There are some ASX dividend shares that have growing dividends with a large dividend yield.

The RBA recently decided to reduce the official interest rate to just 0.10% recently.

Here are three businesses with large dividend yields and growing payouts:

Pacific Current Group Ltd (ASX: PAC)

Pacific describes itself as a global multi-boutique asset management business committed to partnering with exceptional investment managers. It combines its capital with strategic business development to help businesses grow.

The ASX dividend share increased its dividend by 40% to $0.35 per share, supported by the underlying earnings per share (EPS) increasing by 18% to $0.44.

Its profit growth was driven by an increase of the funds under management (FUM) to $93.3 million. When excluding boutiques sold or acquired during the year, FUM rose 52%. GQG grew FUM from US$25.1 billion to US$44.6 billion.

The FUM growth continued into the first quarter of FY21. FUM went up 14% to $106.4 million. However, in native currencies, US dollar orientated fund managers saw FUM rose by 19.3% – FUM growth in Australian dollar dollars was reduced by the appreciation of the Australian dollar.

It currently offers a grossed-up dividend yield of 8.3%.

Magellan Financial Group Ltd (ASX: MFG)

Magellan is also in the funds management sector. It runs different portfolios, with some focused on international equities, some focused on infrastructure equities and there is also Australian equity strategies.

FY20 saw Magellan’s average FUM grow by 26% to $95.5 million which helped adjusted EPS rise by 17%. Actual EPS was 218.3 cents, whilst total dividends went up 16% to 214.9 cents per share.

It recently invested in a new investment bank called Barrenjoey which Magellan hopes will make a material contribution to profit in the coming years. Barrenjoey will provide corporate and strategic advisory, equity and debt capital market underwriting, cash equities, research, prime brokerage as well as traditional fixed income services to Australian and international clients.

Whilst the average FUM in FY20 was $95.5 million, Magellan’s latest monthly FUM update showed $103.48 billion – an increase of 8% since the end of FY20.

The ASX dividend share is also going to launch a new series of funds with lower costs and more diversified portfolios of high quality companies. The management fee will be 0.5% per annum. It’s launching a sustainable fund as part of this launch.

It’s also getting closer to the launch of a retirement product.

Magellan currently has a grossed-up dividend yield of 5%.

Nick Scali Limited (ASX: NCK)

Nick Scali is one of the biggest furniture businesses in Australia. It imports over 5,000 of containers of living room and dining room furniture, as well as occasional furniture.

In FY20 the company’s net profit after tax and EPS were flat, in a year affected by COVID-19. The earnings before interest and tax (EBIT) margin improved by 90 basis points to 23.2%. The operating cashflow (before interest and tax) increased by 22.6% to $75.4 million.

The Nick Scali board decided to increase the FY20 final dividend per share to 22.5 cents per share. That brought the grossed-up dividend to 8.1%.

Nick Scali recently gave a trading update for the first quarter of FY21 showing that written sale orders continue to be “materially up” on last year despite the closure of stores since August in Melbourne. Total sales orders for the first quarter were up 45% on the previous year and this trend has continued through October. Online orders were also up 47% compared to the last quarter of FY20.

The ASX dividend share previously guided that profit growth would be 50% to 60% higher than last year. It’s now expecting first half profit will be up 70% to 80%.

More reading

• Leading broker warns that US dollar could face bear market crash in 2021
• Here are the shares Magellan has been buying recently
• 2 ASX dividend shares with yields over 5% today
• The 5 best-performing ASX 200 shares so far this year
• ASX 200 hits 8-month high. Here’s why we could go higher from here

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. 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 Afterpay Ltd (ASX: APT) share price is never far from the spotlight these days, at least that’s what it seems. Afterpay shares rallied close to 150% in 2019. In 2020, investors have enjoyed another 200% on top of that, give or take. And anyone who was lucky enough to buy Afterpay shares on 23 March for around $8 per share (read it and weep) is sitting on a handy 1,000% gain.

These dizzying gains have come thanks to a rising Afterpay share price (naturally). Afterpay made a new all-time high of $105.80 earlier this month, but the Afterpay share price has since cooled somewhat. It closed at $94.69 yesterday. So is Afterpay a buy today? Let’s see what’s been happening lately with this buy now, pay later (BNPL) pioneer.

