On Monday the S&P/ASX 200 Index (ASX: XJO) started the week in a very disappointing fashion. The benchmark index fell 0.8% to 6,076.4 points.

Will the market be able to bounce back from this on Tuesday? Here are five things to watch:

ASX 200 expected to rebound.

The benchmark ASX 200 looks set to rebound on Tuesday. According to the latest SPI futures, the ASX 200 is poised to open the day 33 points or 0.55% higher this morning. This follows a positive start to the week on Wall Street, which saw the Dow Jones fall 0.2%, but the S&P 500 rise 0.3% and the Nasdaq jump 1%. The latter could be good news for locally listed tech shares which tend to follow its lead.

Westpac quarterly update.

All eyes will be on the Westpac Banking Corp (ASX: WBC) share price this morning when it releases its latest quarterly update. The main focus will be on its loan deferrals and impairment charges. These metrics were not as bad as many expected when two of its big four rivals released updates this month.

Oil prices jump.

It could be a good day for energy producers such as Beach Energy Ltd (ASX: BPT) and Woodside Petroleum Limited (ASX: WPL) after oil prices jumped higher overnight. According to Bloomberg, the WTI crude oil price is up 2% to US$42.84 a barrel and the Brent crude oil price has risen 1.2% to US$45.33 a barrel. News that China is planning to boost its U.S. oil imports helped drive prices higher.

Gold price surges higher.

Gold miners Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) are likely to be on the rise on Tuesday after the gold price surged higher. According to CNBC, the spot gold price is up 2.2% to US$1,993.40 an ounce. Weakness in the U.S. dollar and robust sentiment have given the precious metal a big boost.

Coles FY 2020 results.

The Coles Group Ltd (ASX: COL) share price will be in focus this morning when it releases its highly anticipated full year results. According to a note out of Goldman Sachs, its analysts expect Coles to deliver total sales of $37.5 billion in FY 2020. This will be a 7.1% year on year increase. It is also forecasting Coles to report EBIT of $1392.4 million. This represents a 5.1% year on year increase.

More reading

• ASX 200 drops 0.8%, JB Hi-Fi jumps 4.5%
• If you invested $10,000 in Afterpay shares in March, this is how much you’d have now
• Telstra share price hit by broker downgrade today
• The Starpharma share price jumps on new partnership deal
• What experts are saying about JB Hi-Fi’s profit results as the stock surges to record

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia owns shares of COLESGROUP DEF SET. 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 some of the best ways to generate income from your money.

Cash in the bank is hardly earning anything any more because of how low the RBA interest rate is.

ASX shares can generate solid profit each year and pay out pleasing dividends even during COVID-19.

That’s why I think each of these ASX dividend shares could be buys for income:

WAM Global Limited (ASX: WGB)

WAM Global is a listed investment company (LIC) which invests in global shares. The LIC is run by Wilson Asset Management (WAM).

One of the main benefits of LICs is that they can turn investment returns into a steady and growing dividend for shareholders. That’s exactly what the ASX dividend share has been doing.

The ASX dividend share has grown its dividend strongly over the past 12 months. A year ago it paid a dividend of 2 cents per share, six months ago it paid 3 cents per share and it just declared a full year dividend of 4 cents per share. It has doubled its final dividend over the past year.

Global shares are a great place to find quality businesses that have good growth potential. Some of its largest holdings include: Tencent, CME Group, Dollar General, EA, Hasbro, Hello Fresh, Intuit, Lowe’s and Microsoft.

At the current WAM Global share price it’s trading at a 12% discount to the pre-tax net tangible assets (NTA). It offers a grossed-up dividend yield of 4.9%. I think that’s a solid starting yield for a ASX dividend share. 

Brickworks Limited (ASX: BKW)

Brickworks is a diversified property company. It’s well-known for being a building products business that produces bricks, paving, masonry, roofing and so on. It’s actually the largest brick supplier in Australia. Brickworks is the market leader in the north east in the US after making three acquisitions.

It generates reliable earnings from two of its other divisions. Brickworks owns a 50% stake of an industrial property trust with Goodman Group (ASX: GMG). Industrial properties are in higher demand with more ecommerce and the increasing importance of logistics. The property trust is currently working on building a huge warehouse for Amazon.

Brickworks also owns a large amount of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares. Soul Patts is a diversified investment conglomerate which invests in defensive and contrarian assets like telecommunications, resources, agriculture and swimming schools. Soul Patts itself is a defensive ASX dividend share. 

Brickworks hasn’t cut its dividend for over 40 years. It currently has a grossed-up dividend yield of 5.1% at the current Brickworks share price.

