Investors are wary of putting their money in the market right now with the S&P/ASX 200 Index (ASX: XJO) down 12.2% in 2020. ASX shares have been volatile and we’ve seen the emergence of a ‘two-speed’ market.

Some shares like Xero Limited (ASX: XRO) or Pointsbet Holdings Ltd (ASX: PBH) have been flying. Others, in sectors like travel and hospitality, have been under extreme pressure.

That means it can be a scary time to invest with so many mixed signals. Here’s a couple of things I try to remember when deciding if its time to save or time to invest in ASX shares.

When to save and when to invest in ASX shares

My view is that market timing is not a great strategy. Market timing is when you wait outside of the market and try to ‘time’ the bottom of the market.

If you’d done this successfully, you probably went all-in during the March bear market. However, the reality is that not that many investors would have done this.

Because the only thing scarier than investing in a volatile market like right now is investing when the market is in freefall like in March.

However, it doesn’t have to always be so black and white. Investing strategies are ultimately very individual and depend on many, many factors.

I usually just try and buy high-quality ASX shares whenever I have the opportunity. If you’re believing in the long-term story then what happens today or tomorrow doesn’t really matter all that much.

Sitting on cash for years and years is probably not an ideal strategy. Interest rates are extremely low and it may just get eaten away by inflation.

But for the more conservative or opportunistic types, it could be worth having a small stash of cash ready to go. That means I could still invest regularly in top ASX shares but be ready to pounce on any tactical buying opportunities.

Foolish takeaway

Investing strategies come down to the individual. Market timing rarely, if ever, works but I think having some spare cash to buy cheap ASX shares could provide some peace of mind in the short-term.

More reading

• 3 five-star ASX 200 shares to buy in October
• ASX 200 finishes the week with a bang
• Why the Brickworks (ASX:BKW) share price is soaring higher today
• ASX 200 up 1.5%: Big four banks rocket higher, Premier Investments delivers record profit
• Why this fund manager is backing ASX copper shares

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 Pointsbet Holdings Ltd and Xero. The Motley Fool Australia has recommended Pointsbet Holdings 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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It is totally possible for people to generate $65,000 in annual dividends at some point in their life thanks to ASX dividend shares.

Why $65,000?

I think producing an average wage in the form of dividends from ASX shares would be great.

According to statistics produced by the Australian Bureau of Statistics (ABS), the May 2020 numbers indicated that the average annual income for an Aussie is almost $68,000. COVID-19 may have influenced that number, so I thought $65,000 would be a slightly more realistic target to write about.

When we get older, hopefully we’ll be able to eliminate some expenses like a house payment and education debt, meaning we wouldn’t need as much income to live.

How much do you need to get $65,000 in dividends each year?

The dividend yield of your portfolio will largely decide how big your portfolio needs to be for the income goal. If you had a 1% dividend yield then your portfolio would have to be $6.5 million.

A 1% yield is very low, even if you aim for a growth portfolio. If your portfolio had a 3% yield then you’d need a portfolio worth $2.17 million.

If you aimed for a $1 million portfolio then you would need a dividend yield of 6.5%. Some ASX dividend shares may be able to provide that, but it’s hard to find good shares with good yields. COVID-19 has made it particularly difficult with plenty of dividend cuts from various ASX blue chips.

How do you get there?

Well a portfolio of between $1 million to $2 million would take quite a while to build. It would take a lot of saving, investing and compound growth. Franking credits help too. 

Moneysmart has a great compound interest calculator that helps you play around with numbers to see how much you’d need to invest and how long it would take.

As an example, if you invested $1,000 a month into ASX shares and your portfolio compounded at 10% a year then you’d have $1.327 million after 25 years. You’d get to $1 million in under 23 years.

If you’re a double income household then it’s probably easier to invest $1,000 a month (or more), but I think investing $1,000 a month is possible for a lot of people with a frugal mindset and decent earnings. The less you earn the more frugal you’d have to be to make it work. It’s particularly difficult during this COVID-19 era.

