The best dividend shares could offer more than just a relatively high passive income. The stock market crash has caused a wide range of high-quality businesses to trade at low prices that do not account for their recovery prospects.

As such, undervalued companies with impressive shareholder payouts could become more popular in a low interest rate environment. This may boost their prices and lead to impressive total returns in the coming years.

The passive income potential of dividend shares

Of course, the most obvious reason to buy the best dividend shares today is their passive income prospects. The stock market crash has caused many income stocks to trade at lower prices than at the start of the year – even after the recent market rebound. Therefore, it is possible to obtain high yields from high-quality income shares that may not be available permanently in many cases.

A large proportion of the stock market’s past total returns have been derived from the reinvestment of dividends. Therefore, income shares may be of interest to a wider range of investors than those who are purely interested in a passive income. Over time, many companies may also be able to increase their dividend payouts as the economic outlook improves. This may further improve their total return potential over the coming years.

Relative income appeal

At the same time as dividend shares offer a generous passive income, many other assets currently fail to provide a worthwhile income opportunity. Low interest rates mean that the returns on cash savings accounts have fallen to historic lows. Similarly, the returns on investment grade bonds may struggle to keep pace with inflation over the long run. This may reduce an investor’s spending power and make it more difficult to obtain a worthwhile passive income over the coming years.

Meanwhile, high house prices mean that the yields available on property may be relatively unattractive. Investors must also pay various fees when owning investment property, while it is likely to be more difficult to diversify when owning property directly. This may increase overall risk, and could lead to a less stable passive income than that on offer via a portfolio of dividend shares.

Capital return prospects

Dividend shares also offer scope for impressive capital returns. As mentioned, their prices have fallen in many cases due to the stock market crash. This could mean that their financial prospects are currently undervalued by investors. As the world economic outlook improves and investor sentiment strengthens, income shares could make capital gains that have a positive impact on investor portfolios.

Therefore, building a diverse portfolio of income shares could be a logical approach. Their low prices, passive income potential and relative appeal could make them a profitable investment for a wide range of investors over the coming years.

More reading

• 2 ETFs that ASX investors need to know about
• Top fund manager Dalio warns investors to stay away from cash
• Top brokers name 3 ASX shares to sell next week
• Is National Storage (ASX:NSR) a dividend share to buy?
• Top brokers name 3 ASX shares to buy next 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. 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.

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Exchange traded funds (ETFs) are becoming increasingly popular with Australian investors and it isn’t hard to see why.

ETFs give investors the opportunity to invest in a large number of shares through just a single investment. This includes themes, countries, or whole indices.

Two ETFs that are popular with investors right now are listed below. Here’s what you need to know about them:

BetaShares Asia Technology Tigers ETF (ASX: ASIA)

The BetaShares Asia Technology Tigers ETF gives investors exposure to a collection of tech shares that are revolutionising the lives of billions of people in the Asia market. Among its holdings you will find the likes of Samsung, Alibaba, JD.com, Tencent, and Baidu.

In respect to Baidu, it is widely regarded as the Chinese version of Google. As well as being the dominant search engine in China, Baidu has a keen focus on artificial intelligence and is aiming to be an autonomous vehicle powerhouse. In 2019, the company ranked number one in the amount of AI-related patent applications in China for the second consecutive year. This demonstrates just how active in the space it is.

Another key holding in the fund is Tencent. It is one of the world’s largest tech companies with a focus on video games and social media. It is best known as the company behind the WeChat app, which is used by over 1.2 billion people for messaging, e-commerce, digital payments, and entertainment.

BetaShares Global Cybersecurity ETF (ASX: HACK)

Another ETF that is popular with investors is the BetaShares Global Cybersecurity ETF. This ETF aims to track the performance of an index that provides exposure to the leading companies in the global cybersecurity sector.

BetaShares notes that with cybercrime on the rise, demand for cybersecurity services is expected to grow strongly for the foreseeable future. This is a side of the market which is heavily under-represented on the ASX at present.

Included in the fund are both global cybersecurity giants and emerging players from a range of global locations. Among its holdings you’ll find Crowdstrike, Okta, Accenture, Cisco, and Cloudflare.

