On Friday the S&P/ASX 200 Index (ASX: XJO) finished a mixed week with the smallest of gains. The benchmark index rose by a modest 5.3 points to 7,060.7 points.

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

ASX 200 futures pointing higher

The Australian share market looks set to start the week much as it finished it. According to the latest SPI futures, the ASX 200 is expected to open the week 4 points higher this morning. This is despite Wall Street finishing the week very strongly on Friday. The Dow Jones rose 0.7%, the S&P 500 climbed 1.1%, and the Nasdaq stormed 1.4% higher.

Oil prices rise

Energy producers such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) could start the week on a positive note after oil prices pushed higher. According to Bloomberg, the WTI crude oil price rose 1.2% to US$62.14 a barrel and the Brent crude oil price climbed 1.1% to US$66.11 a barrel. That wasn’t enough to stop both WTI and Brent crude oil recording weekly declines amid demand recovery concerns.

Tech shares on watch

Tech shares such as Afterpay Ltd (ASX: APT) and Appen Ltd (ASX: APX) come have a positive start to the week after US tech stocks stormed higher on Friday night. The Nasdaq index rose 1.4% after US investors shrugged off concerns over possible capital gain tax increases. As the local tech sector tends to follow the lead of their US counterparts, today could be a good session.

Gold price softens

Gold miners including Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) will be on watch today after the gold price softened on Friday night. According to CNBC, the spot gold price fell 0.25% to US$1,777.80 an ounce. Strong US economic data put pressure on the safe haven asset.

Oil Search rated as a buy

The Oil Search Ltd (ASX: OSH) share price could be great value according to analysts at Goldman Sachs. This morning the broker reaffirmed its buy rating but trimmed its price target to $5.55. This compares to the latest Oil Search share price of $3.78. The broker named it as a key pick in the sector, noting that it has leverage to its expected improvement in oil prices.

More reading

• 2 excellent ASX 200 blue chip shares to buy
• Got money to invest for dividends? Here are 3 ASX shares
• Meet the real ASX winners from record high Chinese steel prices
• These were the best performers on the ASX 200 last week
• These were the worst performers on the ASX 200 last week

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Earlier today I looked at a couple of mid cap ASX shares that are highly rated. On this occasion, I’m going to look a little higher up on the risk scale at small cap shares.

Three small cap ASX shares that could have bright futures are listed below. Here’s what you need to know about them:

Audinate Group Limited (ASX: AD8)

The first small cap to watch is Audinate. It is the digital audio-visual networking technologies provider behind the industry-leading Dante audio over IP networking solution. Audinate’s solutions replace point-to-point audio and video connections with easy-to-use, scalable, flexible networking. Hundreds of manufacturers have adopted the technology in thousands of professional products, making it Dante the de facto standard for modern AV connectivity. While demand was soft during the pandemic, sales have been increasing strongly. In fact, last week Audinate reported its highest ever quarterly revenue.

Pointerra Ltd (ASX: 3DP)

Another small cap to watch is Pointerra. It is a growing technology company with a focus on the commercialisation of 3D geospatial data. The company’s software allows users to manage, visualise, and share large digital 3D datasets with ease. Last week Pointerra released its third quarter update and revealed further strong growth in cash receipts. For the three months ended 31 March, the company achieved record quarterly cash receipts from customers of $1.37 million. This was more than double the amount recorded during the second quarter of FY 2021. It is also still only the tiniest fraction of an addressable market it estimates to be worth $500 billion annually.

MNF Group (ASX: MNF)

Another small cap ASX share to watch is MNF Group. It is a leading provider of Voice over Internet Protocol technology to businesses and consumers. It has also been performing strongly in FY 2021. For example, in February the company released its half year results and reported a 15% increase in recurring revenue to $55.7 million. This was driven by strong growth in new numbers and a Net Revenue Retention of 115%. Positively, management is optimistic on the future thanks to structural tailwinds and its expansion into the Asia market.

More reading

• Brokers name 3 ASX shares to buy now
• Why Megaport, Pointerra, Regis Resources, & Zip are charging higher
• Here’s why the Pointerra (ASX:3DP) share price is rocketing 26% higher
• Audinate (ASX:AD8) share price climbs on Q3 update
• 2 fantastic ASX shares that brokers rate as buys

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO and Pointerra Limited. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. The Motley Fool Australia has recommended AUDINATEGL FPO and Pointerra Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Are you looking for options in the mid cap space? If you are, you might want to check out the ones listed below.