What’s the latest from Afterpay?

As we canvassed above, the Afterpay share price has been under pressure over the past week or so. In fact, Afterpay is down around 10% since reaching the new all-time high on 9 November.

The catalyst for this move? Well, it’s likely that investors are getting nervous about the increasing competitive pressure Afterpay is facing. For one, there is a large (and growing) bevvy of ASX-listed would-be Afterpay killers. Companies like Zip Co Ltd (ASX: Z1P), Splitit Ltd (ASX: SPT) and Sezzle Inc (ASX: SZL) are snapping at Afterpay’s heels. But some larger, offshore giants are also smelling the roses. We reported back in September on payments titan PayPal Holdings Inc (NASDAQ: PYPL) entering the BNPL space.

Is BNPL competition heating up?

Last year, I even wrote a piece on credit card kingpin American Express Company‘s (NYSE: AXP) potential plans for the BNPL sector. But just yesterday, we also covered how another United States giant – the private company Affirm – is set to enter the Australian market. As my Fool colleague, Daryl Mather, told us yesterday, Affirm is currently the largest BNPL company in the US today in terms of monthly active users.

Perhaps adding to investors’ negative sentiment around Afterpay was a report released by the government watchdog ASIC recently (which we also covered this week). This report found that as many as 1 in 5 consumers are missing BNPL payments, almost half of which were under 30 years old.

Despite all of these seemingly negative developments, the company is still growing at a very healthy clip. Afterpay held its annual general meeting this week. During the meeting, the company told investors that its active customers reached 11.2 million as of 30 September, which gave Afterpay $4.1 billion of sales in the quarter ending 30 September. That was up 115% from the $1.9 billion in sales the company did in the same quarter of 2019.

Is the Afterpay share price a buy today?

The Motley Fool’s Pro Investing service currently rates the Afterpay share price as a ‘buy’. The team at Pro likes how Afterpay is gaining traction, its growth rates and the company’s massive total addressable market.

More reading

• Top brokers name 3 ASX shares to buy today
• Afterpay (ASX:APT) share price under pressure by US BNPL giant
• ASX 200 rises again on Tuesday
• Leading broker warns that US dollar could face bear market crash in 2021
• Flight Centre and Webjet were among the most traded shares on the ASX last week

Sebastian Bowen owns shares of American Express. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends PayPal Holdings. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended PayPal Holdings and Sezzle Inc. 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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A bit like bombastic US president Donald Trump, oysters are polarising.

People either love them or hate them. Something about the texture.

That’s why the latest company to float on the ASX might not be to everyone’s taste.

For 4 years, East 33 Limited (ASX: E33) has been bringing together independent farms and distributors in the supply chain of Sydney Rock Oysters under a single company for the first time in that industry.

Now with a large tranche of acquisitions currently in progress to complete the picture, its shares will become publicly available on 3 December.

East 33 executive chair James Garton told The Motley Fool that the Sydney Rock Oyster scene had traditionally been a cottage industry. Fewer than 5 farmers had been producing more than a million dozen oysters each year.

“This is an enterprise literally centuries in the making,” he said.

“What we did was bring together a whole set of corporate nous – marketing, management, access to capital – to realise the vision of the farmers.”

The initial public offering (IPO) will raise $32 million, which will help the company complete a second round of acquisitions to bring more of the supply chain under its roof.

East 33 will start its life on the ASX with an IPO share price of 20 cents and a market capitalisation of $83 million.

Bullish growth for Sydney Rock Oysters

Massive growth projections had pumped up demand for the initial public offer, according to Garton.

“We’ve got such strong institutional interest fundamentally because we’re talking 300% growth a year. That’s (like) a tech stock,” he said.

“But you’ve got the backing of solid historic earnings. And that’s underscored by National Australia Bank Ltd (ASX: NAB) giving us $10 million of senior debt as acquisition finance.”

After 3 years as an ASX-listed company, Garton said East 33 expects to have a share price of $1, earnings before interest, tax, depreciation and amortisation (EBITDA) of $20 million and revenue of $50 million.