More reading

• 2 ASX tech ETFs analysts rate as a ‘buy’ today
• 10 hottest (and coldest) Aussie ETFs right now
• 2 quality ETFs that are popular with ASX investors
• Best performing Aussie ETFs right now
• 2 tech ETFs generating big returns

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 BETA CYBER ETF UNITS. The Motley Fool Australia owns shares of and has recommended BetaShares Asia Technology Tigers ETF. 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.

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Billionaire Ray Dalio is a world-famous investor that many look to for advice, wisdom or just good old-fashioned market commentary. Dalio founded one of the world’s largest hedge funds – Bridgewater Associates – back in 1973. It is perhaps most well known for its performance during the global financial crisis a decade ago. While global markets were tanking, Bridgewater’s Pure Alpha Fund managed to make a motza back then. Today, Bridgewater has more than US$140 billion in assets under management, although Mr. Dalio is no longer playing an active role at the fund.

Even so, he is still out and about, sharing his insights on the current economic climate and market conditions.

Reporting in Business Insider this week shed some light on what Dalio has been telling investors in this current climate. Business Insider quoted Dalio speaking at the Bloomberg New Economy Forum this week. First off, he told the forum that diversification is “one of the most important portfolio strategies” in the current environment. But he caveats this statement by saying that investors shouldn’t be owning bonds (also called ‘fixed-interest investments’) or cash right now:

In my opinion, don’t own bonds, and don’t own cash because they’re producing a lot of debt and producing a lot of money to fund it, and so that’s changing the nature of capital flows.

Dalio instead recommended that investors “diversify between currencies, asset classes, and countries as the best way to reduce risk without reducing opportunity”.

Dalio: Cash is trash

This news might not be as relevant for us Aussie investors, who have never had much of a tradition of investing in bonds. However, a common investing practice over in the United States is the ’60/40 portfolio’, which advocates a 60% allocation to shares and a 40% allocation to bonds. Something to keep in mind.

Beyond diversification, Dalio also told investors that “liquidity and differentiation” should be guiding lights for portfolio construction in today’s environment: “liquidity allows an investor flexibility to change as circumstances change” he said.

Whilst Dalio is bullish on shares in general, he does nudge investors to differentiate between companies and countries that are “orderly and will prosper in this environment”, and those that are prone to bankruptcy and disorder. According to Dalio, disorder in a company or country  “depends on the entity’s income relative to its expenses, and its assets to liabilities”. Dalio said differentiation will allow investors to see “radical differences in financial consequences.” 

More reading

• Top brokers name 3 ASX shares to sell next week
• Is National Storage (ASX:NSR) a dividend share to buy?
• Top brokers name 3 ASX shares to buy next week
• 3 leading ASX dividend shares to buy for income
• Exciting ASX shares rated as buys by top fundie

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. 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.

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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:

Commonwealth Bank of Australia (ASX: CBA)

According to a note out of Morgan Stanley, its analysts have retained their underweight rating and $68.50 price target on this banking giant’s shares. Although the broker’s overall view of the major banks has improved, it notes that investors have driven their shares higher in recent weeks. This has particularly been the case for Commonwealth Bank, with its shares now trading well above its estimate for fair value. The broker also notes that there are limited cost reduction possibilities for the bank and also a risk from potential credit quality deterioration. The Commonwealth Bank share price ended the week at $80.00.

New Hope Corporation Limited (ASX: NHC)

A note out of Macquarie reveals that its analysts have retained their underperform rating and $1.00 price target on this coal miner’s shares. Although production at its Bengalla operation is currently in line with its expectations, the broker notes that the New Acland operation is ramping down after failing to get its expansion approval. In addition to this, the broker has concerns over potential legal issues relating to the latter mine and the outlook for thermal coal. The New Hope share price last traded at $1.18.

Oil Search Ltd (ASX: OSH)

Analysts at Credit Suisse have downgraded this energy producer’s shares to an underperform rating with a $3.10 price target. The broker made the move after Oil Search released its strategy update. It notes that this update revealed higher capital expenditure at the PNG LNG operation. In addition to this, it has been disappointed with the slow progress being made with the Alaska sell-down. The Oil Search share price was changing hands for $3.54 on Friday.