Here’s why analysts think these ASX mid cap shares could be in the buy zone right now:

IDP Education Ltd (ASX: IEL)

The first mid cap ASX share to look at is IDP Education. It is a leading provider of international student placement and English language testing services.

Although the company was hit hard by COVID-19 for obvious reasons, it is now bouncing back strongly. In fact, by the end of the first half, the company reported that testing volumes were broadly in line with those experienced in the final month of 2019 prior to the pandemic.

This bodes well for its second half performance. Especially given how many of its competitors were not as lucky and haven’t survived the crisis. This puts the company in a position to increase its market share once trading conditions return to normal. 

Analysts at Macquarie are positive on the company, particularly given its investments in its digital business. Macquarie feels this side of the business will support margin expansion as the recovery continues. 

Macquarie has an outperform rating and $30.80 price target on IDP Education’s shares.

Nuix Limited (ASX: NXL)

Another mid cap ASX share to consider is Nuix. It is a leading provider of investigative analytics and intelligence software.

The company’s Discover, Workstation, and Investigate platforms allow businesses and governments to transform huge amounts of data from various sources into actionable intelligence. 

Among its customers are the likes of AIG, Airbus, Amazon, BDO, HSBC, Samsung, and Unilever.

Unfortunately, the pandemic appears to have caught up on the company recently, leading to reduced demand and changes in its sales mix. This led to Nuix downgrading its guidance for FY 2021 last week, much to the dismay of shareholders. 

Nevertheless, analysts at Morgan Stanley believe the sell off that ensued is a buying opportunity. Last week it retained its buy rating but trimmed its price target to $7.50.

Morgan Stanley believes the global forensic and investigative software market is a structural growth story and that Nuix is well-positioned within it.

More reading

• Top brokers name 3 ASX shares to buy next week
• Why Accent, AMP, De Grey, & Nuix shares are charging higher
• ASX 200 down 0.1%: Kogan crashes, AMP’s demerger plans, Telstra strengthens 5G network
• Why is the NUIX (ASX:NXL) share price rebounding today?
• ASX 200 dips, Corporate Travel flies, Nuix sinks

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Idp Education Pty Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Nuix Pty Ltd. The Motley Fool Australia has recommended Nuix Pty Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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There are a handful of excellent S&P/ASX 200 Index (ASX: XJO) blue chip shares that might be worth owning for the long-term.

The below two businesses continue to generate growth and are among the global leaders in their respective industries:

Xero Limited (ASX: XRO)

Xero is one of the global leaders in the cloud accounting software space. It offers its software in dozens of countries, but there are a few regions that generate most of the revenue for the ASX 200 blue chip share.

For example, Australia has over 1 million subscribers. At the end of the FY21 half-year result, the UK had 638,000 subscribers, New Zealand had 414,000 subscribers and North America had 251,000 subscribers. The rest of the world had 136,000 subscribers – but this division saw 37% growth of subscribers, so it’s rapidly rising.

The Xero strategy is to offer clients – business owners, accountants and financial advisers – the best accounting software possible with lots of time-saving and useful strategic tools. As it’s on the cloud, it can be accessed anywhere in the world. The business owners then pay an affordable monthly subscription. The customer base is very sticky. 

Xero is still in a high-growth phase where it’s investing heavily to grow its market share and improve its offering. It has also been acquiring bolt-on businesses to improve its services.

One of the most attractive thing about Xero is its very high gross profit margin of 85.7%. That means that most of the new revenue can fall onto the next line of profit.

Sonic Healthcare Limited (ASX: SHL)

Sonic Healthcare is one of the world’s leading pathology businesses. It has operations in many countries including: USA, Germany, Australia, the UK, Ireland, Switzerland, Belgium and New Zealand.

This ASX 200 blue chip share has been listed on the ASX for over two decades and it has increased its dividend in most of those years.

Its profit is currently being pushed a lot higher because of all of the COVID-19 testing. A couple of months ago it had performed 18 million PCR tests to date in around 60 Sonic laboratories.

