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Thyssenkrupp second-quarter loss widens as coronavirus impact starts to show
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Tencent Will Have a High Bar to Leap Over This Earnings Season
(Bloomberg) — Expectations are running high for Tencent Holdings Ltd. when it reports earnings Wednesday after optimism over its video game business helped push the stock to a two-year peak.The trading volume of call options, which are bets on gains in the share price, jumped to nearly 120,000 on Monday, more than three times the 20-day average. A measure of bearish wagers relative to bullish ones is at the lowest in more than a year. The 6.3% implied move by the stock on Thursday morning would be the biggest since August 2015.Tencent is expected to report an 18% increase in first-quarter revenue, down from 20%-plus in previous periods but still decent given the virus outbreak. Investors have pushed the stock price up on bets its game business will benefit from people with extra free time at home during the pandemic, and from its growing cloud and finance services. However, analysts warn the company will soon be contending with increased competition from the likes of Alibaba Group Holding Ltd. and ByteDance Ltd.Here are four charts showing what traders are looking at ahead of Tencent’s results.Options MarketThe put-to-call ratio for the stock is at the lowest level since 2018, according to Bloomberg-compiled data, suggesting investors see less need for hedging against downside.Analysts RatingsTencent is still the most-loved stock in Hong Kong, with none of the 56 analysts that cover it recommending selling. While the stock has narrowed the gap with the average price target, it hasn’t hit that level in two years.Price ComparisonInvestors have been willing to pay a much higher premium for Tencent shares than for Alibaba’s. Shares of Tencent have rallied about 14% in Hong Kong this year, compared to Alibaba’s 3.2% drop in the U.S.Mainland InvestorsInvestors in mainland China have been snapping up Tencent’s shares via the trading links since last year, pushing their ownership level to the highest on record, according to data compiled by Bloomberg.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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Why high yield dividend shares can be detrimental to your wealth
I think that high-yield dividend shares can be detrimental to building your wealth, particularly if you choose the wrong ones.
Reason 1: Tax
Taxes are the subscription fee for being part of a good society, but you don’t need to be handing over extra when you don’t need to.
Unless you’re in a low tax bracket (such as within superannuation or a low income earner), any dividends you receive may be taxed at around a third or even more.
If you get a sustainable 10% return from a high-yield dividend share then you could be handing over a third of it to the tax man each year. Compare that to a 10% capital growth from something like Xero Limited (ASX: XRO) or A2 Milk Company Ltd (ASX: A2M) – you don’t pay any tax unless you actually sell the share. I think it makes a big difference over time.
Obviously there’s the benefit of dividend franking credits which reduces your taxes owed, but you still have to make up the extra tax unless you’re in that lower tax bracket position where the franking credit rate is higher than your tax rate.
Sometimes paying the tax can be worth it if you just want a high net yield from your investments and you can find a reliable dividend payer.
Reason 2: It may be a bad investment
Having a high-yield dividend share shouldn’t mean you overlook all the other areas of a business. Does it have a good balance sheet? Is there good prospects for the business and its industry as a whole?
A high yield may mean little growth, which suggests the business could be mature or challenged.
If it’s a bad investment then you could easily suffer wealth destruction from falling earnings and a falling share price. And the dividend could be cut. There’s not much point going for the big dividend if the dividend is then cut a year or two later.
Just look what has happened to Telstra Corporation Ltd (ASX: TLS) and National Australia Bank Ltd (ASX: NAB). Lower share prices and lower dividends compared to a few years ago. Over time it’s the ‘growth’ businesses that will keep paying larger dividends so you can receive a good yield on cost. Plenty of high yield dividend shares are actually yield traps, particularly in these coronavirus times.
What high yield dividend shares are worth buying?
It depends how high of a yield you want to go and if you don’t mind paying the elevated levels of tax.
Rural Funds Group (ASX: RFF) has a FY21 distribution yield of 5.9%.
Brickworks Limited (ASX: BKW) has a grossed-up dividend yield of 6.3%.
WAM Microcap Limited (ASX: WMI) has a grossed-up dividend yield of 7.4%.
Future Generation Investment Company Ltd (ASX: FGX) has a grossed-up dividend yield of 7.9%.
WAM Research Limited (ASX: WAX) has a grossed-up dividend yield of 10.9%.
Naos Emerging Opportunities Company Ltd (ASX: NCC) has a grossed-up dividend yield of 13.25%.
At the current prices I’d probably be happy to go for WAM Microcap, Brickworks and Future Generation as my preferred three high yield dividend share picks because the yields aren’t too high. But all of them could be good long-term picks for dividends.
This top ASX dividend share could be the best pick for reliability and long-term income.
Expert names top dividend stock for 2020 (free report)
When our resident dividend expert Edward Vesely has a stock tip, it can pay to listen. After all, he’s the investing genius that runs Motley Fool Dividend Investor, the newsletter service that has picked huge winners like Dicker Data (+92%), SDI Limited (+53%) and National Storage (+35%).*
Edward has just named what he believes is the number one ASX dividend stock to buy for 2020.
This fully franked “under the radar” company is currently trading more than 24% below its all time high and paying a 6.7% grossed up dividend
The name of this dividend dynamo and the full investment case is revealed in this brand new free report.
But you will have to hurry — history has shown it can pay dividends to get in early to some of Edward’s stock picks, and this dividend stock is already on the move.
See the top dividend stock for 2020
*Returns as of 7/4/20
More reading
- Is it time to buy ASX small caps for your portfolio?
- 3 must-read investing books for new investors
- UBS picks the real ASX winners from the COVID-19 grocery boom
- ASX 200 sinks 1.3%: Big four banks drag ASX lower & Altium issues sales warning
- These were the top 10 ASX 200 shares over the last year
Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO, RURALFUNDS STAPLED, and WAM MICRO FPO. The Motley Fool Australia owns shares of and has recommended Brickworks, RURALFUNDS STAPLED, and Telstra Limited. The Motley Fool Australia owns shares of A2 Milk and Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The post Why high yield dividend shares can be detrimental to your wealth appeared first on Motley Fool Australia.
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