China controls more than 80 per cent of the world’s rare earth supply and heightened tensions with the US could see exports restrictions come into play. Global supply risks combined with the demand-side application of rare earths for industries such as defence, renewables and technology could make rare earth miners the next ASX shares to boom. 

ASX shares in the rare earths sector

Lynas Corporation Ltd (ASX: LYC)

Lynas is the largest rare earths producer outside of China with its flagship Mt Weld rare earths deposit in Western Australia and separation plant in Malaysia. The company’s FY20 results outlined the heightened spotlight for rare earths and global appetite for a reliable, diversified rare earths supply chain. Lynas has positioned itself as a proven and reliable supplier to key markets, and continues to engage with end users and governments. 

The company is expanding its production and selected Kalgoorlie WA as the location for a new rare earths processing facility. This project was awarded Lead Agency status by the Government of Western Australia and Major Project status by the Australian Government.

Furthermore, Lynas was selected by the US Department of Defence for a Phase 1 contract for a US heavy rare earths separation facility. Phase 1 will involve a detailed market study, planning and design work for a facility in the US. In terms of the breadth and depth of ASX shares within the rare earths space, I believe Lynas is the ‘blue-chip’ opportunity given its size, track record and revenues. . 

RareX Ltd (ASX: REE) 

RareX is focused on developing rare earth deposits in Australia including its Cummins Range rare earths project in the East Kimberly region of Western Australia.

The RareX share price has soared more than 150% in the last month following a series of exciting announcements. On 30 September, its first batch of assays received returned exceptional thick, high-grade results. Furthermore, on 7 October, it announced the start of drilling at a highly prospective location, 84km north of Lynas Corporation’s Mt Weld. RareX represents a highly prospective exploration project and potential nearology play given its drilling proximity to Lynas. However it carries significant risks as do most exploration players. 

American Rare Earths Ltd (ASX: ARR) 

American Rare Earths entered into the lucrative US rare earth market in 2019  following the acquisition of the La Paz rare earth project in Arizona. This acquisition secures ARR as the only listed ASX company with direct exposure to the US rare earths market. 

The company has received significant attention in recent weeks following the US President’s executive order intended to stimulate domestic production and processing of identified critical materials including rare earths. ARR is in the early stages of its exploration project and presents similar risks to that of RareX. 

Foolish takeaway

China’s monopoly on rare earths increases the importance of establishing a reliable supply chain outside China. I believe Lynas has taken the global spotlight as an established producer and could be a strong medium to long term investment.

More reading

• Zip and Estrella Resources were among the most traded shares on the ASX last week
• American Rare Earths (ASX:ARR) share price up 45% on US President’s executive order
• ASX 200 rises 1%, Reliance Worldwide (ASX:RWC) climbs 11%
• Lynas (ASX: LYC) share price boosted 5% by PM’s budget plan
• Potential ASX winners from government’s $1.5bn manufacturing blueprint

Motley Fool contributor Lina Lim 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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In morning trade the Zip Co Ltd (ASX: Z1P) share price is edging lower despite the release of a strong first quarter update.

At the time of writing the buy now pay later provider’s shares are down 1% to $7.82. 

How did Zip perform in the first quarter?

Zip has started the new financial year very strongly and delivered record quarterly growth during the first quarter.

For the three months ended 30 September, the buy now pay later provider reported record quarterly transaction volume of $943.1 million, up 96% on the prior corresponding period.

This led to the company reporting an 88% increase in quarterly revenue to a record of $71.7 million.

Key drivers of this growth were its strong increases in transaction and customer numbers.

Over the three months, Zip experienced a 130% year on year increase in transaction numbers and a 114% lift in customers to 4.5 million. In respect to the latter, a total of 628,000 of these customers were added during the quarter.

Pleasingly, the company’s US-based QuadPay business is performing strongly. Management revealed that it experienced record results across all core metrics.

QuadPay reported $322.5 million in transaction volume, $23.4 million in revenue, and ended the quarter with 2.2 million customers. This means almost half of Zip’s customer base is now in the United States.

Also growing strongly during the quarter were Zip’s merchant numbers. Total merchants on Zip’s platforms increased to 34,400, up 69% year on year.