Sonic has managed to produce significant earnings leverage because all of these tests are utilising existing infrastructure.

Sonic’s pre-COVID business remains resilient despite all of the impacts, with FY21 half-year revenue only down 1%. Total revenue was up 33% in the first six months of FY21, earnings before interest, tax, depreciation and amortisation (EBITDA) grew 89% to $1.3 billion and net profit surged 166% to $678 million.

The ASX 200 blue chip share is expecting more growth as its pre-COVID business recovers and COVID-19 testing continues. There is also the potential for COVID-19 serology testing (immunity testing) to grow.

Sonic is looking at using its strengthened balance sheet to make acquisitions. It’s also looking at contract and joint venture growth opportunities in Australia, the USA and Canada.

It currently has a partially franked dividend yield of 2.4%. According to Commsec, the Sonic Healthcare share price is valued at 14x FY21’s estimated earnings.

More reading

• Got money to invest for dividends? Here are 3 ASX shares
• Meet the real ASX winners from record high Chinese steel prices
• These were the best performers on the ASX 200 last week
• These were the worst performers on the ASX 200 last week
• 2 of the best ASX 200 shares according to analysts

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has recommended Sonic Healthcare Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Do you have some money set aside to invest for income? The three ASX dividend shares discussed below could be ones to think about.

It’s difficult to generate high levels of income right now because of the ultra-low interest rate setting that central banks have put economies on, including the Reserve Bank of Australia (RBA).

These three ASX dividend shares could be a potential solution:

Brickworks Limited (ASX: BKW)

Brickworks currently has a grossed-up dividend yield of 4.1%.

The diversified property business hasn’t cut its dividend in over four decades, making it a very reliable income option.

Brickworks is taking the approach of steadily increasing the dividend each year at a decent single digit pace. It was one of the few S&P/ASX 200 Index (ASX: XJO) shares to increase its dividend during the COVID-affected 2020 year.

It’s thanks to its quality assets of the 50% ownership of an industrial property trust and the substantial holding of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares that have continued to fund a higher and higher dividend for Brickworks. These two assets continue to grow in value as they invest in new projects or investments.

Accent Group Ltd (ASX: AX1)

Accent currently has a grossed-up dividend yield of 5.9%.

The ASX dividend share sells an impressive array of shoe brands in different store networks and online.

It has adapted very well to the COVID-19 era with a large jump in online sales. In the first six months of FY21, Accent saw digital sales rises by 110% to $108.1 million – this represented 22.3% of sales. The growth of profit margins helped increase the dividend by just over 52%.

The business aims to open 90 new stores in FY21, which will be a sizeable boost to organic growth. Accent also unveiled another acquisition called Glue Store for $13 million which will grow its presence in the youth shoe and apparel market further. This should add another $90 million of annual sales, including $16.6 million of online sales.

Accent also announced that Brett Blundy would re-join the Accent board.

Nick Scali Limited (ASX: NCK)

Nick Scali currently has a grossed-up dividend yield of 8.1%.

The furniture retail ASX dividend share is currently rated as a buy by the broker Citi, which has a price target of $12.05 on the business.

Nick Scali is one of the ASX shares that have benefited from the high level of consumer spending over the last 12 months.

The half-year result included a lot of profit growth, with both strong sales and even stronger margin improvement. HY21 sales went up 24.4% to $171.1 million. However, the earnings before interest and tax (EBIT) margin increased 1,270 basis points – this helped underlying earnings per share (EPS) rise by 99.5% to $0.50.

Nick Scali’s interim dividend was increased by 60% and its order book was the largest it had ever been at the end of January 2021, which suggests more profit growth in the second half of the year.

More reading

• Meet the real ASX winners from record high Chinese steel prices
• These were the best performers on the ASX 200 last week
• These were the worst performers on the ASX 200 last week
• Why retailers are stepping up as top performing ASX shares this week
• ASX 200 finishes flat, Kogan drops, Accent jumps

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Accent Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Last night, while most Australians slept, Prime Minister Scott Morrison helped shine the spotlight on ASX hydrogen shares. He told the Leaders Summit on Climate about Australia’s plans to create a booming hydrogen industry. He said:

In Australia our ambition is to produce the cheapest clean hydrogen in the world, at $2 per kilogram Australian…

Mr President, in the United States you have the Silicon Valley. Here in Australia we are creating our own ‘Hydrogen Valleys’.

