The Macquarie Group Ltd (ASX: MQG) share price sunk more than 5.6% this week after it downgraded its outlook.

But analysts are still bullish on the stock because of a looming payday.

The investment bank owns a substantial part of an Australian unicorn. And that technology company is headed towards an initial public offering in the coming months.

Nuix has been doing massive work

Nuix is a provider of analytics software for cybersecurity, compliance and fraud risks. Its star product is a piece of unstructured data processing software called the Nuix Engine.

The company was founded in Sydney while the city was busy hosting the Olympics in the year 2000. After quietly and steadily picking up government and private clients, it started to come into the public consciousness in the 2010s.

For example, Nuix’s software played a major part in the secret analysis of The Panama Papers. 

The International Consortium of Investigative Journalists (ICIJ) reportedly processed 11.5 million documents, which in 2016 resulted in the exposure of fraud and tax avoidance on a global scale.

How much of Nuix does Macquarie own?

The software firm really started to catch the eye of big-name investors towards the end of the 2000s.

The company has reportedly been self-funding since 2008. Macquarie made its investment in 2011.

Nine estimates the investment bank put in about $100 million to $150 million.

After a top-up to support an acquisition in 2018, Macquarie’s ownership stands at around 70%.

How much does Macquarie stand to earn from Nuix?

Nuix is working on an IPO to be executed in the coming months.

While no prospectus is out yet, the software provider is expected to be valued at around $1.5 billion when it lists on the ASX.

That would make Macquarie’s stake more than $1 billion.

Nuix chief executive Rod Vawdrey has been reporting to potential investors revenue of $176 million for the 2020 financial year.

Based on a valuation of 10 times future revenue, Nuix would be conservatively valued at $1.76 billion.

Market darling Afterpay Ltd (ASX: APT)’s market capitalisation is currently at about 23 times its forecast 2021 revenue.

So even at conservative valuations, Macquarie is set to see its share in Nuix multiply ten-fold when Nuix goes public.

Not a bad investment by the Millionaires’ Factory.

More reading

• Why the lagging Worley (ASX:WOR) share price could be at COVID turning point
• Meet the ASX sector that is cum-consensus upgrade for FY21
• Brokers upgraded JB Hi-Fi (ASX:JBH) share price and this other ASX stock to “buy” today
• Brokers upgrade Macquarie (ASX:MQG) share price targets despite profit warning
• Borrowers on loan holidays are ignoring ASX bank communications

Motley Fool contributor Tony Yoo owns shares of AFTERPAY T FPO and Macquarie Group Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia owns shares of AFTERPAY T 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 marijuana business is slowly, but inexorably, moving from the world’s black markets onto global share markets.

During the initial round of exuberance, as Canada and some of the biggest states in the US legalised not just marijuana’s medicinal use but also its recreational use, most every share involved in the cannabis field saw its share price soar.

From boom to bust to renewal

Inevitably, reality came into play and when revenues didn’t match sky-high valuations the pot stock bubble burst.

In 2019 global cannabis shares – with the biggest listed on the Canadian and US exchanges – lost roughly half their value. And earlier this year, driven by the COVID-19 share market rout and a dearth of funding, cannabis shares tumbled even further.

But the past few weeks has seen numerous ASX listed pot stocks’ share prices soaring.

Three ASX cannabis shares rocketing in September

Medicinal cannabis was given the green light in Australia in 2016. Recreational use remains strictly illegal outside of the Australian Capital Territory. But there are a number of Aussie companies involved in both medical and recreational cannabis production as well as hemp, marijuana’s non-narcotic cousin.

On the hemp front, the Australian Primary Hemp Ltd (ASX: APH) share price has enjoyed a stellar few weeks, up 32% so far in September. The share price is now up 9% year-to-date and a whopping 270% since the low on 7 April. Most of the September gains came this week after the company announced it was producing hemp-based protective face masks providing 99.9% microbial reduction. This came alongside its launch of a hemp-infused hand sanitiser.

On the medicinal marijuana front, the Auscann Group Holdings Ltd (ASX: AC8) share price is up 14% so far in September. Year-to-date it’s nowhere near to recovering from the February and March selloff, with the share price still down 47% in 2020. But the recent gains are encouraging, coming after the company announced it had completed its first clinical trial of a cannabis-based capsule intended to treat nerve pain.