What are good ASX dividend shares?

There are a number of ASX dividend shares that I really like. However, the record low interest rates have pushed up asset prices and caused dividend yields to fall.

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) has a grossed-up dividend yield of 3.5%.

Brickworks Limited (ASX: BKW) has a grossed-up dividend yield of 4.3%.

Future Generation Investment Company Ltd (ASX: FGX) has a grossed-up dividend yield of 6.6%.

WAM Microcap Limited (ASX: WMI) has a grossed-up dividend yield of 5.5%.

APA Group (ASX: APA) has a distribution yield of 4.6%.

Rural Funds Group (ASX: RFF) has a FY21 distribution yield of 4.75%.

Vitalharvest Freehold Trust (ASX: VTH) has a distribution yield of 6%.

WAM Leaders Ltd (ASX: WLE) has a grossed-up dividend yield of 7.9%.

As you can see, many of the above names have a yield lower than 6.5%. Higher yields can be riskier, they may be more likely to cut their income payments in times of difficulty.

I think that Soul Patts, Brickworks, Future Generation and WAM Microcap are among the highest-quality ASX dividend shares. I like them for their reliability, the regular dividend growth and the diversification.

It may take a bit longer to reach $65,000 of annual income with lower yielding shares, but I’d feel more secure and they may have more capital growth potential. Total returns are important.

More reading

• These were the best performing ASX 200 shares last week
• I think the Brickworks (ASX:BKW) share price is a buy
• Will the Reserve Bank cut the cash rate again in October?
• Why the Brickworks (ASX:BKW) share price is soaring higher today
• Why Adbri, Brickworks, Northern Star, & Westpac shares are surging higher today

Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO, RURALFUNDS STAPLED, WAM MICRO FPO, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of APA Group. 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 very strong finish on Friday led to the S&P/ASX 200 Index (ASX: XJO) recording an impressive gain last week. The benchmark index climbed 1.7% over the five days to end it at 5,964.9 points.

While a large number of shares were climbing higher with the market, a few stood out with particularly strong gains.

Here’s why these were the best performing ASX 200 shares last week:

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

The Soul Patts share price was the best performer on the ASX 200 last week with an impressive 14% gain. Investors were buying the investment house’s shares in the run up to the release of its full year results on Thursday. Fortunately for those investors, the company delivered a result that was in line with expectations. Soul Patts recorded a 284.3% increase in statutory profit after tax to $953 million thanks to the merger of TPG Telecom Ltd (ASX: TPG) and Vodafone Australia. This triggered a significant one-off profit due to the revaluation of its investment to market value. This allowed the Soul Patts board to increase its dividend for the 20th year in a row.

Whitehaven Coal Ltd (ASX: WHC)

The Whitehaven share price wasn’t far behind with a 14.1% gain last week. This appears to have been triggered by a broker note out of UBS. According to the note, the broker has retained its buy rating and lofty $2.00 price target on the coal miner’s shares. It notes that Whitehaven’s shares have fallen materially this year due to a decline in coal prices. However, it feels investors will be rewarded if they’re patient and coal prices recover.

Service Stream Limited (ASX: SSM)

The Service Stream share price was a strong performer last week and climbed 12.2% higher. Investors were buying Service Stream’s shares after the Federal Government revealed plans to spend upwards of $4.5 billion to upgrade the NBN over the next three years. This could be a major positive for Service Stream as it has been generating significant revenues by supporting the rollout of the NBN in recent years.

Abacus Property Group (ASX: ABP)

The Abacus share price was on form and stormed a sizeable 11.7% higher over the period. This was despite there being no news out of the property company last week. However, with its shares down materially since the start of the year, investors may believe they are in the bargain bin now.