It seems the federal government is working to make hydrogen power the backbone of our emissions reduction strategy. Luckily, some Australian companies are already on it.

Here are 3 ASX-listed companies working towards producing sustainable hydrogen.

Hazer Group Ltd (ASX: HZR)

This company relies on its own “Hazer Process”, converting methane into hydrogen using iron ore as the process’ catalyst. Using this method, Hazer produces two products – hydrogen and synthetic graphite.

This works because methane is made up of around 75% carbon and 25% hydrogen, and graphite is a carbon product. By removing the hydrogen and securing the carbon, Hazer can produce synthetic graphite for the lithium-ion battery industry.

At Friday’s close, the Hazer share price was trading at $1.22, up 54% year to date.

The company has a market capitalisation of around $177 million, with approximately 145 million shares outstanding.

Provence Resources Ltd (ASX: PRL)

Provence Resources has its finger in many a pie, and one of those is hydrogen energy.

It’s currently working towards producing hydrogen in Western Australia. The company says it’s focused on an abundance of renewable electricity possibilities, with options including wind, solar and geothermal. Provence is looking to tap into the potential of these to power its electrolysis process – needed to separate hydrogen from other substances – with renewable energy. 

The company has recently partnered with French company Total Eren to begin a feasibility study on the project.

The Provence Resources share price closed this week trading at 20 cents, up a whopping 1,920% year to date.

The company has a market capitalisation of around $186 million, with approximately 891 million shares outstanding.

Pure Hydrogen Corporation Ltd (ASX: PH2)

Pure Hydrogen is a relatively new player in the game. It’s the result of a merger between former ASX companies Strata-X Energy Ltd and Real Energy Corporation. The two companies merged earlier this year and became Pure Hydrogen.

The company is currently progressing five hydrogen projects – one in Queensland with another four operating through a joint venture, planned to be located on the east coast of Australia.

Pure Hydrogen has a joint venture with Synergen Group that will see it producing hydrogen from methane using Synergen’s modular plant technology.

Synergen’s module plants are about the size of a shipping container and portable. It says the technology is a world first and could be a catalyst for the industry.

The Pure Hydrogen share price ended Friday’s session at 26 cents, having gained around 180% year to date. It should be noted, however, that these gains were predominantly achieved under the company’s prior trading name, Strata-X Energy. Since the newly merged Pure Hydrogen began trading on 17 March, the company has executed a capital raise and seen its shares fall by around 20%. 

Pure Hydrogen has a market capitalisation of around $72 million, with approximately 317 million shares outstanding.

More reading

• Why the Province Resources (ASX:PRL) share price just hit an all-time high
• Why the Province Resources (ASX:PRL) share price is up 12%
• Up 390% in 1 year, why the Pure Hydrogen (ASX:PH2) share price is seesawing today
• Province Resources (ASX:PRL) share price slides despite hitting next project milestone

Motley Fool contributor Brooke Cooper 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 Bruce Jackson.

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If you’re an income investor with a long term view, then you might want to consider the dividend shares listed below.

While they may not provide the largest yields on the market today, they look well-positioned to grow their dividends at an above-average rate over the next decade.

This could make them dividend stars of the future:

Integral Diagnostics Ltd (ASX: IDX)

Integral Diagnostics is a medical imaging service provider that operates from a total of 72 radiology clinics, including 26 comprehensive sites.

Demand for its services has been strong despite the pandemic. For example, during the first half of FY 2021, Integral Diagnostics reported a 29.5% increase in revenue to $170.7 million and an even more impressive 61.1% jump in net profit after tax to $23.2 million.

Over the last 12 months, the company has paid shareholders dividends of 9.5 cents per share. Based on the latest Integral Diagnostics share price, this represents a fully franked 2% yield.

However, analysts at Goldman Sachs expect this to grow strongly in the future. It has pencilled in a dividend of 15.4 cents per share in FY 2023, which will mean a yield of 3.3% at that point.

Kogan.com Ltd (ASX: KGN)

Kogan is one of Australia’s leading ecommerce companies. It has over 3 million active customers across its Kogan business and over 700,000 for its Mighty Ape business.

