As Peter Lynch aptly describes in his legendary investing book One Up on Wall Street: “The perfect stock would be attached to the perfect company, and the perfect company has to be engaged in a perfectly simple business, and the perfectly simple business ought to have a perfectly boring name.”

Waste management is about as boring as it gets. But in its defence, it is an essential function that societies will continue to rely on in perpetuity. With population growth not slowing anytime soon, more people equals more waste, and that can be considered a good thing for the businesses of Cleanaway Waste Management Limited (ASX: CWY) and Bingo Industries Limited (ASX: BIN).

These are 2 of the largest Australian companies in the waste industry, occupying market capitalisations of around 4.4 billion and 1.56 billion, respectively. Yet, despite being well-established members of the S&P/ASX 200 Index (ASX: XJO), both are often neglected due to their less than glamorous operations. Based on Lynch’s thesis, perhaps this is a perfect type of company for long-term investors to derive significant financial returns from.

So what’s the difference between these waste competitors, and should you invest in the waste management sector?

Cleanaway

The current share price for Cleanaway sits at $2.16, having bottomed out at $1.40 in March this year due to the widespread impacts of COVID-19.

While Cleanaway pulled its full-year FY20 earnings guidance on 24 March, the company will likely benefit from the majority of its operations being considered ‘essential services’ throughout the pandemic.

In its announcement, CEO Vik Bansal anticipated that demand for “health, municipal collections and related post-collections services to remain strong”, as Cleanaway’s clients mostly include local councils, hospitals, government infrastructure, and industrial businesses.

Cleanaway last issued earnings results to the market for the first-half of FY20 in February of this year. These results saw net profit after tax rise by 13.7%, accompanied by a 15.2% increase in earnings per share. A fully franked dividend of 2 cents per share was also issued, improving the company’s annual yield at 1.8%.

Notably, however, the 1H FY20 results also showcased the financial impacts of several headwinds on Cleanaway. This included the introduction of Queensland’s landfill levy, causing the company to pay per tonne of waste collected, coupled with lower revenue from commodities. Consequently, cash flow from operating activities decreased by 20%, highlighting that tighter margins continued to squeeze Cleanaway’s profitability.

Aside from the financials, I like Cleanaway particularly for its recurring revenue. The company has done well to contract more than 75% of customers, the majority of which are multi-year deals. For example, its solid waste services (everyday garbage) has a typical contract duration of 7–10 years with municipal councils, whilst contracts for liquid waste collected from hospitals and health services usually extend for 3–5 years. These long-term contracts provide Cleanaway with sustainable earnings and may also free up further cash flow for investing activities.

Lastly, Cleanaway’s Footprint 2025 strategy sees the company investing in a sustainable value chain, with a focus on plastic pelletising, cardboard pulping, and glass beneficiation. Due to external macro factors such as the national export ban on waste, Cleanaway expects to extract key value by investing in domestic processing facilities, thus working toward creating a circular waste economy. This focus on sustainability will no doubt be a big tick for ethical investors.

Overall, I’m a big fan of Cleanaway’s recurring revenues and its eagerness to internally invest in promoting the efficiency of its value chain. But how does it stack up compared to up-and-coming competitor Bingo?

Bingo  

Shares in Bingo currently sit at $2.23, having rallied 40% from their lowest levels at the peak of the pandemic.

Prior to COVID-19, Bingo delivered stellar results for 1H FY20. This included an increase in net revenues by 50%, earnings per share surging by 132% and a 28% increase in dividend, amount to a 1.88% annual yield overall. Such robust growth for a company that only listed on the ASX in 2017 is a highly positive sign for further profitability in the coming years.

More recently at the Macquarie Investor Conference last month, Bingo gave an update in light of the pandemic. Of particular importance, the company took this opportunity to communicate its intention not to pursue further debt funding or an equity raising during COVID. Bingo reported that its heavy investment in its internal operations platform, coupled with its approximate $700 million in assets, gave it enough flexibility and resilience to withstand the challenging economic environment.

Further, Bingo indicated that its earnings before interest, tax, depreciation and amortisation margins for Q3 FY20 remained above 30%, despite uncertainty forecasted for Q4 due to COVID-19. In particular, concerns linger due to a softening of commercial and industrial (C&I) end markets, such as shopping centres, commercial offices and hospitality. As C&I makes up 14% of Bingo’s overall revenue, the company expects that earnings have declined by as much as 20–30% in this operational area throughout COVID-19. This is undoubtedly a short-term headwind.