More reading

• I think the Brickworks (ASX:BKW) share price is a buy
• Why the Brickworks (ASX:BKW) share price is soaring higher today
• Is the Soul Patts (ASX:SOL) share price a buy?
• ASX 200 falls 0.8%, Afterpay (ASX:APT) share price drops 6%
• Here’s why Soul Patts (ASX:SOL) is the king of ASX dividend shares

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended 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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Despite the correction this month, technology shares have gone gangbusters in 2020.

The index most symbolic of the digital world, the Nasdaq Composite (NASDAQ: .IXIC), has still gained 17% this year and 56% since the COVID-19 crash in March.

And private tech companies have taken notice, announcing plans to float while the sentiment is positive.

Snowflake Inc (NYSE: SNOW), for example, went public last week then doubled its price on the first day. And plenty of Australian investors bought in.

On Friday Australian time, it’s still 89% up on its initial public offer (IPO) price of US$120.

The Motley Fool spoke to Stake founder and chief executive, Matt Leibowitz, about five more US tech companies that are about to undergo an IPO.

Airbnb

This is the brand most familiar to Australians, and no doubt many would already be customers.

Speculation has been rife for a couple of years about Airbnb going public. It’s an iconic internet startup that contributed to the creation of the term “unicorn”.

The accommodation platform reportedly planned to float in March. But then COVID-19 struck and killed off the entire travel sector.

Now there are reports that it had confidentially filed IPO paperwork with the US corporate regulator in August.

While it’s dawdled, the company’s valuation has gone from US$31 billion in 2017 to US$18 billion when it raised private funds in April.

Leibowitz isn’t so sure that the IPO will happen this year.

“It may get pushed back,” he told The Motley Fool.

“A lot of these businesses are loss-making, so it’s really just about biding their time until they list.”

The still COVID-depressed travel sector meant that, despite its famous name, the company has some work to do before going public.

“Where they are right now as a business, they’re going to have to redo a bit of trust in terms of making it look more exciting.”

DoorDash

This is another brand that Australians would recognise. DoorDash started to deliver food in the country late last year after running for six years in North America.

There have been reports the company plans to float in the final quarter of this year.

Leibowitz said it’s hard to judge DoorDash’s merit as it hadn’t yet publicly revealed its finances.

“We’ve seen them grow pretty quickly in Australia,” he said.

“These guys are moving ahead quicker than Airbnb are… Home delivery of food is massive.”

With companies like DoorDash that are in very competitive markets, Leibowitz said the moat isn’t always clear.

“You saw with Uber Technologies Inc (NYSE: UBER) and Lyft Inc (NASDAQ: LYFT). You saw what Uber’s price did post-IPO — it took a bit of a dive.”

Palantir

Entrepreneur, Peter Thiel, has become infamous in recent years as a Donald Trump supporter. But in the late 1990s, he co-founded Paypal Holdings Inc (NASDAQ: PYPL) along with Tesla Inc (NASDAQ: TSLA) boss Elon Musk.

Palantir is a big data analytics company Thiel co-founded in 2003. Its debut on the market is scheduled for Wednesday night (30 September) Australian time.

Because its clientele is defence and intelligence agencies, there is a certain amount of mystery behind its products and how they work.

“The CIA was one of the earliest investors in Palantir… The CIA has made an absolute fortune,” said Leibowitz.

“This is going to be a very, very interesting IPO.”

As a direct listing, there is no fixed share price to start with and the market demand will determine it.

The Wall Street Journal’s sources have reported an estimate of around US$10 a share, which would give it a market valuation of almost US$22 billion.

Wish

Wish is a discount e-commerce site, which Australians might pejoratively call a “$2 shop”.

The online store doesn’t operate in Australia. But the name might be most familiar to local basketball fans as the jersey sponsor of the Los Angeles Lakers.

The company filed IPO papers at the end of August.

“Shopping company with aggressive marketing, very popular in the US… They’re looking at a valuation between US$6 to US$8 billion,” Leibowitz said.

“I think their valuation is actually higher than what they’re listing at.”

Asana

Asana produces software that helps corporate teams manage their work.