While it isn’t traditionally classed as a dividend share, the Kogan share price has crashed lower in 2021. This means it now offers a reasonably attractive trailing dividend yield, which has the potential to widen considerably over the coming years.

Kogan paid shareholders a final dividend of 13.5 cents per share in FY 2020 and an interim dividend of 16 cents per share in FY 2021. This represents a fully franked 29.5 cents per share over the last 12 months. Which, based on the latest Kogan share price of $10.69, represents a yield of ~2.8%.

What Kogan will pay over the next 12 months is difficult to say due to its declining profitability during the second half, but investors that are patient are likely to be rewarded handsomely over the next decade.

More reading

• These were the worst performers on the ASX 200 last week
• Growing pains, or something worse, for Kogan?
• The ASX healthcare shares Goldman Sachs rates as a buy
• ASX 200 finishes flat, Kogan drops, Accent jumps
• Why a2 Milk, Centaurus Metals, Kogan, & Youfoodz are sinking today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia has recommended Integral Diagnostics Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Last week saw a number of broker notes hitting the wires once again. Three buy ratings that caught my eye are summarised below.

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

Megaport Ltd (ASX: MP1)

According to a note out of UBS, its analysts have retained their buy rating and lifted their price target on this elastic interconnection services provider’s shares to $17.10. This follows the release of its third quarter update. Although Megaport added fewer new ports than the broker was expecting, it remains positive on the company thanks to its exposure to the shift to the cloud. UBS is expecting Megaport to more than double its revenue between FY 2021 and FY 2023. The Megaport share price ended the week at $13.51.

Nuix Ltd (ASX: NXL)

Analysts at Morgan Stanley have retained their overweight rating but cut the price target on this investigative analytics and intelligence software provider’s shares to $7.50. According to the note, the broker was obviously disappointed to see the company downgrade its guidance due to a reduction in near term usage and a shift in its sales mix. However, it is holding firm with its overweight rating as it believes the global forensic and investigative software market is a structural growth story and Nuix is well-placed within it. The Nuix share price was fetching $4.61 at the end of the week.

Temple & Webster Group Ltd (ASX: TPW)

Another note out of Morgan Stanley reveals that its analysts have retained their overweight rating and lifted their price target on this online furniture and homewares retailer’s shares to $15.00. Although the market wasn’t a fan of Temple & Webster’s plan to invest heavily in its growth at the expense of its margins, Morgan Stanley believes it is the right thing to do. The broker expects this to strengthen its moat and leave it well-placed to benefit from the ongoing shift to online shopping. The Temple & Webster share price ended the week at $9.39.

More reading

• These were the best performers on the ASX 200 last week
• Which ASX 200 shares were the best performers this week?
• Why Accent, AMP, De Grey, & Nuix shares are charging higher
• ASX 200 down 0.1%: Kogan crashes, AMP’s demerger plans, Telstra strengthens 5G network
• ASX 200 recovers, Redbubble sinks, Megaport jumps

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends MEGAPORT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Nuix Pty Ltd. The Motley Fool Australia has recommended MEGAPORT FPO, Nuix Pty Ltd, and Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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By now, we are probably all familiar with the government’s COVID-19 early release superannuation scheme that was initiated last year. Targeted as a stimulus and hardship measure, this scheme enabled eligible adults to withdraw up to $20,000 from their superannuation accounts for the majority of 2020.

This was a controversial measure, as the purpose of the superannuation scheme is to provide an adequate income in retirement for Australians. And without placing a burden on the Age Pension system.

Since super works by harnessing compound interest, early withdrawals can have a far larger effect on a workers potential retirement balance than just the dollar value of the withdrawn cash.

But we are only now realising the full impacts that this scene may have had, especially for women and younger Australians.

According to new research from Colonial First State’s Retirement Realities research, more than $36 billion was collectively withdrawn from the nation’s super accounts through the early release scheme in 2020. And the withdrawals were disproportionately concentrated amongst younger Australians. The research found that 65% of withdrawals were made by people under the age of 40. And, almost one-third of that $36 billion was withdrawn by members under the age of 30.