And on the recreational marijuana front, the Althea Group Holdings Ltd (ASX: AGH) share price is up 38% so far in September, despite falling sharply yesterday. The share price is now up 35% year-to-date and has gained an eye-popping 228% from the 23 March low.

By comparison, the All Ordinaries Index (ASX: XAO) is up 33% since 23 March.

Althea’s share price owes much of its September gains to its Canadian Standard Processing Licence announcement earlier this week. After getting the nod from Health Canada, Althea’s wholly-owned subsidiary, Peak Processing Solutions can now begin commercial cannabis operations at the company’s facility in Tecumseh, Ontario.

While the prices of these cannabis companies, and indeed throughout the industry, remain volatile, the trend for well-run ASX cannabis shares is once again upwards.

More reading

• Australian Primary Hemp (ASX:APH) share price up 15% on PPE launch
• RED 5 (ASX:RED) share price up 4% on feasibility study
• The Mayne Pharma (ASX:MYX) share price leaps almost 8% higher
• Althea (ASX:AGH) share price surges 11% on Canadian cannabis licence
• Auscann (ASX:AC8) share price up 6% on phase I study results

Motley Fool contributor Bernd Struben 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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A few days ago, I penned a piece on why a passive investing strategy, using only ASX index exchange-traded funds (ETFs),  perfectly fits many investors. I also outlined how this strategy works and why it’s a good fit for anyone unable or unwilling to pick their own individual shares. Today, I thought I’d back this up with a discussion about the best ETFs for such a strategy.

So here are 3 ASX ETFs that I think would work nicely. I’ve considered 2 factors for these ETFs – the fees they charge and the balance and diversification they can bring to a portfolio. Let’s get started!

Vanguard Australian Shares Index ETF (ASX: VAS)

Our first ETF is this comprehensive fund from Vanguard. VAS covers the 300 largest companies in Australia, which is another 100 on top of your more conventional S&P/ASX 200 Index (ASX: XJO) fund. I think the ASX largest holdings such as Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and BHP Group Ltd (ASX: BHP) are a little tired as companies and are unlikely (at least in my opinion) to deliver significant returns over the next decade or so. That’s why I like the fact that VAS captures a large portion of the small-cap end 0f the market.

VAS is an ETF that represents a ‘slice of Australia’, as Warren Buffett might say. The ASX has been a great performer over the past 120 years or so, and thus, I think VAS is a great candidate for a passive investing strategy. It charges a competitive fee of 0.1% per annum (or $1 for every $1,000 invested every year).

Vanguard US Total Market Shares Index ETF (ASX: VTS)

This ETF is also from Vanguard, but instead of tracking Aussie shares like CBA and Woolworths Group Ltd (ASX: WOW), it instead tracks all of the shares currently listed in the share markets of the United States. I prefer a comprehensive ETF like this one over the more popular S&P 500 funds that are out there, for similar reasons to VAS. VTS holds 3,525 different shares within it, which includes both the smaller end of the market that the S&P 500 doesn’t track, as well as the larger companies that don’t fit the S&P 500’s listing criteria (such as the famous example of electric car maker Tesla Inc (NASDAQ: TSLA)).

The United States is one of the best markets to passively invest in, in my view. You just can’t go wrong with companies like Apple Inc (NASDAQ: AAPL), Alphabet Inc (NASDAQ: GOOG)(NASDAQ: GOOGL) and Amazon.com, Inc (NASDAQ: AMZN).

I also like this ETF because of its a stupidly low management fee of just 0.03% per annum (or $3 for every $10,000 invested every year).

Vanguard All-World ex-US Shares Index ETF (ASX: VEU)

Our final ETF is an interesting one. VEU holds a massive basket of shares (more than 3,400) that are listed right around the world, with the exception of the US. That’s companies from China, India, Europe, the United Kingdom and Canada, among many others (even Australia). In this way, I think this ETF is a great way to get some exposure to the companies outside the popular US markets. Some of the top holdings in this ETF include Chinese e-commerce giants Alibaba Group and Tencent Holdings, Swiss food manufacturer Nestle, Japanese auto giant Toyota, and British pharmaceutical giant AstraZeneca.

VEU charges a management fee of 0.08% per annum (or $8 for every $10,000 invested every year).