Like Palantir, it has a good pedigree — Facebook, Inc (NASDAQ: FB) co-founder Dustin Moskovitz co-founded Asana in 2008. 

And also like Palantir, it will first appear on the market Wednesday night (30 September) Australian time.

“It sort of competes with Australia’s Atlassian Corporation PLC (NASDAQ: TEAM),” said Leibowitz.

“You’d know about it if you worked in tech-based businesses where they need project management.”

The Motley Fool US reports Asana counts 30% of the Fortune 500 as clients, and that for the quarter ending June, it posted a 57% year-on-year revenue increase.

“I’m impressed with all that this company has going for it and will be starting a position once shares become available to the public,” reported The Motley Fool US’ Brian Withers.

More reading

• ASX investors were buying Tesla (NASDAQ:TSLA) and Snowflake (NYSE:SNOW) shares last week
• Understand this quote, and you’ll understand the ASX share market
• Atlassian is as big as top 15 ASX tech companies combined
• Warren Buffett’s 3 best-performing stocks so far this year: Are they buys now?
• ASX 200 Weekly Wrap: ASX 200 snaps 4 week losing streak… just

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. Tony Yoo 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 Atlassian, Facebook, PayPal Holdings, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Snowflake Inc. and Uber Technologies and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool Australia has recommended Facebook and PayPal Holdings. 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 S&P/ASX 200 Index (ASX: XJO) was on form last week thanks largely to strong gains in the banking sector. The benchmark index rose 1.7% higher over the five days to end at 5,964.9 points.

Unfortunately, not all shares on the index pushed higher last week. Here’s why these were the worst performers on the ASX 200 over the period:

Ramelius Resources Limited (ASX: RMS)

The Ramelius share price was the worst performer on the ASX 200 last week with a sizeable 17% decline. Investors were selling the gold miners last week after the spot gold price crashed to a two-month low. A strengthening U.S. dollar and stimulus concerns weighed on the price of the precious metal. For the same reason, fellow gold miners Gold Road Resources Ltd (ASX: GOR) and St Barbara Ltd (ASX: SBM) were the next worst performers with declines of 13% and 12.8%.

Virgin Money UK (ASX: VUK)

The Virgin Money UK share price wasn’t far behind with a disappointing 12.4% decline over the five days. The catalyst for this was an escalation in coronavirus cases in the UK which prompted the government to warn that lockdowns could be coming again. Things have got so bad in recent weeks that health officials warned that there could be upwards of 50,000 new cases per day next month if things aren’t brought under control.

Avita Therapeutics Inc (ASX: AVH)

The Avita share price was out of form last week and tumbled 11.7% lower. This may have been triggered by news that its CEO, Dr Michael Perry, had sold shares in the company. Dr Perry sold 9,000 of its US stock for an average of US$27.41 per share. This equates to a total consideration of approximately US$246,690.

Unibail-Rodamco-Westfield (ASX: URW)

The Unibail-Rodamco-Westfield share price was the next worst (non-gold miner) ASX 200 share with a decline of 8.2% last week. This shopping centre operator’s decline also appears to be related to the escalating coronavirus cases in the UK and Europe. Potential lockdowns and social distancing initiatives are likely to put pressure on its shopping centres. In addition to this, last week Macquarie retained its neutral rating but cut its price target on the company’s shares by 28% to $2.96.

More reading

• ASX 200 jumps 2.4% higher, numerous shares rise
• ASX 200 up 1.9%: Afterpay storms higher, Nufarm jumps, big four banks rise
• Why Kathmandu, New Hope, Recce, & Ramelius shares are dropping lower today
• ASX 200 falls 0.7%, UK and travel shares drop
• Leading brokers name 3 ASX shares to sell today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Avita Medical Limited. The Motley Fool Australia has recommended Avita Medical 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 think that the Brickworks Limited (ASX: BKW) share price is a buy after it reported its FY20 result and the news this week of relaxed lending for banks.