In contrast, however, Bingo’s exposure to infrastructure bodes well for the company in the near to long-term. With the federal and state governments implementing fast-tracked key economic projects through the JobMaker and other policies, Bingo’s 25–30% earnings weighting toward infrastructure volumes will significantly benefit from these fiscal responses.

Liquidity doesn’t appear to be a problem for Bingo, as shown by its lack of intent to raise capital. While its C&I earnings may take a short-term hit, I think the future remains bright for the company particularly due to its positioning toward infrastructure waste services and optimistic financial performance thus far.

Foolish takeaway

Both of these companies will continue to fly under the radar for many investors due to their unadventurous business activities, but it can’t be denied that sustainable waste management will continue to be both a political and economic issue of increased prominence throughout this century.

If I had to choose between the two, I’d lean toward Bingo due to its impressive growth and greater potential as a fairly young company in the medium to long-term. Having said this, Peter Lynch would probably prefer Cleanaway – just because the business name ‘Bingo’ may seem too exciting for him…

More reading

• Why I’m desperate to add CSL and 2 other ASX shares to my portfolio in 2020
• Top fund manager reveals some of the best ASX shares to own
• Can this ASX dividend share afford its 11% yield?
• EML Payments and these ASX mid cap shares could be destined for big things
• Here’s why long term investing can outperform shorter holding periods

Motley Fool contributor Toby Thomas 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 Can you clean up by investing in ASX waste management shares for the long-term? appeared first on Motley Fool Australia.

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If you’re aiming to beat the market throughout the 2020s, then I think the mid cap space is a great place to look for investment ideas.

Right now, there are a good number of companies at this side of the market which I believe have the potential to grow materially in the coming years and drive strong returns for investors.

Three mid cap shares that I would buy are listed below:

ELMO Software Ltd (ASX: ELO)

The first mid cap share to look at is ELMO Software. It is a human resources and payroll software company which provides a unified cloud-based platform that streamlines processes. Its software has been growing in popularity over the last few years, which has led to very strong recurring revenue growth. Pleasingly, FY 2020 has been no exception, even amidst the pandemic. It expects annualised recurring revenue (ARR) of $55 million to $57 million this year. This represents a year on year increase of 20% to 24%. Another positive is that it has a significant runway for growth in the local market and the opportunity to expand internationally in the future.

EML Payments Ltd (ASX: EML)

Another mid cap share to look at is EML Payments. It is a payments company with a focus on pre-paid cards and digital gift cards. EML provides its services to a wide range of businesses. These include shopping centres, bookmakers, and salary packaging companies. Although its performance is likely to be impacted greatly this year because of the pandemic, I believe it is well-positioned to accelerate its growth again once the crisis passes. Especially given the recent acquisition of UK-based Prepaid Financial Services. This has opened EML up to the emerging field of banking as a service (BaaS).

Nanosonics Ltd (ASX: NAN)

A final mid cap share to consider buying is Nanosonics. As well as being in a strong position for growth thanks to its industry-leading trophon EPR disinfection system for ultrasound probes, the expansion of its product portfolio looks likely to give its sales a huge boost. Nanosonics is planning to launch several new infection control products targeting unmet needs. And given how the first new product has a similar opportunity to the trophon EPR product, it looks set to double its addressable market upon release in FY 2021.

More reading

• Are these small cap ASX tech shares the next Afterpay or Appen?
• Which shares to buy if the ASX tumbles
• How to turn $20,000 into $250,000 in 10 years with ASX shares
• 3 ASX growth shares that could be future market beaters
• ASX 200 jumps almost 4%, Webjet share price soars

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Elmo Software. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Emerchants Limited and Nanosonics Limited. The Motley Fool Australia has recommended Elmo Software, Emerchants Limited, and Nanosonics 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 These exciting ASX shares could help you smash the market in the 2020s appeared first on Motley Fool Australia.

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The S&P/ASX 200 Index (Index:^AXJO) lost ground this week despite the nice bounce on Friday. But the pullback gave brokers an opportunity to upgrade some ASX stocks.