Foolish takeaway

Here we have the 3 best ASX ETFs for a passive investing strategy available, in my view. You could happily and successfully use any one of these ETFs, or else a combination, for long-term returns and diversified exposure.

More reading

• How to make $1 million from ASX shares
• Why the Afterpay (ASX:APT) share price could be a buy
• Are ASX gold shares like Newcrest (ASX:NCM) still good value?
• 5 things to watch on the ASX 200 on Friday
• ASX 200 drops 1.2%, Mineral Resources (ASX:MIN) fell 9%

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. Sebastian Bowen owns shares of Alphabet (A shares) and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Amazon, Apple, and Tesla 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 Woolworths Limited. The Motley Fool Australia has recommended Alphabet (A shares), Amazon, and Apple. 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 Sydney Airport Holdings Pty Ltd (ASX: SYD) share price is edging lower on Friday after the release of its latest traffic figures.

In morning trade the airport operator’s shares are down 0.5% to $5.49.

What did Sydney Airport announce?

It was another difficult month for Sydney Airport in August.

During the month, Australia’s largest airport welcomed just 129,000 passengers through its terminals. This was a reduction of 96.5% on the prior corresponding period.

It was also down notably month on month from 317,000 passengers during July.

A total of 39,000 international passengers passed through Sydney Airport in August, down 97.2% on the prior corresponding period. This was broadly in line with July’s figures.

Also falling sharply was its domestic passenger numbers, which were down 96.1% on the prior corresponding period to 91,000. This compares to 276,000 passengers in July.

Unfortunately, with border restrictions still largely in place around the country, management isn’t expecting a swift recovery in traffic.

It commented: “We expect the downturn in passenger traffic to persist until government travel restrictions are eased.”

Should you invest?

While times are hard now for Sydney Airport, a return to form will inevitably come in time.

So with the company’s liquidity looking more than sufficient to ride out the storm following its capital raising, I think it could be a good option for patient investors.

I’m not the only one that sees Sydney Airport as a buy. A note out of Morgans last month reveals that its analysts have an add rating and $6.56 price target.

This price target implies potential upside of 18% for its shares over the next 12 months excluding dividends. Though, I wouldn’t hold your breath on dividends being paid in the near term.

I suspect they will be suspended until trading conditions return to normal, which could be FY 2022.

More reading

• 5 things to watch on the ASX 200 on Friday
• The pitfalls of investing in infrastructure in 2020
• Is the Sydney Airport (ASX:SYD) share price a cheap buy?
• 5 things to watch on the ASX 200 next week
• Half of ASX 200 stocks at risk as China-Australia relations hit new low

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.

The post Sydney Airport (ASX:SYD) share price lower on traffic update: Is it time to buy? appeared first on Motley Fool Australia.

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Given the right time frame and return, it’s possible to make $1 million starting with a small amount of money. 

It seems crazy that it can be so passive, however it can be done with the right ingredients.

Average market returns

The S&P/ASX 200 Index (ASX: XJO) has returned an average of 26% per year over the last 40 years. Between 1980 and 2020 it has grown by about 1,040%. If we divide this by 40 years, we get 26% per year.

The crazy thing is that these returns include major crash events such as “Black Monday” in 1987, the “Dot Com Bubble” in 2000, the “Global Financial Crisis” (GFC) in 2008 and more recently the COVID-19 crash in 2020.

When you think about it, an average return of 26% is actually pretty great, all things considered!

However, in recent times, we can’t rely on 20%+ returns. The average annualised return in recent decades is closer to 8% per year. But the compounding effect can be incredible.

What would it take to turn $10,000 into $1 million?

Turning 10 thousand into a million requires a number of factors, including time and percentage return. 

Firstly, starting with $10,000, let’s assume that over the long-term we can see an annual average return of 8% in the major ASX index.  

Secondly, we need to include a regular deposit or investment into the market. In this case, I have used $500 per month as this is reasonable for most people. It’s still a commitment of course, but we are talking about making a million dollars.

Lastly, we need time in the market to compound our returns. 

Let’s review:

• Starting amount – $10,000
• Average return – 8% per year 
• Regular deposit – $500 per month

Now we have our ingredients, how long would it take?

Surprisingly, it takes only 33 years to make $1 million!

