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:

A2 Milk Company Ltd (ASX: A2M)

According to a note out of UBS, its analysts have retained their buy rating and lifted their price target on this infant formula company’s shares to NZ$16.00 (A$14.88). The broker expects the company’s daigou sales to recover over the next couple of years. This is expected to be supported by market share gains in the lucrative China market. The a2 Milk share price ended the week at $9.31.

ARB Corporation Limited (ASX: ARB)

Analysts at Citi have retained their buy rating and lifted the price target on this 4×4 accessories company’s shares to $45.15. According to the note, the broker sees positives from its acquisition of the UK-based Auto Styling Truckman Group for $40 million. Citi notes that the deal gives ARB access to a European market which currently only contributes a very small portion of its overall revenue. The broker has upgraded its earnings estimates to reflect the acquisition and lifted its price target accordingly. The ARB share price was fetching $33.23 at the end of play on Friday.

Northern Star Resources Ltd (ASX: NST)

Another note out of Citi reveals that its analysts have retained their buy rating but trimmed the price target on this gold miner’s shares to $13.50. The broker believes that the gold price has now peaked and has downgraded its forecasts for the precious metal accordingly. And while it suspects that gold miners will be out of favour with investors, it still sees value in Northern Star’s shares. This is thanks to its strong cash flow generation and upcoming developments. The Northern Star share price was trading at $9.56 at Friday’s close.

More reading

• 5 things to watch on the ASX 200 on Friday
• ASX 200 sinks, Xero reveals acquisition, ARB driven higher
• The ARB (ASX:ARB) share price moving up on $40 million acquisition
• 3 ASX 200 shares that doubled profits this reporting season 
• Synlait (ASX:SM1) share price crashes 7% on cancelled guidance

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool Australia has recommended ARB Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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

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Many investors may naturally be drawn to the highest yielding dividend shares when seeking to make a passive income. After all, they offer the greatest potential income return on a relative basis.

However, it could be prudent to check their dividend affordability before buying them. While this does not guarantee that they will be able to make future dividend payouts, it can be a means of ruling out stocks that are clearly not able to afford their shareholder payouts.

Similarly, assessing the growth potential of a company’s dividend can be a sound move. It may allow an investor to obtain a growing passive income in the long run.

Assessing affordability when buying dividend shares

The affordability of shareholder payouts can be assessed in a couple of different ways. For example, dividend shares can be analysed in this regard by comparing their net profits with shareholder payouts. A company that has a large amount of headroom when making dividend payments may be less likely to run into trouble when trying to pay them in future.

Meanwhile, an assessment of a company’s wider financial situation can provide an insight into the affordability of its dividends. For example, considering its debt levels and interest cover, in terms of how many times it could service debt out of operating profit, may build a picture of its financial strength. Similarly, companies that have a long and reliable track record of dividend payouts may be less likely to cut them in future.

All of these factors, when combined, can provide an insight into the reliability of dividend shares. It may lead an investor to avoid the highest yielding stocks in favour of more reliable opportunities that have lower yields.

Dividend growth opportunities

As well as a high and reliable yield, buying dividend shares that can grow shareholder payouts at a fast pace could be a shrewd move. They may be able to deliver a rising passive income over the long run that has a more positive impact on an investor’s financial situation compared to a high initial yield that fails to grow at a fast pace over the coming years.

Assessing the prospect of dividend growth is very subjective. It is closely tied to the financial performance of a business, in terms of how quickly its profitability can grow. Therefore, analysing its strategy, forecasts and competitive advantage could act as a guide, rather than a definitive answer, to the question of its dividend growth potential.

Despite the subjective nature of assessing the growth potential of dividend shares, the process can help an investor to avoid potentially unattractive stocks. Although this does not mean a complete avoidance of companies that may struggle to raise dividends in the coming years, it could improve an investor’s risk/reward ratio so that they are more likely to enjoy a high and growing passive income in the long run.