FY20 result

The Australian building products company said that its continuing revenue rose 4% to $953 million.

Brickworks’ underlying earnings before interest, tax, depreciation and amortisation (EBITDA) fell 19% to $281 million, underlying earnings before interest and tax (EBIT) dropped 34% to $206 million and underlying net profit after tax (NPAT) declined 38% to $146 million. Underlying earnings per share (EPS) fell 38% to 98 cents.

Profit was impacted by COVID-19 and was down from a record result last year. Brickworks said there was a 12% reduction in total residential building activity. There were numerous plant shutdowns in the first half for maintenance and upgrades in Australia. In the second half COVID-19 caused shutdowns.

The building products Australia division saw EBIT fall 43% to $33 million and the building products North American division rose 63% to $10 million, largely due to Brickworks having a full 12-month ownership of those American businesses.

However, statutory profit rose 93% to $299 million thanks to its investment in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) which benefited from the TPG Telecom Ltd (ASX: TPG) merger. The Brickworks share price has benefited from the strength of the TPG share price during COVID-19.

Brickworks also benefited from positive property revaluations with lower interest rates. The property trust, which it owns half of with Goodman Group (ASX: GMG) had a strong result with a development profit of $25 million and positive revaluations amounting to $53 million. The net trust (rental) income grew by 15% to $30 million.

Brickworks dividend

The Brickworks board decided to increased the final dividend by 3% to 39 cents per share. The full year dividend was increased by 4% to 59 cents per share.

That means that Brickworks hasn’t cut its dividend for 44 years. That’s one of the most reliable records on the ASX. It’s very reassuring to know that over four decades the dividend has been maintained or grown every year.

Why I think the Brickworks share price is a buy

Brickworks said that the building products Australia division has seen rising orders and sales in September which reflected the various government stimulus measures.

That already shows that Brickworks has a promising outlook for FY21 with demand returning to somewhat normal.

The Brickworks share price grew strongly on Friday in reaction to news that lending laws would be relaxed for banks like Westpac Banking Corp (ASX: WBC) to make it easier for borrowers to access credit.

Brickworks could indirectly benefit from the lending changes because more lending could mean more construction across the country.

I think 2021 could show a good recovery for the construction sector with all the above elements, the low interest rates and COVID-19 impacts subsiding.

The investment in Soul Patts continues to do well and the Soul Patts share price has gone up more than 17% (at the time of writing) since the end of August 2020.

At the current Brickworks share price it’s trading at 11x FY21’s estimated earnings. I think this still seems like a very reasonable price to buy Brickworks shares.

It also offers a grossed-up dividend yield of 4.3%. I think that’s a solid starting point for dividend investors.

The thing that most excites me about Brickworks is that Coles Group Limited (ASX: COL) and Amazon will soon be large tenants at the new warehouses being built by the property trust.

In the US, Brickworks is expecting a broad based increase in housing activity expected to offset non-residential weakness, especially in New York. Brickworks also said it has completed its plant rationalisation activities in North America which has improved efficiency and will drive profit margins higher.

Foolish takeaway

I like the diversification offered by Brickworks, each of its divisions look like they have promising growth, although investors may have to wait until after COVID-19 impacts dissipate to see Brickworks’ construction earnings fully recover.

More reading

• Why the Brickworks (ASX:BKW) share price is soaring higher today
• Why Adbri, Brickworks, Northern Star, & Westpac shares are surging higher today
• Is the Soul Patts (ASX:SOL) share price a buy?
• ASX 200 falls 0.8%, Afterpay (ASX:APT) share price drops 6%
• 3 star ASX income shares for 2021

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The S&P/ASX 200 Index (ASX: XJO) finishes the week with a bang, it rose by 1.5% to 5,965 points.

Big 4 banks jump higher

The big banks of the ASX had one of their best days this year after it was announced that lending laws would be relaxed. 