Vitalharvest Freehold Trust (ASX: VTH)

Vitalharvest is a real estate investment trust (REIT) which owns farmland. Citrus fruit and berry farms are the only assets that it owns. But under new management it has plans to diversify with other food properties including food processing, food storage and food logistics.

Not only does the ASX dividend share generate fixed rental income from its farms but it also has a profit share agreement with the farms that are rented to Costa Group Holdings Ltd (ASX: CGC).

Farm earnings don’t necessarily follow the same path as the economy, so Vitalharvest can offer a fairly uncorrelated distribution. Using the trailing distribution, at the current Vitalharvest share price it offers a yield of 6%. If Vitalharvest returned to 2019 profitability then it could offer a distribution yield of 7.1%.

New acquisitions could unlock more reliable income for Vitalharvest. I’m excited about the direction that Vitalharvest could go in the future. The Vitalharvest share price is trading at a 16% discount to the net asset value (NAV) at 31 December 2019

Foolish takeaway

I really like each of these ASX shares for dividend income. WAM Global clearly offers the most diversification, but Brickworks could offer the most reliable income with its defensive assets.  

More reading

• 3 ASX dividend shares offering big yields
• 4 ASX shares to profit from booming ecommerce
• 3 ASX shares trading at crazy cheap prices
• 2 ASX shares that every investor should own
• Top ASX dividend shares to buy in August 2020

Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, COSTA GRP FPO, and Washington H. Soul Pattinson and Company 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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The S&P/ASX 200 Index (ASX: XJO) fell by 0.8% today to 6,076 points.

Reporting season continued today and it was another impressive day by retailers:

JB Hi-Fi Limited (ASX: JBH)

The JB Hi-Fi share price rose by 4.5% today after reporting an impressive FY20 result.

Total sales increased by 11.6% to $7.9 billion. Underlying earnings before interest and tax (EBIT) rose by 30.5% to $486.5 million and underlying net profit after tax (NPAT) grew by 33.2% to $332.7 million. Statutory NPAT went up by 21% to $302.3 million.

The ASX 200 company reported total online sales grew by 48.8% across the company.

The FY20 result was so strong that JB Hi-Fi decided to increase the final dividend by 76.5% to 90 cents per share. The total FY20 dividend grew by 33.1% to 189 cents.

JB Hi-Fi CEO Richard Murray said: “This is a strong result in the most challenging of times. We are pleased to report strong sales and earnings for FY20 and importantly, we have provided our customers with the products they required as they spent more time working, learning and seeking entertainment at home, and kept our team members in jobs with an absolute focus on health and safety.

In July 2020 the company saw 42.1% sales growth for JB Hi-Fi Australia, 40.4% sales growth for The Good Guys and 9.1% sales growth for JB Hi-Fi New Zealand. However, the company didn’t provide earnings guidance for FY21.

Altium Limited (ASX: ALU)

Altium also reported its FY20 result today. The Altium share price went up by 1.3%.  Revenue grew by 10% to US$189.1 million. Earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 13% to US$75.6 million.

Profit before income tax rose by 12% to US$64.6 million, but profit after tax declined 42% to US$30.9 million. There was a taxation change that will allow Altium to take advantage of a tax deduction in FY21 and lower its effective tax rate. The one-time revaluation change of the deferred tax assets and the deferred tax liabilities caused an accounting charge of US$16.4 million. Normalised earnings per share (EPS) grew by 5% to 42.45 cents.

Altium’s board decided to increase the final dividend to AU19 cents per share, which brought the full year dividend to AU39 cents per share, an increase of 15%.

In terms of guidance, the ASX 200 business said it’s still on track to achieve 100,000 subscribers by 2025. However, due to COVID-19, it may take an extra six to twelve months to reach its 2025 goal of US$500 million in revenue. 

Kogan.com Ltd (ASX: KGN)

The online business announced an impressive FY20 report today.

Gross sales went up by 39.3% to $768.9 million and revenue grew by 13.5% to $497.9 million. Its active customer base increased by 35.7% to 2.18 million people. Kogan.com’s gross profit increased by 39.6% to $126.5 million.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 57.6% to $49.7 million and net profit after tax (NPAT) jumped by 55.9% to $26.8 million.

The ecommerce business saw accelerated growth in the second half of FY20 compared to the prior corresponding period. Growth sales increased by 62.5%, gross profit went up 68.3% and adjusted EBITDA rose by 74.1%. 

In July 2020 the company saw continuied strong growth. Gross sales grew by more than 110% year on year, gross profit went up by more than 160% year on year and adjusted EBITDA for the month was more than $10 million.

The company said it was going to continue to invest in its platform and it’s looking for acquisition opportunities.