More reading

• Top brokers name 3 ASX shares to buy next week
• These small cap ASX shares could be ones to watch in 2021
• Is it time to buy these 2 ASX travel shares?
• Top brokers name 3 ASX shares to sell next week
• 2 ASX dividend shares with attractive yields to buy this week

Motley Fool contributor Peter Stephens 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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Would you like to add some small cap shares to your portfolio this month? If you would, then you may want to get better acquainted with the ones listed below.

Here’s why these small cap ASX shares could be the ones to watch:

Alcidion Group Ltd (ASX: ALC)

The first small cap to watch is Alcidion. It is an informatics solutions company that provides software that has been designed to improve the efficacy and cost of delivering services to patients and reduce hospital-acquired complications.

Last month Alcidion released its half year results and reported a 36% increase in revenue to $11.1 million. In addition to this, it revealed that a further $23 million of sold revenue will be recognised over the next five years from FY 2022 to FY 2026.

Since then, the company has announced another potentially important contract with New Zealand’s Te Manawa Taki region District Health Boards for a pilot implementation of Better’s OPENeP Electronic Medication Management solution.

All in all, Alcidion looks well-placed to benefit from the digitisation of the healthcare sector over the next decade.

CleanSpace Holdings Limited (ASX: CSX)

Another small cap ASX share to watch is CleanSpace. It is a designer, manufacturer, and seller of workplace respiratory protection equipment (RPE) for healthcare and industrial end markets.

CleanSpace listed on the Australian share market late last year, raising $20 million to support its growth plans. This includes building on the adoption of CleanSpace products in the healthcare and industrial markets, product development, expanding awareness, and entering new international markets.

It recently released a very strong first half result. It revealed revenue of $39.7 million and EBITDA of $20.1 million. This was up from revenue of $7.3 million and an operating loss of $1.9 million a year earlier. It was also 25% and 72.6% higher, respectively, than management’s forecast. Positively, this is still well short of its addressable market of US$6.3 billion.

More reading

• Why the Alcidion (ASX:ALC) share price is jumping 8% to a record high today
• Alcidion (ASX:ALC) share price hits 52-week high on record sales
• Why the CleanSpace (ASX:CSX) share price is tumbling 8% today

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 Alcidion Group Ltd. The Motley Fool Australia has recommended Alcidion Group Ltd and CleanSpace Holdings 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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The ASX travel share industry has been through a very difficult 12 months. Could it be time to look at some of the travel stocks?

COVID-19 is still making it a very difficult industry for many of them to make a profit, or even generate much revenue.

Reporting season has now finished and investors can pick through the pieces of the sector.

Qantas Airways Limited (ASX: QAN)

The airline is keen for domestic borders and flights to get back to normal as soon as possible. It’s still at less than 10% activity of its international flying, although the freight division is seeing a very strong level of demand at the moment.

Qantas said that the domestic airlines are generating positive underlying cash flow. It made underlying operating cashflow of $1.05 billion for the period.

Management are working on lowering costs. In the half-year result it said that the interim target of $600 million in permanent savings for FY21 is on track. It’s looking to save at least $1 billion in permanent annual savings from FY23 onwards. At least 8,500 people will be leaving, with 5,000 having already gone, with the rest leaving by the end of FY21.

Right now a total of 14,500 full time equivalent roles are now stood up while around 11,000 full time equivalent roles remain stood down, most of which are associated with international flying.

The ASX travel share said its recovery has been delayed by three months due to border closures, but it thinks international travel could restart by November.

The company continues to receive assistance from the federal government which has helped many employees in the form of jobkeeper. Qantas also said that there has also been support for regional and domestic passenger flights and for some international flight routes, that would not otherwise have been commercially viable, helped to keep key transport links active.

Qantas is also expecting domestic capacity to increase to 60% in the third quarter of FY21 and 80% in the fourth quarter of FY21.

The airline is focused on getting the business back to positive net free cashflow (excluding one-offs). Net debt is expected to peak in the second half of FY21, with balance sheet repair to begin in the fourth quarter of FY21.

UBS rates Qantas as a buy and has a share price target of $6.20. However, Credit Suisse has a share price target of $4.15.

Webjet Limited (ASX: WEB)

In the FY21 half-year result, Webjet said that its online travel agency has returned to profitability as domestic borders started to reopen, driven by its market position in the domestic leisure market, as well as benefiting from its variable cost base.