More reading

• ASX 200 ends flat on Friday
• Why the Oil Search (ASX:OSH) share price is the worst performer today
• Why Kogan, Oil Search, Orica, & Soul Pattinson shares are dropping lower
• What would it take for the ASX 200 to hit 7,000 again?
• ASX 200 up 0.1%: CBA’s APRA update, Mesoblast rockets, Oil Search sinks

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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The National Storage REIT (ASX: NSR) share price has had a turbulent year and is currently trading roughly in line with where it started it.

This is despite the company recently reporting big improvements in trading conditions.

How has National Storage been performing?

National Storage is a leading self-storage operator which has been growing at a solid rate over the last decade thanks to a combination of organic and inorganic growth. The latter is through its growth through acquisition strategy, which has been particularly effective over the last few years.

The good news for investors is that management has persisted with this strategy even during the pandemic. Last month at its annual general meeting, the company advised that it has completed eight acquisitions totalling $139 million in FY 2021. But it may not stop there. Management also revealed that its forward-looking acquisition pipeline remains strong.

And while 2020 has been difficult because of the pandemic, trading conditions have been improving greatly in recent months. In fact, at the meeting, the company revealed that in excess of 60,000 square metres of occupancy has been added since 1 July, which is the equivalent of 12 full centres.

In light of this, management was confident enough to reaffirm its underlying earnings per share guidance of 7.7 cents to 8.3 cents. This compares to underlying earnings per share of 8.3 cents in FY 2020.

Is the National Storage share price in the buy zone?

One broker that is positive on the investment opportunity here is Ord Minnett.

At present, the broker has an accumulate rating and $2.05 price target on its shares. It is also forecasting an 8 cents per share distribution in FY 2021.

Based on the current National Storage share price of $1.86, this implies potential upside of 10.2% over the next 12 months.

This potential return stretches to 14.5% if you include Ord Minnett’s dividend estimate, which equates to a 4.3% yield.

More reading

• 2 ASX dividend shares with yields of 4%+
• Takeovers will continue to rock ASX shares
• Buy CBA (ASX:CBA) and this ASX share for their dividends
• Forget savings accounts and buy these ASX dividend shares instead
• Why Bendigo and Adelaide Bank, Mach7, National Storage, & Unibail-Rodamco-Westfield are dropping lower

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

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Last week saw a large 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 Macquarie, its analysts have retained their outperform rating and $17.95 price target on this infant formula and fresh milk company’s shares. This follows the release of an update at its annual general meeting which reiterated its guidance for FY 2021. While the broker notes that a2 Milk Company will require a huge second half and that there’s still a lot of uncertainty in the daigou channel, it remains positive on the company’s medium term growth prospects. The a2 Milk share price ended the week at $13.90.

Aristocrat Leisure Limited (ASX: ALL)

Analysts at Citi have retained their buy rating and lifted the price target on this gaming technology company’s shares to $40.60. This follows the release of a full year result which was largely in line with expectations. Looking ahead, the broker believes the company is well-placed for growth and has upgraded its earnings estimates. It expects its earnings growth in FY 2021 to be driven by its Digital business and a recovery in the US market. The Aristocrat Leisure share price closed the week at $33.96.

EML Payments Ltd (ASX: EML)

A note out of UBS reveals that its analysts have commenced coverage on this payments company’s shares with a buy rating and $5.00 price target. The broker believes EML Payments is well placed to benefit from the accelerating shift to a cashless society. It also sees a lot of value in the Prepaid Financial Services acquisition from earlier this year. It feels this has opened up the company to significant growth opportunities. The EML Payments share price last traded at $3.63.

More reading

• Brokers name 3 ASX shares to buy right now
• Could the Aristocrat (ASX:ALL) share price be a leading ASX 200 growth share?
• Broker retains $20 price target on A2 Milk (ASX:A2M) share price
• Why the Aristocrat Leisure (ASX:ALL) share price can go higher from here
• China is a much bigger threat to the ASX bull run than COVID

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 EML Payments. The Motley Fool Australia owns shares of and has recommended A2 Milk. The Motley Fool Australia has recommended EML Payments. 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.

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The Reserve Bank of Australia (RBA) recently cut the official interest rate down to 0.1%. In this article are some leading ASX dividend shares to buy for income.