Garton said the industry has so much potential because of the scarcity of product.

“There has never been a Sydney Rock Oyster produced that hasn’t been sold. It just doesn’t exist. This is a supply constraint, not a demand problem.”

He also said that the business would have low ongoing capital costs.

“You have an infinite water life. The assets we put into the water to carry the oysters have a 25-year productive life.”

Similar to what Coca-Cola Co (NYSE: KO) has been doing for more than 130 years, East 33 will market Sydney Rock Oysters as a lifestyle consumable.

As well as supplying caterers, restaurants and seafood retailers, East 33’s direct sales to the public have exploded in the year of COVID-19.

“From a zero start in April, we’re up to a million oysters annually selling online.”

Garton said the oyster industry was a maturing one in which many farmers were looking at succession planning. But the short-term strategy for East 33 would be simple.

“Increase volume, reduce the unit cost and sell more into higher value channels,” he said.

“The existing waterway that we have has technical capacity to take us from 6 million oysters to 39 million oysters.”

More reading

• Here’s what you need to know from today’s banking summit
• Morgan Stanley updates its share price targets for the big 4 banks
• Here’s the ASX bank share rated as a conviction buy
• Leading brokers name 3 ASX shares to sell today
• What COVID-19? World’s 5 most valuable brands are up 54%

Motley Fool contributor Tony Yoo 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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If you’re looking to take advantage of recent weakness in the tech sector then the two ASX tech shares listed below might be the ones to consider.

Here’s why they are rated as buys:

Appen Ltd (ASX: APX)

Appen has a global team of over a million crowd-sourced experts that prepare the data that goes into artificial intelligence (AI) and machine learning models. It has worked with tech giants such as Microsoft, Facebook, Google, and Apple. In respect to the latter, Appen played a role in the development of its virtual assistant, Siri.

The good news is that AI is still at a relatively early stage and the market is expected to grow strongly in the future. At its half year results, management noted that AI spending is growing at 28% and could accelerate as AI adoption increases in a post-crisis environment. This is particularly the case in the government sector, with AI budgets increasing rapidly into the billions.

Analysts at UBS are confident in Appen’s long term growth prospects. Following its half year update, the broker slapped an outperform rating and $44.00 price target on its shares.

ELMO Software Ltd (ASX: ELO)

ELMO is a cloud-based human resources and payroll software company. It provides businesses with the ability to streamline a wide range of processes through a single unified platform.

ELMO has been growing at a strong rate over the last few years and has continued this positive form in FY 2021. This is being driven by the rapid adoption of cloud-based solutions, the quality of its platform, and its growth through acquisition strategy. The latter saw the company recently announce the acquisition of UK-based Breathe. This gives the company access to the SME market and plenty of cross-selling opportunities in the $6.8 billion UK market. 

Analysts at Morgan Stanley responded to the news by reaffirming their overweight rating and lifting the price target on ELMO’s shares to $9.30. This compares to the current ELMO share price of $6.42.

More reading

• 3 fantastic ASX shares to buy next week
• Why are ASX tech shares all over the place today?
• 2 ASX tech shares growing strongly in 2020
• Why the CBA (ASX:CBA) share price and these ASX stocks could get a $100bn boost
• Here are 2 rapidly growing ASX growth shares

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 Elmo Software. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Appen Ltd. The Motley Fool Australia has recommended Elmo Software. 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 A2 Milk Company Ltd (ASX: A2M) share price dropped around 5% yesterday in response to its annual general meeting (AGM) update.

What did A2 Milk say about the current operating conditions?

Regarding the Asia Pacific region, A2 Milk said that the first half of FY21 is challenging for the Australia and New Zealand segment with the daigou and reseller channel impacted by COVID-19 related issues. A2 Milk is expecting the current impact will moderate over the course of the year.

The company revealed that a new incentive program has been launched in the corporate daigou channel to re-energise the channel with early signs of improvement.

A2 Milk commented that its multi-channel approach is strategically important with each channel playing a role. Despite short term challenges, A2 Milk still thinks the daigou channel is a good way to reach consumers in China and build brand awareness which may stimulate demand across multiple sales channels.

