.

With the market down substantially from its all-time highs, the benefits of dollar-cost averaging into a low-cost, broad-based stock index fund are becoming quite clear. By making regular investments every payday in this market, each dollar you’re investing buys that many more shares while stocks are down. That may not seem like much benefit now, but it means you’ve got that many more shares available to compound in any recovery that follows.

It’s with that backdrop that making regular investments in the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) starting now could make you a millionaire retiree. It’s a process that takes time no matter what the market is doing, which is a great reason to consider starting those investments now, even if the market continues to fall.

Why invest in the SPDR S&P 500 ETF Trust?

The SPDR S&P 500 ETF Trust is a low-cost index ETF that attempts to track the S&P 500 index, which is often used as a proxy for the overall US stock market. With itd expense ratio of 0.09%, investors in that ETF can get returns that nearly perfectly match that index, while losing almost nothing to fund management fees.

That combination of stock market like returns with very low internal costs makes the SPDR S&P 500 ETF trust a simple, one-stop shop for investors. It’s especially potent for investors who don’t want or are otherwise unable to put a lot of time and effort into digging through financial reports to pick individual stocks. When you add the fact that index investing tends to beat funds managed by Wall Street’s best and brightest over time, the SPDR S&P 500 ETF Trust become an even more compelling option.

How long will it take to become a millionaire?

The path from $0 to $1 million depends heavily on two key factors: how much you’re able to invest every month and what rate of return you earn along the way. The good news is that if you’ve got a long enough time horizon, reaching millionaire status by retirement age is feasible, even for people with modest incomes.

The following table shows how many years it takes to reach that millionaire status, depending on what you can save each month and what annual rate of return you earn along the way.

Monthly Investment	10% Annual Returns	8% Annual Returns	6% Annual Returns	4% Annual Returns
$2,200	15.7	17.5	19.8	23.1
$2,000	16.5	18.4	20.9	24.6
$1,500	18.9	21.3	24.5	29.3
$1,000	22.4	25.5	29.9	36.7
$500	28.8	33.4	40.1	51.0
$300	33.7	39.4	48.0	62.5

Data source: author.

The top end of that savings rate — $2,200 per month — represents a savings rate that can be contributed to tax-advantaged, retirement-focused accounts for most people. Workers under age 50 can generally contribute up to $20,500 per year in a company-sponsored retirement plan like a 401(k). They can also typically sock away up to $6,000 per year in their own IRA.  (The contribution limits are even higher for workers ages 50 and up. )

The bottom end of that savings rate — $300 per month — works out to around $10 per day. Even at that savings level, as long as you invest consistently throughout the length of a typical working career, you’ve got a decent shot at reaching millionaire status by the time you retire.

Get started now

Regardless of where you are in your career, you’ll never again have more time before you retire than you do right now. That makes today a great day to get your plan in place. The sooner you get started, the more of the cells in that table will be within your reach, improving your chances of retiring a millionaire.

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

The post Investing in this ETF right now could make you a millionaire retiree appeared first on The Motley Fool Australia.

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More reading

• Why Warren Buffett loves this US stock
• Flight Centre share price tumbles to new 52-week low on Monday
• Arafura share price dives 13% in Monday’s mining selloff
• Why is the Allkem share price dumping 5% today?
• How to think about risky stocks when you’re approaching retirement

Chuck Saletta 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.

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

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The Flight Centre Travel Group Ltd (ASX: FLT) share price has been caught up in today’s sell-off, tumbling to its lowest point in more than 12 months.

The travel agent’s stock plunged 2.9% to $14.90 earlier today, marking a new 52-week low. Indeed, that’s the lowest the stock has traded at since August 2021.

Fortunately, the Flight Centre share price has since partly pulled out of its nosedive. It’s currently trading 0.46% lower at $15.28.

The S&P/ASX 200 Index (ASX: XJO) has also seemingly overcome the worst of the day’s tumble.

It’s currently down 1.16% at 6,498.3 points. Earlier today it fell to 6,435.6 points – just 0.4% higher than its own 52-week low.

Let’s take a closer look at the ASX 200 travel favourite’s latest 52-week low.

Flight Centre stock nose-dives to new 52-week low

The market’s most shorted share has tumbled to a new 12-month record low on Monday after its short interest jumped to 15% last week. But the Flight Centre share price isn’t alone in inking a new long-forgotten low today.