In fact, after 33 years, you have more than $1 million, you would have approx $1,039,965.

It’s crazy to think that all it takes to achieve this is a $10,000 starting amount, some time and some commitment. All we need now is a product.

What to buy

In keeping with the theme of average market returns, the easiest and most accurate way to track the market is through exchange-traded funds (ETF)

ETFs that track a major ASX index are the ones I’m looking at here, as they are designed to match the long-term growth we have estimated.

There are many ETFs available on the ASX to choose from.

BetaShares Australian 200 ETF (ASX: A200)

The Australian 200 ETF by BetaShares is designed to provide exposure to the top 200 companies listed on the ASX by market capitalisation. 

At just 0.07% per year in fees, it’s one of the cheapest ETFs I’ve ever seen.

Aside from growth in value over time, this ETF offers approx 4.7% in annual dividends as well.

The top 3 sectors held are:

• Financials – 27.3%
• Materials – 20.6%
• Healthcare – 11.9%

The top 3 holdings in this ETF include CSL Limited (ASX: CSL), Commonwealth Bank of Australia (ASX: CBA) and  BHP Group Ltd (ASX: BHP).

Vanguard Australian Shares Index ETF (ASX: VAS)

The Australian Shares Index ETF by Vanguard is designed to track the returns of the S&P/ASX 300 Index (ASX: XKO). 

This particular index is essentially the ASX 200 plus another 100 companies. I like the idea of a little more diversity.

At 0.10% per year in management fees, again, this is a very cheap ETF. While it’s not critical to shop around for cheap ETF’s however, it should be noted that lower fees mean your returns will be higher.

Even though this fund has more than 100 more companies than the Australian 200 ETF by BetaShares above, the top sectors and holding are identical. 

Foolish Takeaway

33 years might seem like a long time to make $1 million, however it’s a very passive approach. This article is deigned to inspire and show you that anything is possible with the right planning. For those wanting to speed up the process, a higher starting amount, higher monthly deposits and a slight increase in return can drastically reduce the time frame.

One of the most important things is to just start. Even if you have less to invest and less available each month to contribute, every bit counts towards a brighter future. Your future self will thank you!

More reading

• The 3 best ETFs for passive investing
• Why the Afterpay (ASX:APT) share price could be a buy
• Are ASX gold shares like Newcrest (ASX:NCM) still good value?
• 5 things to watch on the ASX 200 on Friday
• ASX 200 drops 1.2%, Mineral Resources (ASX:MIN) fell 9%

glennleese 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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In January, Virgin Australia Holdings Limited (ASX: VAH) chief Paul Scurrah could not have predicted the year he was about to have.

His planes were in the air and he was busy working to get the company back in the black against a dominant Qantas.

Even as the COVID-19 pandemic and international border closures came, he thought his airline was okay.

“Up to that point we thought we were… somewhat insulated because of the domestic nature of our business,” Scurrah said at the Yahoo Finance All Markets Summit.

“We thought flying throughout Australia would still hold up fairly well.”

But it didn’t take long before he realised corporate customers were immediately ceasing business travel.

Then came the nail in the coffin. 

Prime Minister Scott Morrison recommended domestic travel should only occur if it were absolutely essential.

“We virtually grounded our airline,” Scurrah said.

“At that point I knew it was going to be a struggle to keep us out of administration.”

Virgin Australia entered voluntary administration on 21 April, at the height of the first wave of coronavirus.

Pre-COVID worries seem trivial now

Scurrah told the same event in 2019 that the airline’s biggest headwinds were the cost of fuel and the low Australian dollar.

Those anxieties have been blown out of the water with this year’s misfortunes.

“I wish we had problems as simple as the ones I described last year,” he said.

Virgin Australia temporarily stood down 8,000 staff in March as most of its fleet was grounded due to travel restrictions.

There was talk of a government bailout, which Qantas Airways Limited (ASX: QAN) protested without it also receiving a proportionally larger amount. Some analysts even spoke of nationalisation of the airline.

In June, the administrators decided to sell the airline to private equity fund Bain Capital.

Regrets, I’ve had a few

If Scurrah could have his time over, he wished staff terminations could have been performed faster.

After the initial 8,000 temporary stand-downs in March, Virgin Australia in August decided to permanently cut 3,000 employees.