The infant formula business said that there has been a strong performance in the financial year to date with mother and baby stores sales growth, through a combination of growth in sales and expanded store distribution.

The company revealed that in its most recent 11/11 online sales event, it achieved 24% volume growth of its English label product, which was consistent with its plan. It also saw strong brand and product rankings.

Finally, in regard to Asia Pacific, the company said it grew its fresh milk market share in Australia to 11.6% in October, up from 11.3% at June.

In North America the impact of COVID-19 has seen some consumers become more value conscious. So the company is shifting from broadcast advertising to ‘in-store activation, account specific pricing and promotional activity’ – these tactics are showing “promising” results. This change is delivering gross revenue growth, but net revenue will be flat compared to FY20, though earnings before interest, tax, depreciation and amortisation (EBITDA) is expected to increase in FY21.

Management still believe that the USA is a very important market. It’s the largest global milk market, with a significant and growing premium segment. A2 Milk believes significant growth in brand awareness will create a platform for future product launches. It’s still aiming for US$100 million of annualised sales.

The company also reminded investors that it launched in Canada through a licensing agreement with Agrifoods in July FY21.

Outlook and FY21 guidance

The ASX 200 business is maintaining its guidance for the FY21 half year and full year results. It’s still expecting total revenue for the first half of FY21 to be between NZ$725 million to NZ$775 million. FY21 total revenue is expected to be between NZ$1.8 billion to NZ$1.9 billion. The FY21 EBITDA margin is expected to be in the order of 31%.

A2 Milk said that due to the volatility arising from COVID-19 and the difficulties this presents with forecasting, naturally there is uncertainty to this forecast.

The business said that this outlook includes a significant increase in revenue in the second half, which is dependent on a number of key assumptions, including an improvement in the daigou channel and continued growth of the China label business.

But A2 Milk commented that it has observed strong underlying brand health metrics, in particular in China, including market share expansion, and growth of brand awareness and loyalty measures. A2 Milk said that this gives management confidence that, notwithstanding the current headwinds, the fundamentals of the business over the medium term remain sound.

Is the A2 Milk share price a buy?

The Motley Fool Share Advisor service rate the A2 Milk share price as a buy. The SA service likes the growing geographical footprint and capital light business model that A2 Milk offers investors, saying that it still has a strong future ahead of it.

More reading

• ASX 200 rises again on Wednesday
• Why a2 Milk, ALS, Centuria Industrial, & Serko shares are dropping lower
• ASX 200 up 0.35%: Aristocrat FY 2020 results, big four banks higher, a2 Milk update
• a2 Milk (ASX:A2M) share price on watch after AGM update
• 5 things to watch on the ASX 200 on Wednesday

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended A2 Milk. 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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With interest rates at record lows and unlikely to go higher for some time, it is increasingly difficult for income investors to earn a sufficient income from traditional interest-bearing assets.

Fortunately, the Australian share market is here to save the day with a large number of dividend shares offering far more generous yields.

Two ASX dividend shares to buy are listed below:

Fortescue Metals Group Limited (ASX: FMG)

Fortescue is a leading iron ore producer with world class and ultra-low cost operations. Combined with its improving grades and sky high iron ore prices, Fortescue is generating significant free cash flows at present. And with the outlook for steel production in China improving and market conditions remaining relatively tight, experts are tipping iron ore prices to average above ~US$100 a tonne in 2021. This compares to Fortescue’s current C1 costs of US$12.74 per wet metric tonne.

One broker that is confident on its prospects is Macquarie. It notes that strong iron ore prices are currently providing a free cash flow yield of ~17%. In light of this, the broker is forecasting a bumper dividend payment in FY 2021 of approximately $1.64 per share fully franked. Based on the current Fortescue share price, this equates to a massive 9.7% dividend yield. Macquarie has an outperform rating and $20.00 price target on its shares.

Telstra Corporation Ltd (ASX: TLS)

With its T22 strategy delivering on its objectives, the NBN headwind easing, and 5G internet taking off, this telco giant’s outlook has improved greatly in recent months. In addition to this, the company’s plan to split into three separate entities has been well received by the market and is expected to create value for shareholders.