These three ideas have been rated as buys by the Motley Fool Dividend Investor service.

Let’s get straight to it:

Propel Funeral Partners Ltd (ASX: PFP)

Propel is the second biggest funeral business in Australia and New Zealand. According to ABS stats, death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050.

The funeral business recently declared a fully franked full year dividend of 10 cents per share for FY20, which equates to a grossed-up dividend yield of 4.7% at the current Propel share price.

The ASX dividend share recently gave a trading update for the first quarter of FY21 which said that there was total funeral volume growth on the prior corresponding period, the average revenue per funeral displayed growth on FY20 (within its target range of 2% to 4%) and operating earnings before interest, tax, depreciation and amortisation (EBITDA) grew 18%.

That was on top of FY20’s growth which saw pro forma operating net profit after tax (NPAT) increasing by 8.4% and statutory operating net profit growing by 6.5%.

The company is now only expecting COVID-19 related impacts in isolated hot spots. Propel still believes growth will come from a growing and ageing population. Acquisition completed during, and since, FY20 will also help. New acquisitions could also occur.

Service Stream Limited (ASX: SSM)

Service Stream is an ASX dividend share involved in the design, construction, operation and maintenance of important networks like telecommunications and other utilities.

The NBN is its biggest customer and it recently won a contract extension. Service Stream management is working to diversify its earnings away from telecommunications.

In FY20, Service Stream paid an annual dividend per share of 9 cents, equating to a grossed-up dividend yield of 5.6% at the current Service Stream share price. In FY20 it increased revenue by 9% and EBITDA from operations went up 15.9%.

Service Stream is expecting its FY21 earnings to remain resilient, supported by long-term contracts. Continued demand is expanded across critical infrastructure networks where it will try to secure more organic growth.

The ASX dividend share will be particularly focused on winning additional work from the NBN’s recent $4.5 billion network upgrade.

Service Stream is also looking for acquisition opportunities. However, the company is expecting the FY21 result to be weighted towards the second half because of COVID-19 impacts in the first half where works were slowed and new projects delayed.

Brickworks Limited (ASX: BKW)

Brickworks has four different divisions. It has an Australian building products division where it’s the market leader for bricks, but it also sells other things like masonry, roofing, paving and precast.

The company also has an American building products division that it acquired in recent years. Brickworks is already the market leader in the north east of the US and it’s working to increase efficiencies there.

The ASX dividend share owns around 40% of investment conglomerate Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).

It also owns 50% of an industrial property trust along with Goodman Group (ASX: GMG). This trust is steadily growing its net rental profit. This trust will soon count Amazon and Coles Group Ltd (ASX: COL) as paying tenants as two large, high-tech distribution warehouses are being built for them.

Brickworks’ dividend hasn’t been cut for over 40 years. The dividend is purely funded by the dividends from Soul Patts and the profit from the property trust.

At the current Brickworks share price it has a trailing grossed-up dividend yield of 4.6%.

More reading

• ASX 200 ends flat on Friday
• ASX stock of the day: Japara Healthcare (ASX:JHC) share price soars 23%
• Why the Oil Search (ASX:OSH) share price is the worst performer today
• Why Kogan, Oil Search, Orica, & Soul Pattinson shares are dropping lower
• Why Accent, Mesoblast, Redbubble, & Regis Healthcare shares are charging higher

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 COLESGROUP DEF SET. The Motley Fool Australia has recommended Propel Funeral Partners Ltd and Service Stream Limited. 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.

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There are some ASX shares that have growth potential and are rated as buys, according to top fund management outfit, Wilson Asset Management (WAM).

One of the key strategies of WAM is to identify undervalued growth companies where there’s a catalyst that could increase the valuation.

Livewire’s James Marlay recently spoke with lead WAM portfolio manager Oscar Oberg as well as portfolio manager Tobias Yao.

In WAM’s opinion, this is one of the best environments for small caps that the investment team have seen for some time because of the reopening of the economy and the fact that there’s plenty of ASX shares that are exposed to this.

There are a number of ASX shares that the two WAM managers named as businesses that they liked at the moment including United Malt Group Ltd (ASX: UMG), Ramsay Health Care Limited (ASX: RHC). The WAM managers also said they have been adding to some existing positions like BWX Ltd (ASX: BWX) and Infomedia Limited (ASX: IFM).