The Commonwealth Bank of Australia (ASX: CBA) share price rose 2.8%, the Westpac Banking Corp (ASX: WBC) share price grew by 6.7%, the Australia and New Zealand Banking Group (ASX: ANZ) share price rose 6.2% and the National Australia Bank Ltd (ASX: NAB) share price climbed 6.4%.

Other Australian lenders also had a good day. The Bank of Queensland Limited (ASX: BOQ) share price rose 2.7%, the Bendigo and Adelaide Bank Ltd (ASX: BEN) share price went up 4.75% and the Mystate Ltd (ASX: MYS) share price rose more than 1%.

Despite all of those impressive gains, the banks didn’t claim the top spot in the ASX 200 performance table.

The Whitehaven Coal Ltd (ASX: WHC) share price went up 8% today.

Premier Investments Limited (ASX: PMV)

Premier Investments released its FY20 report for the 52 weeks ended 25 July 2020.

It showed a net profit after tax (NPAT) of $137.8 million, which was growth of 29% compared to FY19.

Premier Retail said it saw like for like sales grow by 7.6% in constant currency terms, with total sales of $1.22 billion, down 4.3%. A highlight was that Peter Alexander sales grew by 16.3% to $288.2 million.

Online sales played a major part in the result for the ASX 200 share because of COVID-19. Online sales of $220.4 million, which went up 48.8%. The online sales in the second half grew by 70% and contributed 25.5% of second half Premier Retail sales. Online sales made up 18.1% of total retail sales over the year. The retail company said online sales continues to deliver a significantly higher earnings before interest and tax (EBIT) margin than the retail store channel.

The Premier Retail underlying EBIT rose by 11.9% to $187.2 million.

Premier said the online business is extremely well placed for the upcoming Black Friday, Cyber Monday and Christmas trading period. Online sales growth has continued into FY21 with online sales for the first six weeks up 92% on the comparable period last year.

The ASX 200 retail share has been one of the loudest voices fighting for cheaper rent from landlords. Premier said that the accelerated swing in customer preference to shopping online has further increased Premier Retail’s focus on each store’s profitability.

Premier Retail has closed 137 stores over the past seven years, which it said demonstrated its willingness to walk away from stores with unrealistic rents that deliver unprofitable sales.  

The ASX 200 company doesn’t want to close stores, it is putting pressure on landlords to lower rent or store closures are inevitable. It has included a $8.7 million channel optimisation expense to potentially close up to 350 stores in Australia and New Zealand. It has also taken the step of impairing some store assets to close stores if suitable rental agreements cannot be reached.

Premier Retail CEO Mark McInnes said: “Premier Retail’s highly profitable online capability and the flexibility of our property portfolio combined with the decisions we have taken in response to COVID-19, leave the group best placed to maximise our position in the accelerating industry restructure.”

Premier’s stake in ASX 200 business Breville Group Ltd (ASX: BRG) had a market value of $1 billion as at 11 September.

The Premier board decided to declare a final dividend of 36 cents per share, bringing the full year dividend to 70 cents per share, the same as last year.

More reading

• Are ASX bank shares a buy after lending rules eased?
• Will the Reserve Bank cut the cash rate again in October?
• Why the Brickworks (ASX:BKW) share price is soaring higher today
• ASX 200 up 1.5%: Big four banks rocket higher, Premier Investments delivers record profit
• Why ASX bank shares are rocketing up Friday

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments 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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Are ASX bank shares like Commonwealth Bank of Australia (ASX: CBA) a buy today?

We’ve just heard some important news regarding banking regulations. You can read our full coverage here, but in a nutshell, the Australian Securities and Investment Commission (ASIC) will lose the power to oversee responsible lending practices across the banking sector. In effect, this means banks will no longer be punished if borrowers mislead the banks over their income or ability to repay their loans.

The market is certainly taking this news as excellent for the banks, with ASX bank shares leading the share market gains today. The CBA share price closed today’s session up 2.88%. The gains were more pronounced with the other three majors. The Westpac Banking Corp (ASX: WBC) share price was up 7.39%, while National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group Limited (ASX: ANZ) shares rallied 6.49% and 6.35% respectively.