The latter plan has gone down particularly well with analysts at Credit Suisse, who believe it reinforces its view around the underlying value of its assets. The broker also believes Telstra is well-placed to maintain its 16 cents per share dividend for the foreseeable future. Based on the current Telstra share price, this means a fully franked 5.3% dividend yield. Credit Suisse has an outperform rating and $3.85 price target on its shares.

More reading

• Why the Telstra (ASX:TLS) share price can go even higher from here
• 2 ASX dividend shares to buy today for income
• Macquarie (ASX:MQG) picks best ASX stocks to buy for 2021 post-COVID recovery
• Aussie companies blast ‘knee-jerk’ COVID-19 border closures
• ASX 200 Weekly Wrap: ASX continues to hit post-COVID highs

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra 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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On Wednesday the S&P/ASX 200 Index (ASX: XJO) continued its positive run and charged higher again. The benchmark index rose 0.5% to 6,531.1 points.

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

ASX 200 poised to rise gain.

The Australian share market looks set to continue its positive run despite a weak night of trade on Wall Street. According to the latest SPI futures, the ASX 200 is expected to rise 27 points or 0.4% at the open. In late trade on Wall Street, the Dow Jones is down 0.15%, the S&P 500 has fallen 0.3%, and the Nasdaq is down 0.15%.

Crown told to delay Crown Sydney opening.

The Crown Resorts Ltd (ASX: CWN) share price will be one to watch this morning when it returns from its trading halt. The casino and resorts operator has been told by the New South Wales Independent Liquor and Gaming Authority (ILGA) to delay the opening of Crown Sydney. The gambling regulator has concerns over money laundering and will decide whether it is fit and proper to run the casino in February. Crown Sydney was due to open next month.

Oil prices rise.

It could be a good day for energy shares such as Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL) after oil prices pushed higher. According to Bloomberg, the WTI crude oil price is up 1.6% to US$42.09 a barrel and the Brent crude oil price is up 2% to US$44.61 a barrel. Oil prices were given a boost by news that Pfizer has revised the effectiveness of its COVID-19 vaccine to 95%.

Annual general meetings.

A number of companies are holding their annual general meetings on Thursday and could provide updates at their events. This includes the likes of electronic design software provider Altium Limited (ASX: ALU) and job listings giant SEEK Limited (ASX: SEK).

Gold price lower.

Gold miners including Newcrest Mining Limited (ASX: NCM) and Saracen Mineral Holdings Limited (ASX: SAR) could come under pressure today after the Pfizer COVID vaccine news weighed on the safe haven asset. According to CNBC, the spot gold price is down 0.75% to US$1,871.30 an ounce.

More reading

• ASX 200 rises again on Wednesday
• Crown (ASX:CWN) share price on watch after being told to delay Crown Sydney opening
• 2 ASX shares making all-time highs today
• ASX stock of the day: Redbubble (ASX:RBL) shares up 5% today
• Why ASX tech shares should fly long after this crisis is over

James Mickleboro owns shares of SEEK Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia has recommended Crown Resorts Limited and 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.

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CSL Limited (ASX: CSL), which was previously known as the Commonwealth Serum Laboratories, was founded back in 1916 has gone on to become one of the world’s leading specialty biotechnology companies.

It is now made up of two businesses – CSL Behring and Seqirus.

CSL Behring is the biotherapeutics side of the business focused on developing life-saving products from human blood plasma. Among its leading products you’ll find the likes of Haegarda, Hizentra, and Privigen.

Whereas Seqirus is the company’s vaccine business, which has really come to prominence this year because of the COVID-19 pandemic. It recently announced plans to invest ~$800 million in the construction of an influenza vaccine manufacturing facility in Melbourne.

This follows the announcement of a major deal with the Federal Government for the supply of a range of life-saving treatments for over 10 years. This includes anti-venoms for Australian snakes, spiders and marine creatures, and influenza pandemic protection.

Research and development.

One of the keys to the company’s success over the years has been its investment in research and development (R&D).

Every year CSL invests in the region of 10% to 12% of its sales revenue back into its R&D activities. This means almost US$1 billion was invested in these activities in FY 2020.