That of Corporate Travel Management Ltd (ASX: CTD) slumped 2.5% to $17.20 earlier today – marking its lowest point in more than a year. It has since rebounded to trade 0.7% higher at $17.76.

Meanwhile, the Qantas Airways Limited (ASX: QAN) share price is down 1% to $5.085 while that of Webjet Limited (ASX: WEB) has fallen 1.8% to $5.

The Flight Centre share price’s latest low point comes despite the Aussie tourism industry’s apparent rebound.

The Australian Competition and Consumer Commission (ACCC) recently found that the popularity of many domestic travel routes surpassed pre-pandemic levels over the winter months.

And experts are tipping such trends to continue.

HSBC chief economist for Australia, New Zealand, and global commodities Paul Bloxham shared his belief that Aussies and Kiwis’ return to travel will help stave off the worst of a global economic slowdown in their respective nations ahead of his keynote presentation at Flight Centre corporate’s Illuminate 2022 conference. He said:

Travel is going to be a bright spot in the current challenged world.

Households spent less during the pandemic and the country’s unemployment rate has been at its lowest since the mid-1970s. As such, Australians have saved over $250 billion and are ready to deploy those funds.

Now that the world is reopening, there is a strong appetite for travel among the population and we expect to see a continued increase in travel activity, particularly domestically.

Flight Centre share price snapshot

It likely comes as no surprise that the Flight Centre share price has been struggling so far this year.

The stock has tumbled 18% year to date. It has also dumped 28% since this time last year.

For context, the ASX 200 has fallen 14% since the start of 2022 and 12% over the last 12 months.

The post Flight Centre share price tumbles to new 52-week low on Monday appeared first on The Motley Fool Australia.

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• These are the 10 most shorted ASX shares
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• Why have Flight Centre shares been the most shorted on the ASX every week so far in 2022?

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 recommended HSBC Holdings. The Motley Fool Australia has recommended Corporate Travel Management Limited, Flight Centre Travel Group Limited, and Webjet 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 Arafura Resources Limited (ASX: ARU) share price is taking a beating today amid a harsh day for the ASX materials sector.

Shares in the rare earths developer are currently 13.16% lower at 33 cents apiece.

The S&P/ASX 200 Materials Index (ASX: XMJ) is one of the worst-performing sector indices this afternoon, currently down 4.58%.

It should come as no surprise that other ASX mining shares are also taking a beating. St Barbara Ltd (ASX: SBM) is down 9.15% while Emerald Resources NL (ASX: EMR) is trading 8.04% lower.

The S&P/ASX 200 Index (ASX: XJO) is also having a rough start to the week, down 1.19%.

What’s surprising is there’s no news from Arafura — or about the materials sector more broadly — to make sense of the sell-off today. But let’s recap some recent events for the company.

What’s going on with the Arafura share price?

Arafura’s latest update on Tuesday last week did nothing to help boost investor sentiment. The rare earths company reported a $35 million loss for FY22, up 448.7% from FY21.

Most of the costs incurred over this period went to getting the company’s Nolans project ready for production. The first ore commissioning of neodymium (NdPr) is expected to be seen in May 2025.

The report said the company’s long-term expectation is to supply around 5% of the world’s NdPr oxide demand.

Some good news for Arafura was that it was included in the S&P/ASX 300 Index (ASX: XKO) on Monday last week due to changes in the company’s market capitalisation. The share price shot up more than 8% on the day.

On a broader level, Arafura’s shares have moved in step with the market as a whole. Inflation and rising interest rates have put pressure on equities and since Arafura is still scaling its production, this may be affecting investor sentiment.

Arafura share price snapshot

Despite today’s losses, the Arafura share price is up almost 60% year to date. Meanwhile, the S&P/ASX 200 Index is down around 13% over the same period.

The company’s market capitalisation is around $586 million.

The post Arafura share price dives 13% in Monday’s mining selloff appeared first on The Motley Fool Australia.

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• Arafura share price lags All Ords on Tuesday amid $35 million loss
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Motley Fool contributor Matthew Farley 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 Allkem Ltd (ASX: AKE) share price has found itself in the unloved basket in Monday afternoon trading.

As we march toward the close, shares in the lithium miner are contending with a 5.4% fall. This move takes the global materials company’s share price to $14.05. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is struggling with its own 1.6% bashing today.

Let’s take a look at what might sapping Allkem of its excitement.

Nowhere to hide amid concern

Although the field has improved this afternoon, the broad Australian share market is still in a nervous state. At the time of writing, the materials portion of the Aussie index is nursing a deep 4.4% wound as investors flock to an exit.