“Uncertainty is a major cause of stress and anxiety… We could have got to that quicker,” he said.

“I think we felt we were trying to preserve some hope for them. But I think we took too long to get to the point of execution.”

TigerAir could be revived

One of the big decisions in the new Bain Capital era was to euthanise budget brand TigerAir. 

But Scurrah did not rule out a return in the future.

“We have kept hold of the air operator’s certificate of Tiger to give us the option… to re-enter with an ultra-low cost product,” he said.

“Whether that’s done with the TigerAir brand or not, we’ll decide at the time.”

In the short-term though, Virgin Australia will fly as a “single brand” flying domestic and short international routes with Boeing 737s only.

Competitive airfares will return

Flying internationally now, if you can do it at all, is prohibitively expensive.

“There are a number of restrictions operating on airlines today that really cap the amount of people you take on planes,” said Scurrah.

“So it changes the economics completely.”

And longer the coronavirus restrictions remain, more airlines around the globe will go broke or cut routes, permanently reducing the level of competition.

But Scurrah has confidence about the post COVID-19 world.

“When the skies do open up again, there’s going to be a need to stimulate demand,” he said.

“You will see competitive airfares when it’s safe to travel.”

More reading

• Is the Qantas (ASX:QAN) share price a cheap buy?
• Is now the time to be buying ASX travel shares? 
• Qantas (ASX:QAN) considers leaving Sydney
• 2 terrible ASX shares I will never buy
• Why the Qantas (ASX:QAN) share price is sinking lower today

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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The Redbubble Ltd (ASX: RBL) share price has been an exceptional performer in 2020.

Since the start of the year the ecommerce company’s shares have stormed a massive 288% higher.

Where next for the Redbubble share price?

Despite its incredible gains this year, one leading broker believes the Redbubble share price could still be going a lot higher from here.

According to a note out of Goldman Sachs, its analysts have a buy rating and $5.20 price target on the company’s shares. This implies potential upside of 23% over the next 12 months.

What did Goldman Sachs say?

Goldman Sachs likes Redbubble due to the large market opportunity it has thanks to its operations sprawling across a number of product categories.

It explained: “To give a sense of the potential market opportunity for RBL we focus on the online apparel and homewares & home furnishings categories. […] these categories were a US$163bn market in RBL’s core geographies in 2019 (representing a 14% 2010-2019 growth CAGR), and this is before the large acceleration in eCommerce penetration experienced in 2020. Worldwide, these categories were a US$381bn market in 2019.”

Despite Redbubble’s strong growth in FY 2020, it has barely penetrated this market, which is growing quickly.

Goldman commented: “To give some context to the size of RBL, it generated A$474mn in gross transaction value in FY20 (US$318mn), implying less than 0.2% penetration of these categories alone in core geographies. Our Global Internet team forecast global e-commerce to grow at 16.8% CAGR from 2019 to 2024. Applying this overall growth rate to apparel and homewares & home furnishings in RBL’s key markets implies an addressable market of US$354bn in 2024.”

Can the Redbubble share price go even higher?

Another company Goldman Sachs is very positive on is Temple & Webster Group Ltd (ASX: TPW).

In fact, it is more positive on the online homewares and furniture retailer due to its belief that it is capable of growing at an even stronger rate in the coming years. More on that here.

However, the broker has suggested that Redbubble’s shares could be worth upwards of $10.75 if it can increase its sales growth rate to a similar level.

It explained: “TPW has a materially more expensive rating reflecting, in our view, its more consistent execution track record as discussed earlier. If RBL were to achieve a revenue CAGR over our 10yr DCF horizon similar to that of TPW (which is 21% vs. 11% for RBL), our DCF value for RBL would increase from A$4.75 to A$10.75 (assuming no change to our EBITDA margin forecasts).”

“Given there is structurally no reason why we believe RBL’s medium-to-long-term growth trajectory should be lower than TPW’s, this would suggest there is arguably more option value in our target price for RBL relative to TPW, but we emphasise that consistency in execution remains key to close this hypothetical discount,” it concluded.

This could make it well worth keeping a close eye on Redbubble’s progress in the coming quarters.