This has helped ensure that CSL is at the forefront of innovation in the industry and has led to it developing a wide portfolio of therapies and vaccines generating billions of dollars of sales each year.

Pleasingly, the company’s investments in recent years means that it has a burgeoning R&D pipeline, positioning it perfectly for growth.

Is the CSL share price in the buy zone?

It is partly because of this pipeline that one leading broker is recommending CSL as a buy right now.

Following its R&D briefing last month, UBS put a buy rating and $346.00 price target on its shares.

It notes that product development has been a key driver of growth over the last few years and appears confident that this will be the case in the future. Particularly given its opportunities in antibodies, gene therapies, and COVID-19.

More reading

• Top brokers name 3 ASX shares to buy today
• ASX ends trading early, ASX 200 up 1.2%
• Why the CSL (ASX: CSL) share price is climbing higher today
• ASX 200 up 1.2%: Afterpay ASIC response, Elders result, CSL vaccine facility
• ASX 200 Weekly Wrap: ASX continues to hit post-COVID highs

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 CSL Ltd. 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 legendary investor Warren Buffett – chair and CEO of Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) – is famous for his coinage of the term ‘moat’.

He explained his criteria for a moat as follows in his 2007 annual letter to the shareholders of Berkshire Hathaway:

It’s better to have a part interest in the Hope Diamond than to own all of a rhinestone. A truly great business must have an enduring ‘moat‘ that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business ‘castle’ that is earning high returns.

Therefore a formidable barrier such as a company’s being the low-cost producer (GEICO, Costco) or possessing a powerful world-wide brand (Coca-Cola, Gillette, American Express) is essential for sustained success. Business history is filled with ‘roman candles’, companies whose moats proved illusory and were soon crossed.

Now, not to disparage the talents of any readers out there, but Buffett is an investor of the ‘one-of-a-kind’ variety. It’s easy to sit there and come up with a list of businesses that you might see as possessing such a moat. It’s harder though to come up with an annual return in one’s share portfolio exceeding 20% per annum for decades on end (as Buffett has done).

Thus, one option to consider in Buffett’s stead today is the VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT).

MOATs all round

MOAT is an exchange-traded fund (ETF) that sits on our own ASX. However, it is an ETF that only invests in US shares. Not just any US shares though. MOAT tracks an index constructed by Morningstar, which holds only shares that it sees as possessing the kind of competitive advantages that Buffett describes above.

In determining the presence of a ‘moat’, Morningstar considers 5 sources of sustainable competitive advantage: intangible assets (for example, brands or intellectual property), switching costs, network effect, cost advantage and efficient scale.

At the present time, MOAT holds 48 stocks and charges a management fee of 0.49% per annum. Amongst this ETF’s current portfolio are companies like Tiffany & Co (NYSE: TIF), Microsoft Corporation (NASDAQ: MSFT), Amazon.com Inc (NASDAQ: AMZN), Kellogg Company (NYSE: K), Harley Davidson Inc (NYSE: HOG),  American Express Co (NYSE: AXP), and Coca-Cola Co (NYSE: KO). You might recognise those last 2 companies from the names Buffett lists above.

All of these companies evidently fit into Morningstar’s definition of having a moat, for various reasons. Think about the brands that companies like Kellogg, Harley Davidson and Tiffany have. Or the costs of switching away from Microsoft’s Windows and Office products. Or the scale of Amazon.

MOAT is currently rated as a ‘buy’ by the Motley Fool’s flagship Share Advisor service. Scott Phillips and the Share Advisor team like MOAT’s international exposure, the diversification it brings to the table, as well as the “exposure to Buffettesque businesses at a good price”.

More reading

• Here are the stocks Warren Buffett has been buying and selling
• Warren Buffett bought 4 pharma giants in Q3
• What has Warren Buffett been up to lately?
• 2 leading ETFs to buy for global returns
• Don’t listen to me. Listen to Charlie Munger…

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of American Express, Kellogg, Coca-Cola, and Procter & Gamble. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon, Berkshire Hathaway (B shares), and Microsoft and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and short December 2020 $210 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Amazon and Berkshire Hathaway (B shares). 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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