The top 200 benchmark jumped 1.5% today but still lost close to 1% on the week as fears of a second wave of COVID-19 infections gave bears the upper hand.

We are probably going to be stuck in a relatively tight trading range until we get a clearer picture on the coronavirus risk and earnings outlook.

But this doesn’t mean that individual stocks can’t outperform in this environment.

Shares on fire

One stock that can run higher is the Sandfire Resources Ltd (ASX: SFR) share price. The copper miner surged 5.8% to $5.12 after UBS upgraded the stock to “buy” from “neutral”.

The jump stands in contrast to its recent underperformance. Sandfire’s share price fell around 20% since the start of the year and is a big driver behind the broker’s change of heart.

The other factor is UBS’s more optimistic outlook for the copper price in 2020.

Copper price upgrade

“At the end of 2020Q1 we forecast a sharp copper price decline in Q2 due to a contraction in demand from the impacts of COVID-19,” said UBS.

“However, COVID-19 also impacted mine supply and the scrap trade which was greater than the downshift in demand.

“The copper price has been higher in Q2 than we expected and there is no evidence of large market surpluses.”

While the short mine-life for Sandfire’s DeGrussa project was another factor that kept UBS from taking a more positive view on the stock, it believes this risk is reflected in its current share price.

The broker’s 12-month price target on Sandfire is $6 a share.

Price rise no bubble

Meanwhile, the Redbubble Ltd (ASX: RBL) share price got a further boost today after Goldman Sachs upgraded its recommendation on the stock to “buy” from “neutral”.

The online printing services group recently issued a positive trading update that was well ahead of expectations. The company is well placed to benefit from the big shift towards e-commerce from stuck-at-home consumers avoiding the virus outbreak.

“This acceleration in momentum across revenue growth driven by strong customer growth, product expansion and artist additions is likely to provide the opportunity for RBL to drive stronger operating leverage in coming years,” said Goldman.

“Furthermore, valuation metrics of RBL’s peers have substantially expanded since our last update. The combination of these factors leads to a material upgrade to our earnings estimates and valuation for RBL.”

The broker’s 12-month price target on Redbubble is $2.35 a share.

More reading

• Add the WOW factor to your investment portfolio. Why I think the Woolworths share price is a buy
• Why Qantas and this other ASX 200 stock were just downgraded by top brokers
• Brokers name 3 ASX 200 shares to buy today
• ASX 200 rebounds 1.1%: Big four banks charge higher, Qantas sinks after raising $1.4bn
• Why AMP, IOOF, Redbubble, & Westpac shares are charging higher

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REDBUBBLE 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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I think that WAM Microcap Limited (ASX: WMI) is a retiree’s dream dividend share.

Plenty of retirees just have a portfolio stuffed full of ASX blue chips that (normally) provide a high level of dividend income.

Popular names include Westpac Banking Corp (ASX: WBC), BHP Group Ltd (ASX: BHP), Telstra Corporation Ltd (ASX: TLS), National Australia Bank Ltd (ASX: NAB), Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ), Wesfarmers Ltd (ASX: WES) and Woodside Petroleum Limited (ASX: WPL).

If someone is just going to go for high yield blue chip ASX dividend shares then they may as well just pick Vanguard Australian Shares High Yield ETF (ASX: VHY) and save on a lot of paperwork.

But I think WAM Microcap could be one of the best picks for dividend income for retirees.

About WAM Microcap

It’s a listed investment company (LIC) which is operated by the high-performing team at Wilson Asset Management (WAM).

WAM operate plenty of LICs like WAM Capital Limited (ASX: WAM), WAM Research Limited (ASX: WAX) and WAM Leaders Ltd (ASX: WLE).

All of the WAM LICs have a reputation for being good dividend shares. As a retiree, it’s attractive to receive a high level of franked dividend income. Obviously you’re getting more income from your capital, but it’s also useful because retirees are usually in a low income tax bracket – so they get the best benefit from franking credits.

WAM Microcap targets small caps on the ASX, typically ones with market capitalisations under $300 million at the time of purchase.

Why I think it makes sense for retirees to own this LIC

Every LIC works the same way. They generate investment returns, which enables them to pay out a smoothed dividend over time.