Another big positive was the company’s bad debt metrics in Australia. Management advised that its Australian monthly arrears, which is a forward indicator of future losses, reduced from 1.33% in June to 0.91% in September. It (rightfully) believes this is an outstanding result in the current climate.

“Extremely exciting” product and merchant pipeline.

Management was very pleased with the quarter and appears confident that this strong form can continue.

Managing Director and CEO, Larry Diamond, commented: “We are incredibly proud of the global team with another set of record results across all key geographies – Australia, New Zealand, the United States.”

“In particular, the US demonstrated significant growth with revenue and volumes up 50% and 42% QoQ, respectively, with a number of marquee merchants going live in the quarter.”

“Locally, the product and merchant pipeline are extremely exciting, and we look forward to a number of announcements in the months ahead. The current quarter has begun solidly in all markets, which is seasonally the strongest as we run up to Prime Day, Black Friday, Cyber Monday, Christmas and Boxing Day,” he added.

Mr Diamond also commented on industry trends, noting that credit card usage is fading fast.

He commented: “Customers are continuing to increase their online spend in response to COVID-19 supported by Zip’s products that provide a better and fairer, digital alternative to the credit card. Data from the recent quarter continues to show the demise of the credit card model – in Australia, by way of example, credit card balances collapsed 24% YoY, while balances accruing interest fell 28%.”

This certainly bodes well for the Zip and rivals such as Afterpay Ltd (ASX: APT) and Sezzle Inc (ASX: SZL).

More reading

• 3 ASX tech shares that pay dividends
• Zip and Estrella Resources were among the most traded shares on the ASX last week
• The Zip (ASX:Z1P) share price soars as Citigroup says 1Q update to surprise
• 3 reasons I still think the Zip (ASX:Z1P) share price is a buy
• ASX 200 Weekly Wrap: Budget, US election sparks 5% surge in ASX 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 ZIPCOLTD FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Sezzle Inc. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended 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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You might not think it, but the COVID-19 pandemic isn’t good news for the Propel Funeral Partners Ltd (ASX: PFP) share price.

While restrictions on gatherings at funerals have weighed in the near-term, the industry is facing a longer-term impact too.

But at least the Propel share price is showing some life this morning after management released a pleasing September quarterly update.

PFP share price coming alive

Shares in Australia’s second largest funeral services group jumped 2.5% to $2.84 – taking its year-to-date loss to 16%. This is around 9% below the S&P/ASX 200 Index (Index:^AXJO).

But Propel is in good company. The InvoCare Limited (ASX: IVC) share price lost 22% over the same period.

Earnings jump Propels stock

At least the first quarter of this financial year is kinder to Propel. Management reported a circa 18% rise in operating earnings before interest, tax, depreciation and amortisation (EBITDA) to $10.5 million.

What’s more, the average revenue per funeral rebounded to $5,835 from $5,421 in the previous quarter and is 2.9% above the FY20 average.

Management also boasted about strong cash flow conversion (where the EBITDA figure is close to operating cash flow). But investors will have to wait for the 4C to be released to see what the ratio is as the number wasn’t provided.

How COVID is impacting the sector

It seems the worst of the social restrictions may be behind the industry too. Most states in Australia and most areas in New Zealand now allow 100 mourners to attend funerals. Victoria is the laggard, but even in COVID central, you can have up to 10 people attend.

These restrictions have limited the opportunities for funeral companies to upsell services. Meanwhile, the relative low number of deaths in both countries have also dragged on funeral stocks even as the virus claimed over one million lives worldwide – and counting.

Jumping from one challenge to another

But the industry isn’t out of the woods. COVID is forcing us to adopt new habits, such as social distancing and better hygiene.

What this means is that very few of us are catching the flu. The rates of influenza are a key earnings driver for the sector given how many people die from its complications.

“Death volumes were materially below historical long term trends in key markets within which Propel operates,” said Propel.

“For example, in Tasmania registered deaths declined 12.6% on the [previous corresponding period]; and flu cases in Australia were circa 99% below the prior 5 year average.”

Source: Propel Funerals

The funeral industry could be facing its own structural challenge if we continue with our good habits!

More reading

• These are the 10 most shorted shares on the ASX
• Here are the 10 most shorted ASX shares
• 5 things to watch on the ASX 200 next week
• These are the 10 most shorted ASX shares
• These are the 10 most shorted ASX shares

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Connect with me on Twitter @brenlau.