So is this a good reason to buy the banks, or is the market overreacting here?

An ASX bank share bonanza?

Whilst this news is undoubtedly good for the ASX bank shares, I don’t think it will make a material difference to the companies’ long-term prospects. I’m not sure how many customers were battering down ANZ’s or Westpac’s doors with loan applications that turn out to be dishonest, but I doubt it’s in sufficient numbers that warrant a 6% increase in these bank’s market capitalisations.

My Fool colleague, Tony Yoo, quoted Karen Cox from the Financial Rights Legal Centre in his coverage earlier today, who stated the following about this development:

The problem people are having right now is too much debt and not enough income. The government’s solution is to take on more debt with fewer protections. Unsustainable debt hurts real people and is a short-sighted fix for a flailing economy.

I agree.

The economic damage wrought by the coronavirus pandemic is the single largest threat the banks are facing right now. Evidence points to a sharp trend in Aussies’ increasing their savings rates in 2020 so far, quite dramatically too. That’s not congruous with an appetite for credit, which is what funds the banks’ profits. I see this regulatory change as a tinkering, rather than a game-changing policy. Will it cause societal harm? Possibly. Will it result in a windfall to the banks? I doubt it.

Therefore, I don’t think today’s change is a good reason to buy the banks right now, especially at their new, higher share prices. Instead, I would continue to stay away from this sector until conditions improve. And that might not be for a while.

More reading

• Will the Reserve Bank cut the cash rate again in October?
• Why the Brickworks (ASX:BKW) share price is soaring higher today
• ASX 200 up 1.5%: Big four banks rocket higher, Premier Investments delivers record profit
• Why ASX bank shares are rocketing up Friday
• Why Adbri, Brickworks, Northern Star, & Westpac shares are surging higher today

Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. 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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High-yielding ASX dividend shares with yields over 8% are increasingly hard to find in 2020. Far more common are the ASX dividend shares with trailing yields of more than 8% but which have fallen from grace after admitting their dividend payments are going the way of the dodo in 2020.

Take Westpac Banking Corp (ASX: WBC). On the surface, this company looks like a dividend no-brainer with a trailing, fully franked yield of 9.95% (or 14.21% grossed-up). But do some easy digging on this company and you’ll find that, although it paid a healthy $1.74 in dividends per share in 2019, there has been nothing but a $1.3 billion fine coming out of Westpac in 2020 (so far anyway). That’s your classic dividend trap.

So, here are 2 ASX dividend shares that do happen to have grossed-up yields of more than 8%, but which I happen to think are sustainable going forward.

2 ASX dividend shares with yields over 8%

Telstra Corporation Ltd (ASX: TLS)

Telstra is my first high-yielding dividend share. The Telstra share price has been on the slide recently, ever since its FY2020 earnings report hit the markets. Investors aren’t too keen on Telstra shares now since the company flagged that its earnings payout ratio wouldn’t be able to cover its 16 cents per share dividend in FY21. This is evidenced (in my view) by the Telstra share price being down nearly 18% since early August.

I think this view is a little too pessimistic. That’s because, although Telstra’s earnings will be lower this financial year, the company will likely still have more than enough free cash flow to cover a 16 cents per share dividend regardless. That would give Telstra a dividend yield of 5.59% on current prices, or 8% grossed-up with Telstra’s full franking. As such, I think Telstra is a great option for dividend income in 2020. I think patient investors will be rewarded with this company, especially if its 5G investments bear fruit.

WAM Research Limited (ASX: WAX)

WAM Research is my second high-yield dividend share. It’s a listed investment company (LIC) which basically means it’s a company which buys and sells shares on behalf of its investors. In WAM Research’s case, it tends to look for undervalued growth companies on the ASX, which it sees as having a reasonable chance of appreciating in value. Some of its current holdings (as of 31 August) include Elders Ltd (ASX: ELD), Brickworks Limited (ASX: BKW) and Adairs Ltd (ASX: ADH).