LICs are very useful because it means we don’t have to make the investment decisions ourselves. There are high quality investment managers working for us.

The most important thing that matters with LICs is how strong the total (net) returns are and how good the dividend is. You can’t pay a good dividend if the investment returns are rubbish.

WAM Microcap has already been a strong performing ASX dividend share. I think it can continue to generate very good returns. The small cap hunting ground can be very prosperous because there aren’t many investors looking at those small shares. It also helps that many small businesses have a long growth runway ahead of them. Every large business was a small business at some point.

Returns

Despite the COVID-19 market selloff, at 31 May 2020 WAM Microcap’s portfolio had generated a gross return of 14.3% per annum since inception. That meant, before fees, expenses and taxes, WAM Microcap had outperformed the S&P/ASX Small Ordinaries Accumulation by 7.5% per annum since June 2017.

WAM Microcap is active with its investment picks. The investment team is always looking for the next best performer. They also have regular meetings with the management of lots of different businesses. 

The strong investment returns have powered the dividend in the first few years of its existence.

Dividend 

In FY18 it paid an ordinary annual dividend of 4 cents per share, plus a 2 cents per share special dividend. In FY19 it paid an ordinary annual dividend of 4.5 cents per share, plus a 2.25 cents per share special dividend.

The ASX dividend share is on track to pay an ordinary annual dividend of 6 cents per share in FY20.

That means at the current share price of $1.23, it offers a grossed-up dividend yield of 7% for FY20.

Current share portfolio

You may be interested to know some of the shares that WAM Microcap owned at 31 May 2020.

Some of the biggest positions at the end of last month were: AMA Group Ltd (ASX: AMA), Baby Bunting Group Ltd (ASX: BBN), City Chic Collective Ltd (ASX: CCX), Objective Corporation Limited (ASX: OCL), Superloop Ltd (ASX: SLC) and Temple & Webster Group Ltd (ASX: TPW). I like this group. It’s diversified with very good growth potential. 

Foolish takeaway

WAM Microcap could be one of the best ASX dividend shares for income over the next decade. I believe that good dividends will only be paid by those businesses generating strong profit in the coming years. I think WAM Microcap is one of those good dividend opportunities.

More reading

• Have $1,000? You should pick one of these 8 ASX shares
• How to replace your entire wage with dividends
• Why I’m not afraid to invest in shares during this recession
• Got $50,000 to invest for income? Pick these 5 ASX dividend shares
• 10 top ASX growth shares to buy in June for strong returns

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Objective Limited, SUPERLOOP FPO, and Temple & Webster Group Ltd. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. 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 I think WAM Microcap is a retiree’s dream dividend share appeared first on Motley Fool Australia.

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Globally equity markets have seen a return to volatility as COVID-19 takes centre stage again. Lately, equity markets had seemed to factor in that the worst of the pandemic was behind us. The possibility of a second wave was always discussed by both health professionals and governments, but was evidently not priced into the equity market valuations.

With a resurgence in infection numbers in locations like Beijing and the United States (US), talk of a second wave has intensified and spooked equity markets. This comes at a time when the World Health Organization has stated that the first wave is yet to peak in certain regions like South America. So, it increasingly looks like that, until a vaccine comes out, the world will have to live with the active infections for longer than anticipated. The great influenza of 1917 that started in the US saw multiple waves – many health professionals and historians believe that COVID-19 could also unfold in a similar pattern.

For investors like us, this means share markets will likely rise and fall in line with the COVID-19 waves. Smart investors should be looking for resilient shares that can outperform the broader market – even during times of global uncertainty. In my opinion, one such share is Woolworths Group Ltd (ASX: WOW).

How has Woolworths performed recently?

Over the last year, Woolworths shares have generated a return of 9.10% while the S&P/ASX 200 Index (ASX: XJO) has seen a negative return of 11.50%. An outperformance of more than 20% in a year during turbulent times like this can add a lot of resilience to your ASX investment portfolio. And considering its industry and business model, Woolworths shares have the potential to continue to outperform, in my view.

Even as other industries suffer because of a slowdown in the economy and lower disposable incomes, Woolworths should continue to see largely stable revenues as much of its operations are in sectors that cater to consumers’ daily necessities. It is largely discretionary items like holidays that suffer the most when disposable incomes decline. Woolworths does have exposure to this segment through its hotels business, but overall its other consumer retail sectors should keep the ship stable and sailing ahead.