WAM is bullish about the agriculture sector

One sector that Mr Osberg was particularly positive about the prospects of was agriculture. The drought has been hard for many farmers across the country. But WAM is bullish because of the rain that has fallen on the east coast of Australia.

He pointed to the fact that the government is forecasting 24.3 million tonnes of crops, which is the biggest forecast over the past 10 years. This forecast could actually be upgraded again because of all of the rain. Mr Oberg said that there’s a normally a big crop when there’s a lot of rain, and this can extend for a number of years.

Two of WAM’s biggest positions are Elders Ltd (ASX: ELD) and Graincorp Ltd (ASX: GNC).

Elders actually recently reported its FY20 result. It revealed that sales revenue increased by 29% to almost $2.1 billion. Underlying earnings before interest and tax (EBIT) rose by 62% to $119.4 million, underlying profit after tax went up 71% to $109 million, statutory profit after tax increased by 80% to $124.2 million and operating cash flow rose by 887% to $110.5 million. It also increased the dividend by 22% to 22 cents per share.

Regarding Elders and Graincorp, Mr Oberg said: “Elders will benefit as more farmers buy crop protection products. GrainCorp is the most  leveraged to an increase in the crop size and we believe that a number of the efficiency gains and cost savings implemented by management over the last few years will be present in the numbers.“

However, damaging storms can be something to watch out for and the rain is an important factor, though WAM is expecting a few good years after this.

There was another agricultural ASX share that Mr Oberg named as a potential opportunity, Select Harvests Limited (ASX: SHV), which is one of the biggest growers of almonds in Australia. The Select Harvest share price is still down by around a third from its February 2020 high.

Mr Oberg said: “If we have a vaccine and observe greater support in the almond price we should witness significant upside to Select Harvest’s share price.” A vaccine could help almond demand from China and India recover. 

Select Harvests itself recently gave an update about its 2021 outlook. Select Harvests managing director Paul Thompson said: “Tree health and crop outlook is positive. Recent rains have resulted in higher annual water allocations and lower water market pricing. At this early stage, the outlook for the SHV 2021 crop is positive. The food division continues in a challenging Australian domestic market has seen a shift from the food service segment to the retail segment. We have continued to invest in the Sunsol and Lucky brands and have just ranged six additionally Lucky cooking products in Woolworths Group Ltd (ASX: WOW) nationally.”

More reading

• 5 things to watch on the ASX 200 next week
• These were the worst performing ASX 200 shares last week
• Top brokers name 3 ASX shares to sell today
• Why ASX tech shares should fly long after this crisis is over
• Why the United Malt (ASX:UMG) share price has lifted 4% higher today

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 Infomedia. The Motley Fool Australia owns shares of and has recommended BWX Limited. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool Australia has recommended Elders Limited, Infomedia, and Ramsay Health Care Limited. 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.

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I’m a big fan of buy and hold investing and believe it is the best way for investors to grow their wealth.

To demonstrate how successful it can be, I like to pick out a number of popular ASX shares to see how much a single $20,000 investment 10 years ago would be worth today.

This time around I have picked out the three ASX shares that are listed below:

BWP Trust (ASX: BWP)

You might not expect to generate market-beating returns by investing in a commercial property company, but it does happen. Over the last 10 years the BWP share price has smashed the market return. This has been thanks to its growing portfolio of warehouses which are predominantly leased to hardware giant Bunnings Warehouse. A combination of inorganic and organic growth through rental increases has supported consistent earnings and distribution growth since 2010. This has led to BWP’s shares providing investors with an average total return of 12.7% per annum. This means a $20,000 investment 10 years ago would have grown to be worth $66,100 today.

SEEK Limited (ASX: SEK)

The SEEK share price has been a market beater over the last 10 years. This has been driven by the seismic shift to online job listings, its domination of the ANZ market, and its successful international expansion. The latter has particularly been the case in China with its lucrative Zhaopin business. Over the last few years this business has grown to become a significant contributor to its overall earnings. All in all, this has led to SEEK shares generating an average total return of 15.8% per annum since this time in 2010. This would have turned a $20,000 into $86,700 today.