Oddly enough, the usual suspects of exaggerated selling — such as the tech and consumer discretionary sectors — are in the green. Whereas, the prolonged commodity euphoria is taking a back seat and cooling off.

The Allkem share price, along with many others, is failing to receive support amid deepening economic fears. A combination of persistent inflation and a hobbled Chinese economy is putting the prospects of a recession front of mind for investors today.

Consequently, money is draining out of energy and commodity investments. If economic conditions worsen, it is likely that commodities and oil will take a hit from reduced demand.

Last week, analysts at investment bank Barrenjoey shared their forecast of a ‘probable’ recession. While the team highlighted it would probably be short, many investors are choosing not to hang around to find out.

Could the Allkem share price be attractive?

Where there is a seller, there’s a buyer… and with over 2.6 million Allkem shares changing hands today, some investors are deciding to load up.

While we can only speculate, one fundie that might be making the most of the Allkem share price today could be Wilsons. Recently, the private wealth manager named Allkem as its “preferred” exposure to the lithium sector.

Specifically, the team at Wilsons believes there could be more earnings upside for the lithium player. If that were to be, today’s valuation could end up looking attractive.

The Allkem share price has rallied 28% since the beginning of 2022. This is roughly on par with other lithium names such as Pilbara Minerals Ltd (ASX: PLS) so far this year.

The post Why is the Allkem share price dumping 5% today? appeared first on The Motley Fool Australia.

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More reading

• Our 4 favourite lithium ASX shares right now: Wilsons
• 2 stellar ASX growth shares that experts say are buys
• Allkem share price sinks 5% amid Mexico lithium deposit speculation
• Here’s which ASX lithium shares investors have been loading up on this month
• Why is the Sayona Mining share price in the doldrums this week?

Motley Fool contributor Mitchell Lawler 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.

Retiring into a potential recession isn’t what anyone would want, but there are ways to maintain some control over your portfolio in times of economic decline. Making some big-picture adjustments to your investments in the years leading up to retirement can pay big dividends down the line, all while creating additional security for your spending plan. 

Let’s think further about how you can protect yourself if you’re feeling some anxiety leading into your senior years.

The threat of sequence risk

The goal for most people during their working careers is to accumulate wealth. In the years leading up to retirement, the goal tends to center around preserving wealth.

Since we can reasonably estimate that the economy could be headed for some difficult years, modifying your strategy going into retirement is even more necessary. Further, given the vast number of variables that go into retirement planning (i.e., how long you think you’ll live, how much you expect to spend, etc.), it’s important to create certainty around money to the extent possible. 

One of the less commonly discussed topics in retirement planning is sequence risk (sometimes called “sequence-of-returns risk”). Put simply, sequence risk is the potential for running into a poor string of returns in the years after you stop working, which can then lead to portfolio failure in the long run.

In other words, if you experience steep portfolio declines in the early years of retirement — when you’ve already started drawing on the money to cover living expenses — you run a higher risk of running out of money than if you were to retire into a bull market. 

Addressing sequence risk

For example, say you maintained an 80% stock/20% bond asset allocation throughout your working career. Given the raging bull market of the 2010s, this allocation performed particularly well.

However, if retirement is on the horizon, you might think about briefly moving to a 20% stock/80% bond asset allocation. Rethinking your asset allocation can help shield against the threat of poor returns in the early years of retirement, which present a substantial threat to retirement success. 

The easiest way to go about handling sequence risk is by increasing your share of lower-risk investments (like bonds and cash), relative to stocks. As 2022 has shown us thus far, bonds are not entirely risk free, but they do generally come with a lower risk of extreme drawdown — especially relative to stock investments. Even though you might not get big returns out of bonds, they do exist as a valuable risk-control measure that offer at least some diversification benefit. 

A numerical example

Say you started your retirement in 2022 with a $500,000 portfolio and an 80% stock/20% bond asset allocation. After the stock market lost 20% and the bond market lost 10%, you’d be left with $410,000. From there, you’d have to withdraw money for expenses, which could have a deleterious effect on the long-run viability of your portfolio. 

In an alternative world, imagine you started with the same $500,000 portfolio but a more conservative 20% stock/80% bond asset allocation. In this example, after the stock market again lost 20% and the bond market lost 10%, you’d be left with $440,000. This is still a loss, but an improvement from the riskier portfolio used in the first scenario. 