Super funds are still looking empty

Interestingly, of those who accessed an early super payment, 59% still had a contribution paid into their account in 2020. But only 4% did so through a voluntary personal contribution, with another 14% receiving government contributions.

Colonial First State also found that 41% of its members who initiated an early withdrawal from super have yet to start rebuilding their savings. This is especially important for younger Australians. These Australians have the most to lose from missing out on years of compound interest potential. As an example, a $20,000 lump sum will grow to just over $40,000 over 10 years. That’s at an average compounded annual growth rate of 7% per annum.

But what about over 30 years, which is how long a 25-year old worker might expect to remain in the workforce? Well, that potential loss grows to more than $160,000 at that same 7%.

That view was backed up by Colonial First State general manager, Kelly Power. Ms Power stated the following on what younger Australians should now be doing with their super:

We are now encouraging Australians to consider a plan to rebuild their nest eggs and replenish their super. It is positive to see that of our members who withdrew their super early, half of those have made headway in making contributions, whether through their employer or own pocket, to get their super back on track. For younger members in particular, now is the time to start making up some lost ground by using these contributions to rebuild their savings for the years ahead.

More reading

• Top brokers name 3 ASX shares to buy next week
• Is the CBA (ASX:CBA) share price a buy for a recovery of dividends?
• Top brokers name 3 ASX shares to sell next week
• Lest We Forget
• Meet the real ASX winners from record high Chinese steel prices

Motley Fool contributor Sebastian Bowen 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 Bruce Jackson.

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Is the Commonwealth Bank of Australia (ASX: CBA) share price worth buying for the recovery in dividends over the next 12 months?

Will Commonwealth Bank of Australia go through a recovery?

In many ways Commonwealth Bank of Australia has already gone through a recovery. The CBA share price has already gone up by 52% over the last year and it’s up 28% over the last six months.

That other banks of Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) are reporting that profit has recovered compared to the difficult COVID-19 period thanks to lower impairment charges.

CBA’s latest result was a bit different because it was a half-year result covering six months rather than a quarterly update of the latest three months like the other big ASX banks.

Commonwealth Bank of Australia’s half-year result for the six months to 31 December 2020, showed that statutory net profit after tax (NPAT) was down 20.8% to $4.88 billion and cash NPAT fell 10.8% to $3.89 billion.

The biggest bank said that NPAT was supported by strong business outcomes but impacted by the low rate environment and COVID-19. Its loan impairment expense was $882 million, up $233 million. The total loan impairment provision was further increased during the period with a total provision coverage ratio of 1.81%. The loan loss rate for the half was 22 basis points.

In terms of the dividend, CBA paid a $1.50 dividend per share. That was up 53% on the second half of FY20, but down 25% on the prior corresponding period.

The bank said that the capital strength was a highlight of the result. It finished the period with a common equity tier 1 (CET1) capital ratio of 12.6%.

What does CBA think about the outlook?

CBA said that although the outlook is positive, there are a number of health and economic risks that could dampen the pace of the recovery.

It continues to monitor its lending portfolios closely for any signs of stress. The bank said that the low interest rate environment will continue to put pressure on its revenue. CBA said that its strength of the balance sheet and capital position enables it to support customers and help the country through recovery.

Is it worth buying for the dividend?

CBA has had long reputation for dividends for a long time and its dividend is expected to recover over the last few years.

The broker Morgans thinks that Commonwealth Bank will pay a dividend of $3.64 per share in FY21. That translates to a grossed-up dividend yield of 5.8% at the current CBA share price.

In FY22 it’s expected by Morgans to pay a dividend of $4.10 per share. That would be a grossed-up dividend yield of 6.5%.

The broker thinks that the CBA share price is expensive and doesn’t think it is as good value compared to Westpac, NAB and ANZ.

Morgans has a price target of $72 on CBA shares, meaning it thinks CBA is going to go backwards fairly substantially over the next year.

More reading

• Top brokers name 3 ASX shares to sell next week
• Top brokers name 3 ASX dividend shares to buy today
• History is on the side of the battered AMP (ASX:AMP) share price as it plans its demerger
• Why the NAB (ASX:NAB) share price is up 70% in 12 months
• Can Commonwealth Bank (ASX:CBA) share price beat its record in 2021?

Motley Fool contributor Tristan Harrison 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 Bruce Jackson.

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