The Motley Fool Australia has recommended InvoCare Limited and Propel Funeral Partners 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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The Resolute Mining Limited (ASX: RSG) share price has come under pressure on Wednesday and is dropping lower.

At the time of writing, the gold miner’s shares are down 1% to 97.5 cents.

This appears to have been driven by a sizeable pullback in the gold price overnight, which has offset a positive announcement.

What did Resolute announce?

This morning Resolute Mining released an updated mineral resource estimate for the Tabakoroni underground deposit at its Syama operation in Mali.

According to the release, ongoing exploration success at Tabakoroni has enabled the completion of a Pre-Feasibility Study (PFS) to assess the potential for a new underground gold mine to augment gold production from the Syama Gold Mine.

This has led to the Tabakoroni mineral resource being upgraded to 7.4 million tonnes at 4.4 grams per tonne gold, with a 1.5 grams per tonne gold cut off for a total of 1.04 million ounces.

This is an increase of 22% over the previous estimate in April of last year.

Gold production is expected to average approximately 80,000 ounces per annum over an initial four-year mine life. The All-In Sustaining Cost (AISC) is calculated to be US$974 an ounce.

Strong future production potential.

The company’s Managing Director and CEO, John Welborn, believes this study provides support for the its ambition of establishing underground operations at Tabakoroni. Operations of which he expects to enable total production from Syama to be sustained at approximately 250koz per annum going forward.

He commented: “Tabakoroni has been a highly successful Syama satellite open pit oxide mining operation for Resolute, producing approximately 400,000 ounces of gold over the past three years. We expect our ongoing exploration success and feasibility studies will confirm a future underground operation at Tabakoroni.”

What now?

Resolute still has a lot of work ahead and will continue its exploration and evaluation of the Tabakoroni underground mine potential into 2021.

Until then, further details on its plans for the Syama operation will be published in an updated Syama Life-of-Mine plan. This is expected to be completed during the current quarter.

More reading

• Are Resolute Mining (ASX: RSG) shares as good as gold?
• ASX 200 jumps 2.4% higher, numerous shares rise
• ASX 200 drops 0.3%, gold miners keep rising

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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Spirit Telecom Ltd (ASX: ST1) is a telecommunications company which provides internet, cloud solutions, telephony services and phone names in Australia. The company has a market capitalisation of just $200 million but is making headway in revenues and scale. With the Spirit Telecom share price up more than 85% this year, could it become the next Telstra Corporation Ltd (ASX: TLS) share price?

About Spirit Telecom 

Spirit is a disruptor in the IT&T industry. It developed its own advanced, fixed wireless network which means it can provide Australian small to medium-sized businesses (SMBs) with ‘Sky-Speed’ internet, along with managed IT services and cloud-based business solutions. It is rated as Australia’s fastest internet service provider with symmetrical internet speeds ranging from 25 Mbps to a whopping 1Gbps. 

Q1 FY21 update 

On Tuesday, Spirit provided an upbeat business update for Q1 FY21. The business highlighted record growth and scale with total revenue at $15.6 million, up 149% year on year and 30% on Q4 20. The company has a balance sheet of $30.1 million of cash and available debt as of 30 September. Its flexible balance sheet position has allowed the company to build its acquisition pipeline with multiple targets currently under consideration and due diligence. 

The company has a number of growth initiatives coming in Q2 and Q3 including: 

• 70+ new resellers signed nationally 
• New Spirit branded mobile products and bundles to be launched nationally across Q2 to Q3
• Federal government budget tax incentives for businesses refreshing IT&T needs 
• NBN enterprise ethernet promotions 
• Acquisition opportunities 

The company currently has a revenue run rate of circa $80 million and is targeting circa +$85 million revenue run rate by the end of CY2020. 

The next Telstra share price? 

Spirit and Telstra are very different companies despite operating in the same sector. Telstra is a mature company but has struggled to deliver shareholder value in recent times. I believe there is little value in the Telstra share price from defensive, growth and yield perspectives. I feel there are far better ASX shares out that can more reliably deliver these benefits. 