This optimism is also reflected in the company’s plans to invest in supply chain transformation. On 23 June, Woolworths announced it will be developing an automated regional distribution centre and a semi-automated national distribution centre at Moorebank Logistics Park in Sydney. The company expects construction to be completed by the end of 2023, and expects to realise initial benefits from the new distribution centres in financial year 2025.

The 2 sites are expected to materially increase Woolworths’ supply chain capacity and improve its efficiency. The company plans to invest around $700–$780 million in setting up these facilities – an investment it expects will result in a significant reduction in its supply chain costs over time.

During the first half of FY2020, Woolworths’ Australian food business saw a growth of 6.4% over the corresponding period last year. Its New Zealand food business growth stood at 4.8% for the same period, while its BIG W and Endeavour drinks business grew by 2.8% and 4.7%, respectively.

When most companies are showing sharp declines in absolute revenue numbers during the same period, it’s pleasing to see that Woolworths has delivered positive growth numbers. However, given the steady demand for its products, there could be a potential concern around how fast Woolworths can replenish its inventory, in the light of global supply chain disruptions. This is something to watch out for in the near future.

In its most recent trading update, Woolworths also reported that hotels have begun to reopen as lockdown restrictions ease, but noted that around two-thirds of its venues are in Victoria and Queensland where operating conditions remain restricted, particularly for gaming. The company stated that, as a result, “sales remain materially below prior year levels and the Hotels business is expected to continue to be loss-making until more venues operate with a full-service offer.”

Are Woolworths shares a good long-term investment?

I believe Woolworths is very well positioned to weather the COVID-19 storm, even if the pandemic unfolds in multiple waves. Its business operations (except for hotels) should be able to remain stable and even grow their revenues. With Woolworths investing in improving its supply chain efficiencies, more of those revenues would flow to the bottom line.

With a price-to-earnings ratio of 18.13 times and dividend yield of 2.83%, I believe Woolworths shares are an attractive investment opportunity. The Woolworths share price currently sitting at $36.43 per share, putting its market cap at $46.01 billion.

More reading

• The latest ASX shares to be upgraded by top brokers to “buy”
• Why Qantas and this other ASX 200 stock were just downgraded by top brokers
• Brokers name 3 ASX 200 shares to buy today
• ASX 200 rebounds 1.1%: Big four banks charge higher, Qantas sinks after raising $1.4bn
• REA Group share price has charged 60% since the market bottomed

Motley Fool contributor Arpan Ranka has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Woolworths 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 Add the WOW factor to your investment portfolio. Why I think the Woolworths share price is a buy appeared first on Motley Fool Australia.

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Private health insurance is big business in Australia. Depending on your income, the government has various tax advantages and penalties in place that encourage a private health insurance membership. But how does this translate into a good investment?

Most ASX companies would bend over backwards to enjoy the same kind of governmental encouragement that private health companies enjoy. And that’s why (despite some significant headwinds for the sector), I think it’s a great place to find a quality, long-term investment.

But which one to choose?

Of the dozens of private health providers out there, there are only 2 that are listed on the ASX in their own right: Medibank Private Ltd (ASX: MPL) and NIB Holdings Limited (ASX: NHF).

So let’s put these 2 companies under the microscope.

Private health market share

According to a 2019 government ombudsman report, Medibank commands the largest share of the private health market of any provider with a 26.9% share. In comparison, NIB is a minnow, with just an 8.6% share. Looking at both Medibank and NIB’s market capitalisation, we can see this reflected. Current share prices tell us that (at the time of writing) Medibank is valued at ~$8.28 billion, while NIB is valued at $2.14 billion. I always prefer a company that commands the lion’s share of its market, so I’m going to give this one to Medibank.

Winner: Medibank

Growth

Despite its smaller size, NIB looks to be the fund that offers the best growth performance. Between the 2018–2019 financial years, NIB grew its gross revenue from $2.27 billion to $2.46 billion (roughly 8.4%). In contrast, over the same period, Medibank lost revenue, which fell from $7.01 billion in FY18 to $6.75 billion in FY19 (a rough 3.7% decline).