HY21 total transaction volume (TTV) was down 89% to $267 million. Revenue declined 90% to $22.6 million, whilst expenses dropped 52% to $62.7 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 146% to $40.1 million.

Webjet said that WebBeds is focused on transforming its business so that it can emerge as the number one global business to business (B2B) player in the world. Management said that initiatives are on track to deliver at least 20% greater cost efficiencies when at scale.  

Webjet is not at a point where it’s cashflow positive yet. Webjet has managed to get the monthly cash burn down to $4.8 million. It had a cash balance of $283 million. Management said that its cash position allows it to withstand a protracted market recovery should it extend into 2022. The bank waivers have been extended through to 31 March 2022.

Morgan Stanley has a share price target of $4.50 for Webjet, whilst Ord Minnett has a share price target of $5.85.

More reading

• Top brokers name 3 ASX shares to sell next week
• Why analysts are backing these 2 ASX travel shares
• These are the 10 most shorted shares on the ASX
• Is the Qantas (ASX:QAN) share price a buy?
• ASX 200 Weekly Wrap: Friday carnage ruins last week of ASX earnings

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Is it time to buy these 2 ASX travel shares? appeared first on The Motley Fool Australia.

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Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

Nanosonics Ltd (ASX: NAN)

According to a note out of Citi, its analysts have retained their sell rating but lifted their price target on this infection prevention company’s shares to $4.30. Citi suspects that FY 2021 could be a tough year for Nanosonics due to the impact of COVID-19 on Trophon EPR adoption. In addition to this, the broker believes that the market is already pricing in a new product launch with a significant addressable opportunity. While it is optimistic that new products will be launched in the near future and support its growth, too little is known of them at this point to factor in appropriately. The Nanosonics share price ended the week at $5.81.

Qantas Airways Limited (ASX: QAN)

A note out of Credit Suisse reveals that its analysts have retained their underperform rating but lifted the price target on this airline operator’s shares to $4.15. While the broker sees positives in its working capital position, it isn’t enough for a change of rating. Credit Suisse continues to have concerns about increasing competition in the domestic market from Virgin and REX. The Qantas share price was trading at $5.10 at Friday’s close.

Zip Co Ltd (ASX: Z1P)

Analysts at Macquarie have retained their underperform rating and lifted their price target on this buy now pay later provider’s shares to $5.70. According to the note, the broker has concerns that the company’s QuadPay business could see its strong net transaction margins come under significant pressure due to increasing competition. It notes that the company is having to increase its customer acquisition costs to drive its customer growth. The Zip share price ended the week at $9.56.

More reading

• ASX 200 drops again, Zip sinks, Worley wins
• This was the week that ASX dividend shares proved their worth
• Why analysts are backing these 2 ASX travel shares
• What does the Zip (ASX:Z1P) share price have in store for 2021?
• ASX 200 sinks, Xero reveals acquisition, ARB driven higher

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 Nanosonics Limited and ZIPCOLTD FPO. The Motley Fool Australia has recommended Nanosonics 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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A major component of choosing an ASX dividend share is, naturally, the yield that that ASX dividend share has on offer. As long as a company can pay a reasonable and stable dividend each year, the onus on delivering capital growth can be eased. This is especially true for investors who only invest for dividend income.

So here are 2 ASX dividend shares that are offering attractive yields on recent pricing, as well as full franking credits.

2 ASX dividend shares with attractive yields this week

Coles Group Ltd (ASX: COL)

Coles is one of the most well-known companies in the country. It’s Australia’s second-largest grocery chain and also owns some other ventures, such as bottle shop chains.

Coles shares have been out of favour ever since the company reported its earnings for the first half of FY2021 last month. And that was despite the company reporting an 8% increase in revenue and a 10% jump for its interim dividend.

In fact, Coles shares are now down around 15% year to date. But, as ASX dividend investor would know, lower share prices mean higher starting dividend yields. And the most recent pricing of Coles indicated a dividend yield of 3.88% (or 5.54% grossed-up with full franking) on offer.