Technology One Limited (ASX: TNE)

The Technology One share price has been a consistently strong performer over the last 10 years thanks to its transformation from a small enterprise solutions company to one of the biggest players in the ANZ region. This has underpinned very strong earnings growth over the last decade and a 24.8% average total annual return over the period. This means a $20,000 investment in its shares in 2010 would be worth $183,000 today.

More reading

• Brokers name 3 ASX shares to buy right now
• Why Accent, Mesoblast, Redbubble, & Regis Healthcare shares are charging higher
• Redbubble (ASX:RBL) share price on watch after naming former SEEK exec as new CEO
• ASX 200 rises on mixed Thursday
• SEEK (ASX:SEK) share price flat despite FY 2021 guidance upgrade

Motley Fool contributor James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia has recommended SEEK Limited. 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 How to turn $20,000 into $180,000 in 10 years with ASX shares appeared first on Motley Fool Australia.

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There are some ASX shares that are growing at a very fast pace.

Here are two growing businesses that are rated as a buy by a Motley Fool service:

Temple & Webster Group Ltd (ASX: TPW)

Temple & Webster is an online furniture business that sells furniture and homewares for almost every room in the house, as well as for the garden. It also sells things like wall art.

According to the ASX, it has a market capitalisation of $1.25 billion.

How fast is the company growing? In FY20 it grew revenue by 74% to $176.3 million. The growth accelerated during the year, particularly during the period most affected by COVID-19. FY20 second half revenue grew by 96% and fourth quarter revenue increased by 130%.

The ASX share also boasted of accelerated operational leverage with 483% growth of earnings before interest, tax, depreciation and amortisation (EBITDA) to $8.5 million, with the adjusted EBITDA margin increasing from 2.5% in FY19 to 5.3% in FY20.

Temple & Webster’s CEO Mark Coulter explained the benefits of gaining market share during the most-affected COVID-19 months: “The NAB online sales index suggests our category grew around 57% during the months of April to July, while we grew around 150% for the same period. We believe this is due to the increasing benefits of scale as we get larger. We are forging closer relationships with our suppliers as we become a more significant part of their business which allows us to obtain stock security, better terms and exclusive product ranges. We are also making larger investments in areas such as technology and data, brand awareness and our private label products; and we can produce more content by having more creative resources. In effect, the bigger we get, the better and strong our customer proposition becomes, which is a virtuous cycle.”

FY21 has continued to show fast growth for the ASX share. Financial year to date revenue between 1 July 2020 to 19 October 2020 showed growth of 138%. The first quarter of FY21 saw EBITDA generation of $8.6 million, which was more than the entire FY20 EBITDA. October revenue growth is still more than 100% and contribution margins continue to run ahead of its 15% target.

Temple & Webster’s share price has fallen 23% over the past month. The Motley Fool Share Advisor service currently rates Temple & Webster shares as a buy.

Pushpay Holdings Ltd (ASX: PPH)

Pushpay is an electronic donation business that largely serves the US faith sector, namely large and medium US churches.

According to the ASX, Pushpay has a market capitalisation of around $2 billion.

The ASX share recently released its FY21 half-year result which demonstrated growth.

Pushpay reported that its operating revenue increased by 53% to US$85.6 million over the six months to 30 September 2020. The gross profit margin increased from 65% to 68% as a result of a diligent approach to optimising it.

The digital giving business boasted of expanding operating leverage. Whilst revenue increased by 53%, operating expenses only went up by 16%, meaning that total operating expenses as a percentage of operating revenue improved from 50% to 38%. Pushpay expects “significant operating leverage to accrue as operating revenue continues to increase, while growth in total operating expenses remains low.”

Pushpay’s EBITDAF increased by 177% in the HY21 result, with the EBITDAF margin improving from 17% to 31%. FY21 is going better than expected, so Pushpay increased its FY21 guidance again, to a range of US$54 million to US$58 million. Operating cash flow increased by 203%.

Pushpay is currently rated as a buy by the Motley Fool Pro service.

More reading

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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 PUSHPAY FPO NZX and Temple & Webster Group Ltd. The Motley Fool Australia has recommended PUSHPAY FPO NZX and Temple & Webster Group Ltd. 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.

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