Winner: NIB

Dividend

Private health insurers have historically been strong dividend shares to own for income. So let’s have a look at each company’s dividend offerings today. On current prices, Medibank shares are offering a trailing yield of 4.36%. Meanwhile, NIB shares are treating investors to a trailing yield of 4.9%. Since both shares come with full franking credits, I’ll have to give the edge here to NIB.

Winner: NIB

Valuation

It’s always nice comparing 2 companies in the same industry on valuation grounds, as we can accurately get a feel for how the market is valuing each company. So on current share prices, Medibank going for $3 a share, which gives the share a price-to-earnings (P/E) ratio of 19.39. In contrast, NIB shares are today asking $4.70, which gives them a P/E ratio of 16.14. This tells us that the market is viewing a dollar of earnings from Medibank as more valuable than a dollar of earnings from NIB. There are many factors that influence a P/E ratio, including future growth prospects, dividend yields and branding. But since NIB shares are cheaper by the P/E ratio metric, I’ll have to give this one to NIB as well.

Winner: NIB

Foolish takeaway

Well, the results are in and it appears NIB has pipped Medibank to the post for this rudimentary comparison. I think both companies are top-notch Australian businesses that would both make good investments. But NIB appears to be growing faster than Medibank, has a higher dividend yield and a cheaper valuation. I do like that Medibank is the industry leader, but I think this is more of a function of its history of government ownership than anything else. If I were to choose between Medibank and NIB, I would probably have to go with NIB.

More reading

• What are the best ASX shares for dividends?
• Can these 5 FY20 dogs of ASX 200 bounce back in the new financial year?
• Fund managers have been buying these ASX shares
• 3 high yield ASX dividend shares for income
• NIB Holdings and 1 other ASX share which I would consider buying for growth and income

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has recommended NIB Holdings 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 The better ASX buy: NIB vs Medibank shares appeared first on Motley Fool Australia.

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I like to keep an eye on substantial shareholder notices. This is because these notices give you an idea of which shares large investors, asset managers, and investment funds are buying or selling.

Two notices that have caught my eye today are summarised below. Here’s what these fund managers have been buying:

Estia Health Ltd (ASX: EHE)

A notice of change of interests of substantial holder shows that Perpetual Limited (ASX: PPT) has been topping up its position in this aged care operator during the pandemic. The fund manager has been buying shares over the last three months, but particularly at the height of the pandemic. Perpetual bought as low as 91 cents in March and has been buying as recently as last week for $1.59 per share.

In total the fund manager picked up almost 3.5 million shares, increasing its holding to 35,259,135 shares. This equates to a 13.49% stake in the company. It appears to see value in Estia Health’s shares after a 40% pullback over the last 12 months.

Viva Leisure Ltd (ASX: VVA)

A notice of initial substantial holder reveals that WAM Capital Limited (ASX: WAM) has been buying this health club operator’s shares since the middle of May. This follows a significant sale of shares during March and April when Viva Leisure’s future looked bleak because of the pandemic.

But with gyms now reopening and social distancing restrictions easing rapidly, the fund manager appears confident in the future. The notice reveals that WAM owns a total of 3,764,233 shares across its funds, which represents a 5.25% stake in the company. Earlier this month Viva Leisure raised $25 million to strengthen its balance sheet and pursue future acquisitions. Judging by its shareholding, WAM appears to believe this is a good strategy for the company to take.

More reading

• My 3 high-yield ASX dividend shares to buy now
• These are the 10 most shorted ASX shares
• Short-sellers are stepping up their attack against these popular ASX shares
• ASX 200 up 0.9%: Big four banks rebound, Appen hits record high
• Fund managers have been buying these 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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Finding quality ASX dividend shares in 2020 is a difficult task. And finding such shares offering a sustainable dividend yield above 8% is even harder. Dividend streams from former ASX dividend heavyweights like Ramsay Health Care Limited (ASX: RHC), Westpac Banking Corp (ASX: WBC), Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD) have all but dried up in 2020. In my view, we will probably see more dividend deferrals, suspensions and cancellations over the remaining course of the year.

But don’t despair, income investors! I’ve found 2 ASX dividend shares currently offering trailing, grossed-up dividend yields above 8% today. What’s more, I think that these 2 shares will be able to sustain and grow their payouts going forward.