While this is by no means a way to shield your portfolio completely, it does provide some cushion in the event stocks continue their slide for the next few years.

Retiring isn’t easy but possible

The reality remains that retirement is a financially challenging milestone for the grand majority of workers. But between Social Security, personal savings, and (increasingly) active income, retirement is absolutely achievable.

As you get closer to retirement, consider the risks at hand and the magnitude of stock market loss you’d be willing to tolerate. From there, adjust your overall asset allocation as necessary, but also be sure to keep a healthy cash reserve on hand. 

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

The post How to think about risky stocks when you’re approaching retirement appeared first on The Motley Fool Australia.

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• Qantas share price follows ASX 200 lower despite Jetstar CEO news
• Firefinch share price remains suspended following cancelled cap raise
• Guess which ASX lithium share is exploding 88% higher on a deal with EV maker Nio
• Why changes could be afoot for ASX dividend shares and franking credits

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.

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

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The Qantas Airways Limited (ASX: QAN) share price is descending with the market on Monday.

In afternoon trade, the airline operator’s shares are down 1.5% to $5.06.

What’s going on with the Qantas share price?

The Qantas share price is trading lower on Monday after being caught up in a broad market selloff.

Concerns that rising interest rates could cause a global recession has seen the ASX 200 index tumble 1.3% today.

Not even the release of a positive announcement has been able to keep the Qantas share price in positive territory.

What was announced?

This morning Qantas revealed that it has appointed Stephanie Tully as the new CEO of Jetstar.

Tully will replace current Jetstar CEO, Gareth Evans, when he leaves his role by the end of the calendar year.

The new Jetstar leader has been hired from within. She joined Qantas in 2004 and has worked across operational, commercial, marketing, and customer loyalty functions in progressively more senior roles.

Most recently, Tully has been a group executive and the company’s chief customer officer.

In light of her appointment, Markus Svensson will be promoted to the chief customer officer role and become a member of the group executive committee, reporting to the group CEO, Alan Joyce.

Mr Joyce commented:

These appointments come at an important time for us. The team is working incredibly hard to overcome challenges facing the whole industry as it gets back on its feet, and the data shows we’re almost there.

Managing this kind of executive renewal internally means we keep our momentum and can leverage a huge amount of corporate knowledge, including through the transition. Stephanie has worked across several different parts of the airline, from crewing to marketing, and has a deep understanding of customer experience. She’s an outstanding leader and she’ll be leading a very experienced senior team at Jetstar to keep building on the strengths of that business.

The post Qantas share price follows ASX 200 lower despite Jetstar CEO news appeared first on The Motley Fool Australia.

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• Qantas share price lifts 3% following Wednesday’s rout

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 Firefinch Ltd (ASX: FFX) share price continues to remain in a trading halt today.

This follows a new market announcement from the gold miner and lithium developer during midday trade.

Currently, Firefinch shares remain frozen at 20 cents apiece.

Firefinch provides update on placement

According to the company’s update, Firefinch advised it has decided not to complete a proposed $90 million placement.

A broader recapitalisation package was announced last week in which the company was seeking to acquire funds from relevant stakeholders.

Firefinch wanted to fund the Morila Stage 1 and 2 production plan as well as provide working capital through to 2024.

However, taking into account the recent downward movements in the gold price and unfavourable US: AUD currency movements, the company has put its plans on ice.

As a result, Firefinch and the joint lead managers are now considering alternative funding options.

This includes undertaking further assessment of its funding requirements to successfully execute its medium-term production plan.

In addition to the placement, there was going to be a $10 million non-underwritten share purchase plan (SPP).

The price was to be listed at the same offer as the placement at six cents apiece.

Although, it doesn’t look like this will be going ahead anytime soon as the placement has been put aside.

Firefinch share price review

After tracking higher from the start of 2021 until June this year, Firefinch shares were up almost 500%.

But in late May/early June, the company’s shares saw their value wiped off the ASX with the share hitting 20 cents apiece.

Based on today’s price, Firefinch has a market capitalisation of approximately $236.25 million with 1.18 billion shares outstanding.

The post Firefinch share price remains suspended following cancelled cap raise appeared first on The Motley Fool Australia.

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• What’s happening with the Firefinch share price?
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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The market may be a sea of red on Monday but that hasn’t stopped the Greenwing Resources Ltd (ASX: GW1) share price from shooting higher.

In morning trade, the lithium explorer’s shares were up as much as 88% to 46 cents.