More reading

• Why Galaxy (ASX:GXY) and these ASX shares just hit new highs
• 3 ASX shares poised for huge growth in FY21
• Temple & Webster (ASX:TPW) share price hits record high after broker lifts its price target
• Why De Grey, Scentre, Splitit, & Temple & Webster shares are pushing higher
• 3 ASX tech shares that are still in the buy zone

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Is the Redbubble (ASX:RBL) share price on a path to $10.75? appeared first on Motley Fool Australia.

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I think that Rural Funds Group (ASX: RFF) is one of the best ASX dividend shares that Aussies can buy.

It’s a listed agricultural real estate investment trust (REIT) which owns a variety of farmland across the country.

Here are four reasons why I think it could be a strong income idea:

Yield

For starters, an ASX dividend share has to have a solid starting dividend yield. At the current Rural Funds share price it offers a FY20 distribution yield of 4.6%. However, based on the distribution guidance of 11.28 cents per unit in FY21 it has a forward distribution yield of 4.75%.

Whilst that’s not exactly the biggest yield out there, Rural Funds offers a good yield starting point in this era of low interest rates.

Diversification

For me, I prefer the idea of investing in an ASX dividend share for the long-term. I don’t want to be constantly chopping and changing. The idea is to benefit from the (hopefully growing) dividends each year and steady capital growth.

Not many blue chip ASX shares give me the confidence to invest for the long-term.

We all need food. Farmland has been a useful asset for many centuries. Rural Funds is a good way to diversify your portfolio to farmland. Most food related ASX shares are volatile, whereas as the landlord Rural Funds doesn’t take on the operational risks with things like droughts, that’s on the tenant. However, Rural Funds owns a large amount of water entitlements to help tenants even during tough water times.

The ASX dividend share owns a diversified farmland portfolio. At the moment it owns five types of farmland: almonds, macadamias, cattle, vineyards and cropping (cotton and sugar cane). Within these sectors it owns 61 properties spread across different climactic zones and different states.

I think it’s important for an agricultural business to be strongly diversified like Rural Funds is because it’s hard to know what demand for different commodities will be like in the future. We also don’t know if the drought situation is going to get worse or better over the coming years.

It also has good diversification by its tenants. Based on revenue, Rural Funds disclosed that 78% of its tenants are large entities, with many of them listed, such as JBS, Olam, Australian Agricultural Company Ltd (ASX: AAC), Select Harvests Limited (ASX: SHV) and Treasury Wine Estates Ltd (ASX: TWE).

Productivity improvements

A key strategy for the ASX dividend share is that it is investing in productivity improvements at its farms, particularly its recently-acquired cattle farms.

Between FY17 and FY20 Rural Funds only paid out about 80% of its rental cash profit, allowing it to re-invest the rest into projects that would hopefully increase the valuation and rental potential of its farms.

Rural Funds also has plans to invest in developing macadamia orchards at some of its properties. In some cases this involves converting the area into macadamia farms which will generate more rent for Rural Funds.  

Growth

As an ASX dividend share, Rural Funds need to demonstrate the ability to grow its earnings and distribution for me to want to buy it (or write about it).

Rural Funds aims to grow its distribution by 4% per annum. It’s able to achieve this partly due to the productivity improvement investing, but it’s also down to its contracted rental increases.

Its farms have contracted rental increases with a fixed 2.5% increase or linked to CPI inflation. Some of the contracts have have infrequent market reviews.

Whilst the contracted increases don’t amount to a strong growth rate, it helps the ASX dividend share grow its distribution grow faster than inflation each year.

Foolish takeaway

As I mentioned, the Rural Funds distribution yield is around 4.75%. With how low interest rates are, I think it’s a decent starting place. The Rural Funds share price has gone up strongly in recent weeks, so I’d only start with a small parcel and buy more on price weakness.

More reading

• 3 retirement myths you can’t afford to believe
• Not sure about Westpac (ASX:WBC)? Buy these ASX dividend shares instead
• Why I would buy Telstra (ASX:TLS) and this ASX dividend share
• ASX dividend shares raising their dividends like clockwork
• 2 reliable and high quality ASX dividend shares to buy today

Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED and Treasury Wine Estates Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 4 reasons why Rural Funds (ASX:RFF) is a great ASX dividend share appeared first on Motley Fool Australia.

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The Afterpay Ltd (ASX: APT) share price has been the darling of the S&P/ASX 200 Index (ASX: XJO) for some time now. 