That’s a heck of a lot more than what you could expect from a term deposit these days and handily outstrips inflation as well. Since Coles sells groceries and other life essentials, its earnings base is relatively durable as well (as the company proved last year). That is a great advantage to have in a dividend share and is one of the reasons Coles was able to grow its dividends during the worst of the coronavirus pandemic in 2020.

Telstra Corporation Ltd (ASX: TLS)

Telstra is another ASX dividend share to consider today. As the ASX’s largest telco, Telstra has long had a reputation for large dividend yields, despite the infamous ‘day of the long dividend knives’ in 2017 (when Telstra slashed its dividends from the historic high of 31 cents a share).

These days, Telstra pays an annual dividend of 16 cents per share (including 6 cents in special dividends), which the company recently re-affirmed for 2021. Even so, this annual payout equates to a yield of roughly 5.2% on recent pricing, or 7.41% grossed-up with full franking.

As with Coles, that kind of yield runs rings around term deposits despite interest rates and other cash-based investments. It also puts Telstra in the upper echelons of yields offered by many of the ASX’s blue-chip shares, like the big four banks.

Since Telstra sells highly inelastic products and services like phones, broadband and mobile data (all modern essentials), it also has a very inelastic earnings base as well.

More reading

• Leading broker names 2 ASX dividend shares to buy next week
• Why is the Macquarie Telecom (ASX:MAQ) share price down today?
• 2 ASX dividend shares with generous yields
• Australian Primary Hemp (ASX:APH) share price surges. Here’s why.
• 3 reasons why Brickworks is a great ASX dividend share

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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 interested in boosting your portfolio with the addition of an exchange traded fund (ETF), then you might want to consider the one listed below.

Here’s why it could be the one to buy right now:

Betashares Nasdaq 100 ETF (ASX: NDQ)

The Betashares Nasdaq 100 ETF share price has come under significant pressure in recent weeks due to concerns over rising bond yields.

While there is nothing to say that this volatility is over, with its units down 10% from their high, the risk/reward on offer here looks to have shifted very favourably.

Why buy Betashares Nasdaq 100 ETF units?

The Betashares Nasdaq 100 ETF aims to track the famous NASDAQ-100 Index. This index comprises 100 of the largest non-financial companies listed on the NASDAQ stock market.

Betashares notes that this includes many companies that are at the forefront of the new economy.

This means that through just a single trade, investors will have access to companies like Apple, Amazon, and Google.

Furthermore, with its strong focus on technology, Betashares notes that it provides diversified exposure to a high-growth potential sector that is under-represented in the Australian share market.

What other companies are included in the Betashares Nasdaq 100 ETF?

Another stock included in the Betashares Nasdaq 100 ETF is Nvidia. It is a graphics card company which has been growing at an extraordinarily strong rate over the last few years.

It is benefiting from a number of industry tailwinds such as online gaming, cryptocurrency mining, and cloud computing.

In addition to this, investors will be buying a piece of MercadoLibre. It is the Latin American version of a number of global tech giants.

It is best known for the MercadoLibre Marketplace. This automated ecommerce platform allows businesses and individuals to list merchandise and conduct sales and purchases online. It is often regarded as the region’s answer to Amazon.

In addition to this, it has a PayPal-type business called MercadoPago and a Shopify-esque business called MercadoShops.

Combined, these businesses are underpinning stellar revenue and earnings growth, which has led to mouth-watering returns in recent years.

And with the company, and the majority of the Nasdaq 100, tipped to continue growing strongly throughout the 2020s, this ETF has the potential to be a market-beater over the long term.

More reading

• Top ASX shares to buy in March 2021
• 1 great way for Aussies to get exposure to Tencent and Alibaba
• 2 ASX tech shares to buy in March 2021
• 2 tech ETFs for ASX investors to buy after the market selloff
• Why this ASX tech ETF is in the buy zone

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 BETANASDAQ ETF UNITS. The Motley Fool Australia has recommended BETANASDAQ ETF UNITS. 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 some businesses in the S&P/ASX 200 Index (ASX: XJO) that have relatively high dividend yields and a history of increasing those payments for shareholders.