The Greenwing Resources share price has since eased back but remains up 49% to 36.5 cents.

Why is the Greenwing Resources share price rocketing higher?

Investors have been bidding the Greenwing Resources share price higher today after the company announced a deal with electric vehicle company Nio.

According to the release, Nio has agreed to pay $12 million to Greenwing to subscribe for 21,818,182 shares at an issue price of 55 cents per share. This will give Nio a shareholding in the company of approximately 12.16%.

Management advised that the deal will help accelerate its exploration program at San Jorge Lithium Project.

What else?

In addition, the automaker has a call option to acquire between 20% to 40% of the issued capital of the Andes Litio business, which holds rights over the San Jorge Lithium Project in Argentina.

The call option is exercisable within 365 days after a JORC report for the San Jorge Lithium Project has been issued or obtained. And depending on the outcome of the report, the Nio call option will have an exercise price of between US$40 million and US$80 million.

Furthermore, once the call option has been exercised, Nio will have direct rights to offtake production in the San Jorge Lithium Project. And subject to shareholder approval, it will also have the right to match any offer to purchase the remaining offtake share.

Management advised that it has agreed to ensure that a JORC report on the San Jorge Lithium Project is issued by 31 December 2023.

The post Guess which ASX lithium share is exploding 88% higher on a deal with EV maker Nio appeared first on The Motley Fool Australia.

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More reading

• Why changes could be afoot for ASX dividend shares and franking credits
• Not all ASX 200 shares are getting hammered today. Here are some winners
• This stock market investment strategy made money 100% of the time over the last century
• Is the Mineral Resources share price a buy right now?
• These are the 10 most shorted ASX 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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ASX dividend share investors might be in for a rude shock as the federal government is looking to claw back some of the past franking credits from investors through their ASX dividend shareholdings.

The proposed law will prevent ASX companies from paying franking credits if the dividends are funded by capital raisings.

Franking credit curse taints some ASX dividend shares

What’s more alarming is that the new rule will be applied retrospectively. This means investors and superfunds may have to repay the franking from 2016 onwards.

The new rule, which is open for consultation, could effectively kill off the payment of special dividends.

Which ASX dividend paying companies are affected

A company is deemed to be funding dividends from a capital raising if the distribution is not consistent with its established practice of making such payouts on a regular basis.

The entity will also have to have undertaken a capital raising before (that means almost every ASX share) and that it’s clear that the raise would fund all or part of the distribution or if the company raised capital for the purpose of funding all or part of the distribution.

The government claims the move is to close a loophole that allows companies to release excess franking credits that exceed the profits they make in a given period.

Closing a franking credit loophole but opening a tax hole

Companies like Harvey Norman Holdings Limited (ASX: HVN) have used the so-called loophole in the past to release excess franking credits to shareholders. The retailer paid a fully-franked special dividend and launched a capital raise to fund the payment.

The move is bound to create angst among shareholders. It could leave them on the hook to repay thousands in franking credits that they have received over the past five years.

What’s surprising is that the federal Labor government won’t be saving much through this controversial change. It’s estimated that the franking clawback will save treasury around $10 million a year.

It seems like a risky gamble for the Albanese government for not much return. Who can forget the last time federal Labor tried to mess with franking credits? That, along with other proposed radical changes, cost Bill Shorten his shot at the Lodge.

What kind of capital returns are affected?

Regular dividends are unaffected and ASX dividend shares can still pay special dividends but without franking.

This will significantly reduce the incentive to use special dividends as a means of returning surplus cash to shareholders.

It is unclear at this point if off-market share buybacks will also be affected. These sorts of capital management programs have a “capital component” and a “dividend component” to the offer price. Franking credits are usually attached to the dividend component.

It reads to me that off-market buybacks could be impacted as the dividend part of the offer meets the conditions of the new rule.

You can voice your concerns to the government during the consultation period (until 5th Oct). Instructions can be found on this link.

The post Why changes could be afoot for ASX dividend shares and franking credits appeared first on The Motley Fool Australia.

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More reading

• Not all ASX 200 shares are getting hammered today. Here are some winners
• This stock market investment strategy made money 100% of the time over the last century
• Is the Mineral Resources share price a buy right now?
• These are the 10 most shorted ASX shares
• Why is the Whitehaven share price wilting 10% on Monday?

Motley Fool contributor Brendon Lau 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. The Motley Fool Australia has positions in and has recommended Harvey Norman Holdings 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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