I love WAM Research for its strong history of delivering both growth and income for its shareholders. Since 2010, this LIC has returned an average of 15.1% per annum (before fees and taxes). Much of this stellar return has come in the form of dividend payments.

WAM Research will pay two dividends in 2020 – one paid in April and one due to be paid next month. Both dividends will come in at 4.9 cents per share. That gives WAM Research a projected yield for 2020 of 6.53%, or 9.33% grossed-up with full franking. And the best thing about this dividend is its sustainability. WAM Research tells us that it has 34.9 cents per share left in its profit reserve, which can fund this dividend for another three years at least. That’s some decent certainty and makes WAM Research a great income investment in 2020 in my view.

More reading

• Why the Telstra (ASX:TLS) share price could be under pressure in 2021
• Where to invest your Telstra (ASX:TLS) dividends
• Forget term deposits and buy Coles (ASX:COL) and this ASX dividend share
• Telstra (ASX:TLS) share price is one of the latest ASX buy ideas from brokers
• Buy these ASX dividend shares to beat low interest rates

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited and WAM Research Limited. The Motley Fool Australia owns shares of and has recommended Brickworks and Telstra Limited. The Motley Fool Australia has recommended Elders 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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It wasn’t that long ago that Afterpay Ltd (ASX: APT) and Zip Co Ltd (ASX: Z1P) were small cap shares and largely unknown to the average investor.

Today they are multi-billion dollar companies and among the most popular shares on the S&P/ASX 200 Index (ASX: XJO).

Anyone that picked up shares when they were still small caps will have generated mouth-watering returns.

I think this demonstrates why a little exposure to the small side of the market can be a good thing for a portfolio.

But which small cap shares should you be looking at? Three small caps that I think have a lot of potential are listed below:

Bigtincan Holdings Ltd (ASX: BTH)

The first small cap to watch is Bigtincan. It is a provider of enterprise mobility software. This increasingly popular software allows sales and service organisations to increase sales win rates, reduce expenditures, and improve customer satisfaction through improved mobile worker productivity. It has a large number of blue chips using its software. This includes banking giant Australia and New Zealand Banking GrpLtd (ASX: ANZ), Nike, and Sephora.

Clover Corporation Limited (ASX: CLV)

Clover is a specialist ingredients producer that manufactures ingredients such as the highly sought-after omega-3 oils that go into infant formula, supplements, and baby food products. It has been growing at a strong rate over the last few years thanks largely to the increasing demand for ingredients from infant formula market. While uncertain trading conditions could bring this positive run to an end in FY 2021, I believe this is only a short term headwind and its growth will accelerate again once the conditions ease.

Volpara Health Technologies Ltd (ASX: VHT)

A final small cap to watch is Volpara. It is a Software-As-A-Service (SaaS) company that uses algorithms and artificial intelligence to improve the early detection of breast cancer. It achieves this by analysing mammograms and associated patient data. After which, the software is able to provide clinical decision support and practice management tools in a cost-effective way. The company is currently generating NZ$19.1 million in annual recurring revenues (ARR) but estimates that it has a US$750 million ARR opportunity in breast cancer screening. 

More reading

• The Zip (ASX:Z1P) share price is down 38% in a month: Is this a buying opportunity?
• Why this fundie still sees an ASX tech share surge
• Is the Soul Patts (ASX:SOL) share price a buy?
• ASX 200 falls 0.8%, Afterpay (ASX:APT) share price drops 6%
• ASX 200 down 1.2%: Westpac hit with $1.3bn penalty, Brickworks disappoints, tech shares lower

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 BIGTINCAN FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Clover Limited, VOLPARA FPO NZ, and ZIPCOLTD FPO. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended BIGTINCAN FPO and VOLPARA FPO NZ. 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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