An iron-fuelled, ASX dividend giant

Fortescue Metals Group Limited (ASX: FMG) is my first ASX dividend share to consider today. Unlike most other ASX companies, Fortescue’s earnings in 2020 have been turbocharged by a pricing boom in its primary commodity of iron ore. According to its last annual report (2019), Fortescue’s average cost of extracting one tonne of iron ore was between US$12-13. Considering iron ore is today selling for around US$101 per tonne, there’s a lot of cash flowing into Fortescue’s coffers right now. Today, Fortescue shares are offering a trailing yield of 7.14%, or 10.2% grossed-up with franking. I also fully expect this yield to increase going forward if iron ore prices remain near their current levels.

An ASX energy stalwart

AGL Energy Limited (ASX: AGL) is my second ASX dividend share to consider today. AGL is the largest generator and supplier of electricity and gas in the country. Utility shares like AGL aren’t normally known for their growth prospects, but then that’s not why we’re here today!

AGL’s last interim dividend, which was paid in March this year, came in at 47 cents per share. Its last final dividend, paid in September 2019, was 64 cents per share. Putting these two together, we get a trailing dividend of $1.11 per share. That, in turn, gives us a yield on today’s share price of 6.63% or 8.9% grossed-up with AGL’s 80% franking. Electricity and gas are highly inelastic goods that don’t tend to see dips in demand during economically tough times. This leads me to conclude that AGL’s dividend payments should continue around their current levels in 2020 and beyond. The company has also been buying back its own shares in recent weeks, which I think is a further indication that AGL’s dividend will be safe in 2020.

Foolish takeaway

Both AGL and Fortescue are strong companies that I think will continue to provide investors with robust dividends throughout 2020 and beyond. With the carnage that coronavirus has wreaked on the ASX dividend scene, I think having strong companies like these in one’s portfolio today would deliver massive benefits for an income investor.

More reading

• Here are 5 rebound shares to buy with $5,000
• These top ASX dividend shares could be great option for income investors
• Transurban Group and 1 other ASX share I’d buy in another share market crash
• Where to invest $10,000 in ASX 200 shares for 2030
• Is a Fortescue Metals mega-merger on the cards?

Motley Fool contributor Sebastian Bowen owns shares of Ramsay Health Care Limited. The Motley Fool Australia owns shares of Transurban Group. The Motley Fool Australia has recommended Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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ASX dividend shares are a great place to generate income from your money.

Cash in the bank just isn’t making enough money these days. Savings accounts are still the best place to protect your capital from harm in the short-term, but a return of 2% isn’t going to cut it for the long-term.

But I wouldn’t just go for any ASX dividend share that has a decent dividend yield. There are positives and negatives to high dividend yields.

I’d only want to go for shares that look like they can sustainably maintain and increase the dividend:

Share 1: WAM Leaders Ltd (ASX: WLE)

WAM Leaders is a listed investment company (LIC) which invests in the larger businesses on the ASX.

However, it doesn’t behave like a passive exchange-traded fund (ETF). It actively changes its holdings so that it can try to outperform the market. At the end of May 2020 it had outperformed the S&P/ASX 200 Accumulation Index since inception by 3.8% per annum before fees, expenses and taxes.

The ASX dividend share is able to turn that strong performance into smoothed dividends for shareholders. WAM Leaders has grown its dividend every year since FY17. It was only launched in May 2016.

Some of the shares that it owned in its portfolio at 31 May 2020 were: Amcor Plc (ASX: AMC), CSL Limited (ASX: CSL), Downer EDI Limited (ASX: DOW), Fortescue Metals Group Limited (ASX: FMG) and Wesfarmers Ltd (ASX: WES).  

It currently has an annualised grossed-up dividend yield of 8.8%.

Share 2: Rural Funds Group (ASX: RFF)

Rural Funds is an agricultural real estate investment trust (REIT). It owns a variety of farm types including cotton, cattle, almonds, macadamias and vineyards.

The REIT has rental indexation built into all of its rent contracts. The rent is contracted to grow by a fixed 2.5% per annum or by CPI inflation, plus market reviews.

It’s largely this built-in rental growth that allows management to forecast that the distribution can grow by 4% per annum.