Shares in the buy now, pay later (BNPL) leader have rocketed in value in recent years. In fact, the Afterpay share price is up 141.1% in 2020 and 2,403.1% since its first closing price on 30 June 2017.

All of these numbers would suggest that Afterpay is not a great buy right now. However, shares in the BNPL company have slumped 23.1% since hitting a new record high in late August.

That to me says that there could be a buying opportunity for investors willing to roll the dice.

Why the Afterpay share price could be a buy

Falling by nearly a quarter in less than a month is enough to make any value investor pay attention.

To be clear, Afterpay still trades at a wildly high price to sales ratio and actually hasn’t posted a profit yet.

That hasn’t stopped keen investors from jumping on board the BNPL train. US tech stocks have been volatile in recent days and we’re starting to see that in the Australian market with the Afterpay share price falling 5.4% lower in yesterday’s trade.

I think much of Afterpay’s true value hinges on both economic conditions and its expansion plans. If the economy can remain intact, with strong government support, then I believe online retail may continue to boom.

Similarly, strong execution in offshore markets could be the key to finally realising some of the promised growth that investors are banking on.

There is tight competition in the BNPL sector with more companies eyeing off a slice of the market. But Afterpay is an incumbent and quickly becoming a global leader alongside the likes of Klarna Bank AB. 

Foolish takeaway

I think there is certainly more volatility ahead of the Afterpay share price. The question for investors is whether this represents a large enough dip to buy in and hold for the long-term.

If the economy holds up and Afterpay’s USA success continues, I could see it surging past $100 in early 2021.

More reading

• Are ASX gold shares like Newcrest (ASX:NCM) still good value?
• 5 things to watch on the ASX 200 on Friday
• ASX 200 drops 1.2%, Mineral Resources (ASX:MIN) fell 9%
• What’s moving the Scentre (ASX:SCG) share price today?
• Why the Cyclopharma (ASX:CYC) share price surged to record high today

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T 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.

The post Why the Afterpay (ASX:APT) share price could be a buy appeared first on Motley Fool Australia.

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It’s hard to know if ASX gold shares like Newcrest Mining Limited (ASX: NCM) are in the buy zone.

Many of Australia’s top gold miners have seen their values surge in 2020 as investors have looked for a safe haven away from the coronavirus pandemic-induced volatility.

So, as markets continue to move, is there still time to buy ASX gold shares?

Why ASX gold shares are still a good buy

It’s important to distinguish between strategic and tactical investing. Investors should generally have a long-term view towards investing and portfolio construction.

However, that doesn’t mean there can’t be short-term deviations from the plan to capitalise on good opportunities.

The Newcrest share price has jumped 9.8% in 2020 while the S&P/ASX 200 Index (ASX: XJO) has fallen 12.1% lower.

It’s even better news for investors in some of the other large ASX gold shares. The Saracen Mineral Holdings Limited (ASX: SAR) share price has surged 56.6% higher this year thanks to strong investor demand.

I’m not personally a big investor in ASX gold shares. However, some pure play shares can provide some benefits within a diversified portfolio.

One is a downside hedge of sorts given gold prices often push higher amid market volatility and bear markets. These stocks could also provide some protection through a higher gold price if we see inflation start to rise in 2021.

I think investors still need to be careful when picking tactical investments, especially at the moment. I personally prefer to buy those with strong cash flow generation like Saracen rather than some of the prospectors.

Foolish takeaway

It’s easy to think that ASX gold shares are overvalued in the current market. However, with bond yields at all-time lows and other defensive shares also surging, there aren’t a lot of options for downside protection.

I wouldn’t say gold is the ultimate defensive share but it may provide some benefits if we enter another bear market or a period of high inflation.

More reading

• Why the Afterpay (ASX:APT) share price could be a buy
• 5 things to watch on the ASX 200 on Friday
• ASX 200 drops 1.2%, Mineral Resources (ASX:MIN) fell 9%
• What’s moving the Scentre (ASX:SCG) share price today?
• Why the Cyclopharma (ASX:CYC) share price surged to record high today

Motley Fool contributor Ken Hall 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.

The post Are ASX gold shares like Newcrest (ASX:NCM) still good value? appeared first on Motley Fool Australia.

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