The size and loss making nature of Spirit does make it a more risky investment than the likes of ASX 200 companies. However, the company is trading at a cheap revenue multiple with a strong balance sheet and business tailwinds to propel its earnings. I believe the company could be suitable for investors focusing on growth and capital gains, and the Spirit share price represents good value at today’s prices.  

More reading

• Why it’s always a good time to buy blue chip ASX shares
• Is the Telstra (ASX:TLS) share price a buy for 2021?
• Why I would buy Telstra (ASX:TLS) and this ASX dividend share right now
• Why the Telstra (ASX:TLS) share price soared 4% today
• ASX 200 jumps more than 1%, big ASX banks rise

Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended SPIRIT TC FPO. 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 Bank of Queensland Limited (ASX: BOQ) share price is on the move on Wednesday following the release of its full year results.

At the time of writing, the regional bank’s shares are up 0.5% to $6.44.

How did Bank of Queensland perform in FY 2020?

For the 12 months ended 31 August 2020, the regional bank reported cash earnings of $225 million. This was down 30% on FY 2019 and driven largely by a $133 million COVID-19 collective provision.

This was better than what the market was expecting. Goldman Sachs was forecasting cash earnings of $210 million and the market consensus stood at $204 million.

On a statutory basis, Bank of Queensland’s net profit after tax decreased by 61% to $115 million. This was due to previously announced restructuring charges and its intangible asset review.

What were the drivers of its result?

Had it not been for the one-offs, Bank of Queensland would have handed in a reasonably solid result.

The bank’s net interest income increased 3% to $986 million in FY 2020. This was driven by lending growth and an improving net interest margin. Bank of Queensland’s net interest margin increased by 3 basis points in the second half.

Things weren’t quite as positive for its non-interest income. It decreased by 14% over the year. Management advised that this reflects industry trends towards low and fee free banking products, as well as a ~$10 million impact from COVID-19 related fee reductions.

Capital position.

At the end of the financial year the bank was in a strong financial position. Its CET1 stood at 9.78%, which is well above APRA’s unquestionably strong benchmark.

This strong position has allowed the bank to declare a full year 12 cents per share fully franked dividend.

This comprises 6 cents per share from its first half profits and 6 cents per share from its second half profits.

Outlook.

The company’s Managing Director and CEO, George Frazis, commented: “We remain focused on executing on our strategy and maintaining momentum in our business. We have a clear transformation roadmap and are delivering against it.”

“Although difficult to predict in this environment, we expect to broadly deliver neutral jaws in FY21 driven by above system growth in lending, margin management to within 2-4bps decline, and cost growth of c.2%. Our prudent collective provision sees us well placed to withstand anticipated lifetime losses arising from COVID-19,” he added.

Mr Frazis concluded: “Our capital position is strong and organic capital generation will provide us with the ability to invest in and grow our business. We are committed to delivering long term shareholder value through sustainable, profitable growth and attractive returns. We understand the importance of dividends for our shareholders.”

More reading

• 5 things to watch on the ASX 200 on Wednesday
• What to expect from the Bank of Queensland (ASX:BOQ) full year result this week
• These are the 10 most shorted shares on the ASX
• 5 things to watch on the ASX 200 next week
• Here are the 10 most shorted ASX shares

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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Along with our Top ASX Stock Picks for October, we also asked our Foolish writers to pick their favourite ASX tech shares to buy this month.

Here is what the team have come up with…

Chris Chitty: Envirosuite Ltd (ASX: EVS)

My tech share for October is Envirosuite Ltd. Envirosuite is an environmental consulting company that helps its clients to manage their effect on the environment. This company provides software as a service (SaaS) which assists companies to measure and control their environmental outputs.

Motley Fool Contributor Chris Chitty does not own shares of Envirosuite Ltd.

Glenn Leese: ELMO Software Ltd (ASX: ELO)

More reading

• 3 ASX tech shares that pay dividends
• 3 exciting small cap ASX shares that ought to be on your watchlist
• 3 hot ASX shares to buy when you’re young
• 5 things to watch on the ASX 200 on Tuesday
• Why the Xtek (ASX:XTE) share price is shooting 9% higher today

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software and Pro Medicus Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AUDINATEGL FPO. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia owns shares of Appen Ltd. The Motley Fool Australia has recommended AUDINATEGL FPO, carsales.com Limited, Domino’s Pizza Enterprises Limited, Elmo Software, and Pro Medicus 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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When it comes to ASX dividend shares, the mind usually doesn’t jump to the tech space. Tech shares have long been associated with high-growth, high-octane investors. If you ask a typical ASX investor to name ten top dividend shares, I would wager that there wouldn’t be one tech share on the list.