Another factor for the growth is that Rural Funds invests in productivity improvements at its farms to help the tenant, whilst also boosting the rental income potential and value of the farm. The ASX dividend share only pays out about 80% of its net rental profit each year, allowing the other 20% to be utilised for the farm improvements.

Rural Funds has forecast that the FY21 distribution will be 11.28 cents per unit, which equates to a forward yield of 5.5%.

Share 3: Brickworks Limited (ASX: BKW)

Brickworks has paid a dividend every year that it has been listed on the ASX. It also hasn’t cut its dividend for 40 years. I think that’s a great wonderful record.

The diversified property business has a number of interesting elements which should support the current dividend and enable future dividend growth.

It owns a large chunk of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares. The investment conglomerate itself provides Brickworks with a consistently-growing dividend.

Brickworks also owns a 50% stake of an industrial property trust along with Goodman Group (ASX: GMG). Amazon may soon be a tenant at the Oakdale West Estate in Kemps Creek with one of the largest online fulfilment warehouses in the country.

The ASX dividend share is probably best known for being the market-leading brickmaker in Australia. It also sells plenty of other products including roofing, precast, paving and masonry. I think this division will continue to perform well once the economy returns to normal.

Finally, Brickworks recently expanded into the US by making three targeted acquisitions. It’s now the market leader in the north east of America.

Brickworks currently has a grossed-up dividend yield of 5.4%.

Foolish takeaway

Each of these ASX dividend shares have very attractive dividend yields. They also have a history of dividend growth. At the current prices I think it makes sense to go for WAM Leaders and Brickworks the most because they are trading at very good value compared to their pre-tax net tangible assets (NTA).

More reading

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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended Brickworks and RURALFUNDS STAPLED. 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 market may be bouncing back from yesterday’s steep losses. But not all stocks have been invited to the rally as brokers downgraded their recommendations on a handful of ASX shares.

The S&P/ASX 200 Index (Index:^AXJO) jumped by more than 1.5% in after lunch trade as every sector bar healthcare made gains.

Clipped wings

However, there are two notable ASX stocks that’s left behind and one of them is the Qantas Airways Limited (ASX: QAN) share price.

The flying kangaroo dived 7.8% to $3.86 at the time of writing and it isn’t only it’s discounted $1.9 billion capital raising that’s dragging on the stock.

Citigroup cut its rating on Qantas to “hold/high risk” from “buy/high risk” in the wake of the new share sale to pad its balance sheet during the unpredictable COVID-19 storm.

“We model a ramp-up in earnings and capacity from FY21e as the Australian Domestic market opens-up (2Q21e) and cost benefits are realized,” said the broker.

“However, the longer-term outlook remains considerably uncertain and extremely difficult to forecast.”

Uncertain flight path

Despite the downgrade and the dilution from the new share offer, the broker’s price target on Qantas jumps to $4.60 from $3.70 a share.

What’s interesting is that the new price target represents a near 20% upside from Qantas’ current share price.

But Citigroup warned that its forecasts (and by extension, its valuation) is subject to change as predicting when international travel will return is difficult in the current environment.

Running ahead of fundamentals

Another laggard today is the Western Areas Ltd (ASX: WSA) share price after UBS cut its recommendation on the stock to “neutral” from “buy”.

This is despite the broker’s favourable outlook for nickel – a key commodity produced by the miner.

But there may be too much good news already priced in. The Western Areas share price bounce by 62% since the market hit its bear market low point in March.

Waiting for new catalyst

The rebound is partly driven by an encouraging drilling result at the Western Gawler project, which was announced to the market this week.

“In response, we have chosen to lift our estimate of the value of exploration assets by $100m to $150m,” said the broker.

“This exploration result while encouraging is 1 drill hole and does not yet show results from assays with nickel grades. We would look for further detail before assigning more value here.”

UBS’s price target on Western Areas is $2.85 a share.

More reading

• Brokers name 3 ASX 200 shares to buy today
• Why Kogan, Myer, Orocobre, & Qantas shares are dropping lower
• ASX 200 rebounds 1.1%: Big four banks charge higher, Qantas sinks after raising $1.4bn
• REA Group share price has charged 60% since the market bottomed
• Share price winners and losers of the pandemic

Motley Fool contributor Brendon Lau 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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