With the Reserve Bank of Australia (RBA) official interest rate at almost 0%, it’s hard to generate any meaningful returns from cash in the bank.

Here are two businesses with a track record of growing dividends:

APA Group (ASX: APA)

APA is one of the largest infrastructure shares on the ASX. It owns a vast gas pipeline network around Australia, it reportedly supplies around half of the country’s natural gas.

The ASX 200 share also has a number of renewable energy investments, as well as gas assets such as storage.

APA has a long record of distribution increases for shareholders – it has grown its distribution every year for around a decade and a half.

The business funds its distributions from the operating cashflow that its assets generate each year.

APA recently announced a 4.3% increase of its interim distribution to 24 cents per security. That came off the back of a 1.4% increase in operating cashflow in the FY21 half-year result. Management said that there was strong volume growth in Western Australia, the Northern Territory and sections of the east coast grid offset by softer contract renewals and lower energy consumption in Victoria.

However, the other statistics in the result showed a decrease for the ASX 200 share – revenue fell 0.6%, earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 2.3% and net profit excluding significant items declined 7%.

The reported net loss after tax was $11.7 million from the ASX 200 share, which included a non-cash impairment recognised against the Orbost Gas Processing Plant of $174.5 million.

APA is expecting to pay a distribution of 51 cents per security for FY21, which would be a 2% increase.

At the current APA share price, that would represent a distribution yield of 5.5%.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

Soul Patts one of the oldest businesses on the ASX. It was started as a pharmacy business over a century ago as a partnership between two existing pharmacy businesses.

Soul Patts still has an exposure to pharmacies and the Soul Pattinson chemist chain with its holding of Australian Pharmaceutical Industries Ltd (ASX: API) shares.

It’s now a diversified company with many investments across different sectors.

Some of the ASX 200 share’s investments include Brickworks Limited (ASX: BKW), New Hope Corporation Limited (ASX: NHC), TPG Telecom Ltd (ASX: TPG), Milton Corporation Limited (ASX: MLT) and Bki Investment Co Ltd (ASX: BKI). It also has plenty of unlisted investments and businesses like financials services, swimming schools and resources. 

One of the advantages of the Soul Patts model is that it can invest in any asset that it thinks is a good opportunity. In recent times it has invested in various assets like agriculture, Retail Food Group Ltd (ASX: RFG) shares and luxury retirement living. It also tried to buy Regis Healthcare Ltd (ASX: REG).

Soul Patts has grown its dividend every year since 2000, which is the best record on the ASX.

At the current Soul Patts share it has a grossed-up dividend yield of 2.8%.

More reading

• 2 top ASX dividend shares to buy
• 3 reasons why Brickworks is a great ASX dividend share
• No ASX dividend share is perfect, but Soul Patts (ASX:SOL) is more perfect than most
• APA (ASX:APA) share price on watch with HY21 report, upgrades distribution guidance
• 3 ASX shares that keep growing the dividend every year

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 owns shares of APA 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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The global investment bank Morgan Stanley has revealed some of the investment trends that it’s watching and that you should know about.

Morgan Stanley, with Australian CEO James Gorman at the helm, is one of the largest investment banks in the world, with a wealth of information and analytics to look at around the world.

It recently unveiled some thoughts about investment trends in 2021 and its thoughts about them. This article will highlight some of them.  

Investment trend 1: Soggy markets and a surging economy

Morgan Stanley is not convinced that this is going to be another strong year for financial markets, even though plenty of investors are expecting a good year for shares.

The investment bank believes that whilst the economy will keep recovering – which could be seen in economic statistics like GDP – it could be less successful for financial markets.

Whilst high levels of government financial support is helping households and businesses ride through the COVID-19 pandemic and the effects, it could lead to inflation and increasing bond yields. We’re seeing some of those worries seemingly play out in global share markets over the last week or two.

Another factor could be that the large increase in household savings (which went into buy assets, like shares) is unlikely to keep going. Household savings could reduce further as spending returns to more normal levels.