Tech shares and dividends have long had an interesting relationship in the investing world. Over in the United States, dividend-paying companies even have a certain stigma attached to them. Probably due to a lack of a ‘franking’ system, US companies are considered ‘mature’ or ‘tired’ if they start paying a dividend. Even today, US tech titans like Amazon.com Inc (NASDAQ: AMZN), Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL), Netflix Inc (NASDAQ: NFLX) and Facebook Inc (NASDAQ: FB) still don’t pay dividends, despite their mountains of free cash flow and (in some cases) trillion-dollar market capitalisations.

One tech titan that does pay a dividend is Apple Inc (NASDAQ: AAPL). But when it announced a new dividend program in 2012, some investors were dismayed that Apple was ‘no longer cool’. What a funny old world!

But that’s the US, and we’re here to talk about ASX tech shares. Many ASX tech shares, such as Afterpay Ltd (ASX: APT), Zip Co Ltd (ASX: Z1P) and Xero Limited (ASX: XRO) do not currently pay dividends. But others do.

3 ASX tech shares offering dividends

One such example is Appen Ltd (ASX: APX). Appen works with tech companies to help computer and artificial intelligence programs communicate better with humans. Appen has paid two dividends in 2020 – a 5 cents per share payout in February and a 4.5 cents per share dividend last month. 9.5 cents per share in total dividends for 2020 gives Appen a trailing dividend yield of 0.26% on current prices. That’s not too exciting, but it’s better than nothing!

Altium Limited (ASX: ALU) is another tech high-flyer that pays out a dividend. Its last two payouts came in at 19 and 20 cents per share respectively, which gives Altium a trailing yield of 1.06% on current prices. Again, that’s not enormously impressive, but it’s better than Appen. What’s more, Altium has been rapidly increasing its dividend every year for a while now (including in 2020, the year of the pandemic). In 2016, Altium gave shareholders 20 cents per share in dividends. In 2020, the company had ramped this payout up to 39 cents per share. This could be a fantastic dividend growth stock if this pattern continues. 

A final option to consider is Computershare Limited (ASX: CPU). Computershare isn’t normally lumped in with the ‘exciting’ tech stocks like Altium and Appen, probably because it’s been around for a couple of decades now. But it’s still one of the best tech shares to buy for dividend income. Computershare’s last two dividends both came in at 23 cents per share. That gives Computershare a trailing dividend yield of 3.46%, which also comes partially franked.

Foolish takeaway

Although ASX tech shares are still not a sector with market-beating dividend yields on offer, there is still income potential if you know where to look. As tech companies become more and more dominant on the ASX, I expect this trend to continue growing as well. So watch this space, income investors!

More reading

• Top ASX tech shares to buy in October 2020
• Is Alphabet thinking of its ‘other bets’ all wrong?
• 2 unstoppable ASX shares to buy with $2,000
• Apple Announces the iPhone 12: What You Need to Know
• Is Apple (NASDAQ:AAPL) stock overvalued?

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Alphabet (A shares) and Facebook. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Altium, Amazon, Apple, Facebook, and Netflix. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero and ZIPCOLTD FPO and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, and Netflix. 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 Challenger Ltd (ASX: CGF) share price will be one to watch on Wednesday following the release of its first quarter update.

How did Challenger perform in the first quarter?

For the three months ended 30 September, Challenger reported a 4% increase in assets under management to $89 billion.

This was driven by a 4% lift in Life investment assets, which benefited from positive investment experience and a 46% increase in annuity sales compared to the prior corresponding period to $1,233 million. The latter was the result of strong growth in both Australian and Japanese (MS Primary) sales.

Also growing during the first quarter was the company’s funds under management (FUM). Challenger’s FUM increased 5% for the quarter, including $3.6 billion of net inflows.

Successful strategy.