Morgan Stanley’s final point about this was that the pandemic was/is viewed as a natural disaster that will fade at some point, and that the end has been priced into valuations.

Investment trend 2: Inflation rates to rise?

The investment bank said that governments and central banks were confident that the financial action, such as quantitative easing and taking on a lot of debt, wouldn’t lead to strong consumer price inflation. After all, inflation hasn’t done much over the last few decades.

But Morgan Stanley pointed out four areas that could lead to inflation returning:

Depopulation: Growth in the global working-age population is falling, and a declining labor supply tends to increase wages.

Deglobalization: Slumping global trade growth since the 2008 financial crisis continues to reduce competition.

Declining productivity: The global decline, driven in part by governments bailing out unproductive companies, raises businesses’ cost and pushes up consumer prices.

Debt: Rising government debt, including trillions to pay for pandemic stimulus packages, could be the jolt that reawakens inflation.

Investment trend 3: A resources recovery

Morgan Stanley suggested that the world may be about to enter a period of stronger resource prices, even though there has been a steady drop of commodity prices over the last century and a half. We could be entering a “boom decade”.

Historically, commodity prices tend to rise when the US dollar weakens, and the US dollar has been weakening in recent months.

The investment bank also pointed out that whilst the prices of many different types of assets have risen over the last year, commodities haven’t, so it could be their turn as they look “hugely attractive”.

Whilst demand looks like it could be strong in the coming period as the global economy recovers, there isn’t that much potential supply because of a low level of investment over the last decade.

Many ASX shares are benefiting from stronger commodity prices at the moment including BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Ltd (ASX: FMG), Mineral Resources Limited (ASX: MIN), Galaxy Resources Limited (ASX: GXY) and Lynas Rare Earths Ltd (ASX: LYC).

More reading

• How to turn $20,000 into $300,000 in 10 years with ASX shares
• ASX lithium shares to get price shock as commodities supercycle charges up
• Shocking photo shows how quickly electric cars could take over
• 5 things to watch on the ASX 200 on Thursday
• ASX 200 rises, Rio chair will leave, Nine gets a new CEO

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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One of the best ways to grow your wealth is by investing with a long term view.

This is because by investing patiently over a long period of time, investors are able to benefit from compound interest.

This is interest on top of interest or, in the case of investing, returns on top of returns.

It explains why a $10,000 investment earning a 10% annual return will be worth $11,000 after one year and then almost $26,000 after ten years.

The millionaire maker stock

One of the best examples of how successful buy and hold investing can be is Dicker Data Ltd (ASX: DDR).

Over the last 10 years, this computer hardware and software distributor’s shares have generated a mouth-watering average total return of 51% per annum.

This means that anyone lucky enough to have invested $25,000 into Dicker Data shares 10 years ago, would now have amassed a small fortune worth $1.5 million.

I chatted with Dicker Data’s Co-Founder and Chairman, David Dicker, recently. Given the incredible returns they have generated, he appeared surprised that the company’s shares were not more widely held and remained somewhat of a secret in the investment community.

Mr Dicker also noted that he’s been adding to his significant stake over the last few years. In fact, the chairman was buying shares on market last year. This saw him increase his holding by 50,000 shares to a total of 60,740,000. That’s a $646 million stake based on the latest Dicker Data share price.

What about the future?

While Mr Dicker acknowledges that the near term is hard to forecast because of COVID-19 uncertainty, he appeared confident on the future. Particularly given its new state of the art distribution centre which opened in February.

This centre increased its available warehouse space by over 80% to 22,965 square metres. This provides space for increased inventory holding and future technology portfolio diversification, giving Dicker Data significant room for growth in the future.

And with industry tailwinds such as cloud computing, the internet of things, and remote working driving increasing demand for computer software and hardware, that excess capacity is likely to be needed eventually.

Whether or not the Dicker Data share price is as successful over the next 10 years, only time will tell.

But given the strength of its business and favourable industry tailwinds, you wouldn’t bet against it.

More reading

• The Dicker Data (ASX:DDR) share price has pumped 47% in 6 months
• Dicker Data (ASX:DDR) share price lower despite record-breaking result

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Dicker Data 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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