Challenger’s Managing Director and Chief Executive Officer, Richard Howes, commented: “Challenger’s performance in the first quarter demonstrates the success of our strategy to diversify our business geographically and across customer segments. Our record annuity sales reflect strong growth in the contribution from Japan as well as domestic institutional and retail annuity sales.”

“Our Funds Management business further solidified its spot as the fastest growing asset manager in Australia. Total funds under management rose 5% during the quarter, driven by exceptional net flows across both Fidante Partners and CIP Asset Management,” he added.

Mr Howes also revealed that the company has taken advantage of market conditions to generate strong investment returns.

“We have maintained our strong capital position and prudent portfolio settings, while taking advantage of market conditions to redeploy almost $1 billion of Life’s cash and liquids into investments generating attractive returns in excess of 20%,” he explained.

Outlook.

The company has reaffirmed its guidance for FY 2021.

It continues to expect FY 2021 normalised net profit before tax in the range of $390 million and $440 million.

However, its earnings are expected to be weighted toward the second half of FY 2021. Management advised that this reflects the majority of rental abatements supporting Life’s property tenants recognised in the first half and the progressive deployment of Life’s cash and liquids over the year.

More reading

• Why Austal, Challenger, Orocobre, & Whitehaven Coal are dropping lower
• ASX 200 down 1.2%: Westpac hit with $1.3bn penalty, Brickworks disappoints, tech shares lower
• Magellan (ASX:MFG) share price slides lower after investing in Barrenjoey
• Brokers name 3 ASX shares to buy right now
• Brokers upgraded JB Hi-Fi (ASX:JBH) share price and this other ASX stock to “buy” today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger 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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Blue chip ASX shares have been a staple of the Aussie share portfolio for decades. Companies like BHP Group Ltd (ASX: BHP) and Telstra Corporation Ltd (ASX: TLS) are often found in the ‘Mum and Dad’ investor’s portfolio.

There are a few good reasons to invest in blue chips at the best of times, but I think the investment thesis is even more compelling right now. Here are a few of my main reasons for investing in ASX blue chip shares in the current market.

A ‘two-speed’ economy is good for blue chips

The coronavirus pandemic has certainly thrown investors a curve ball. After a strong recovery from the March bear market, we’re continuing to see volatility persist.

ASX blue chip shares like Commonwealth Bank of Australia (ASX: CBA) haven’t been immune. However, some sectors like retail and technology have really outperformed.

I think significant size is a big factor here. Those companies with multi-billion-dollar market capitalisations can go on the attack as the economy stabilises to snap up smaller competitors for a nice price.

Not all investors love acquisitions, but I think everyone can agree that buying underperforming assets for a cheap price is good for investors’ returns.

ASX blue chip shares have strong institutional backing

By virtue of their size, these top Aussie companies have strong institutional investor backing. That’s good news if they need to raise more debt or equity, where their smaller peers may not see the same demand.

That should give the average ‘retail’ investor confidence in Aussie blue chips right now. We’ve seen it recently with some monster capital raisings from the likes of Sydney Airport Holdings Pty Ltd (ASX: SYD) and Cochlear Limited (ASX: COH).

If fund managers and insiders are putting their money where their mouths are, I’m more likely to consider buying into these ASX blue chip shares as well.

Strong cash generation is good for dividends

If there’s one thing ASX blue chip shares can do well, it’s generate some serious cash.

For instance, Telstra posted free cash flow of $3.4 billion despite a 14.4% drop in its full-year net profit after tax.

That means we could see blue chip dividends maintained in FY21 if these large companies can continue to operate strongly.

Foolish takeaway

These are just a few of the reasons I like ASX blue chip shares right now. The S&P/ASX 200 Index (ASX: XJO) has slumped 7.4% in 2020 but I think these large-cap companies could provide some strong income in 2021.

More reading

• Is the Telstra (ASX:TLS) share price a buy for 2021?
• Why I would buy Telstra (ASX:TLS) and this ASX dividend share right now
• 5 things to watch on the ASX 200 on Wednesday
• Why the Telstra (ASX:TLS) share price soared 4% today
• ASX 200 jumps more than 1%, big ASX banks rise

Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Cochlear 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.

The post Why it’s always a good time to buy blue chip ASX shares appeared first on Motley Fool Australia.

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