The Kogan.com share price fell by 6% today, though it is up 440% since 16 March 2020. I imagine it’s close to entering the ASX 200.

More reading

• If you invested $10,000 in Afterpay shares in March, this is how much you’d have now
• 3 reasons the Altium share price is in the buy zone
• Telstra share price hit by broker downgrade today
• What recession? These ASX retail shares are raking it in
• The Starpharma share price jumps on new partnership deal

Tristan Harrison owns shares of Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com 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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If you’re looking to invest $1,000 into the share market this week, then there are a lot of quality options to choose from.

Three ASX shares which I think would be smart choices currently are named below. Here’s why I like them:

Aristocrat Leisure Limited (ASX: ALL)

I think this gaming technology company could be a great option for a $1,000 investment. Current trading conditions for its land-based pokie machine business are tough because of the pandemic, but with many casinos now open again, I believe the worst is now behind the company. And while it will take time until sales from this business return to previous levels, I’m optimistic that its digital business will offset some of the weakness. This business has millions of daily active users generating significant recurring revenues. And due to new releases and the growing popularity of social and mobile gaming, I expect this strong form to continue for the foreseeable future. This should drive strong profit growth over the medium term once both businesses are pulling together.

Domino’s Pizza Enterprises Ltd (ASX: DMP)

Another top option for a $1,000 investment is Domino’s. I think it is a great long term option due to its store expansion plans and its positive sales targets. Management intends to grow its global store network by 7% to 9% per annum for the next 3 to 5 years. At the same time it is aiming to grow its same store sales by 3% to 6% per annum. If Domino’s can maintain or even expand its margins, this should underpin strong earnings growth over the next five years. 

IDP Education Ltd (ASX: IEL)

A final ASX share to consider investing $1,000 into is IDP Education. As with Aristocrat Leisure, IDP Education has been hit hard by the pandemic. As a leading provider of international student placement services and English language testing services, it has experienced a sudden and severe decline in demand. While this is disappointing, I believe it is more than reflected in its share price now. In light of this, its strong balance sheet, and positive long term growth potential, I think now could be an opportune time to invest.

More reading

• 2 ASX growth shares to buy with $2,000
• 3 ASX shares that could grow rapidly during the 2020s
• 50% off: 2 dirt cheap ASX shares to buy today
• Why I would buy ResMed and these ASX growth shares
• Earnings preview: What to expect from the Domino’s Pizza FY 2020 result

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 Idp Education Pty Ltd. The Motley Fool Australia has recommended Domino’s Pizza Enterprises 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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How much would a $10,000 investment in Afterpay Ltd (ASX: APT) shares in March be worth today?

Well, 2020 has been a bumpy ride so far (to say the least!). The S&P/ASX 200 Index (ASX: XJO) started the year off at 6,690 points, rose to 7,162 by mid-February, fell to 4,546 points by mid-March and is back up to 6,076 points at the time of writing.

But the Afterpay share price makes that rollercoaster ride look like a Seine river cruise.

Afterpay shares started 2020 at $30.63. By February, the company was pushing $40 a share, but Afterpay was walloped in the March crash and was slammed down to roughly $8 a share in rapid time. But the recovery was just as kind as the crash was savage — even more so. Between 23 March and 26 March, Afterpay shares were back up 118% from this low. A month after that, up another 42%. Add another month and another 63%.

You get the idea.

The bottom line: between 23 March and today, Afterpay has rewarded its shareholders with a ~730% rise.

That means that anyone who bought $10,000 worth of Afterpay shares on 23 March for $8.01 would have acquired 1,248 shares and left with some change. Those 1,248 shares would today be worth… $92,077 on current prices.

Cue violins for us mere mortals who missed out on this extraordinary return.

Why did Afterpay shares shoot the moon?

Afterpay shares have benefitted from a number of tailwinds since the lows in March. Back then, the full extent of the coronavirus crisis (and the lengths that governments would go to assuage it) wasn’t clear. As a quasi-credit provider, investors were fearful that Afterpay would be faced with a wave of defaults and an exodus of users. The opposite has proven true. Afterpay has managed to increase its customer base by 116% to 9.9 million in FY2020 compared to the previous year.

Additionally, the company announced in May that Chinese e-commerce giant Tencent Holdings had acquired a 5% stake in Afterpay. That sent Afterpay shares up even higher when it was announced.

Is there still time to buy Afterpay?

Unfortunately, I think any upside that was in the Afterpay share price has been well and truly absorbed by the market. That means a buy today is a bullish bet on the company’s future growth, rather than a ‘fair value today’ kind of investment.

If you think Afterpay has what it takes to continue to shake off competition and spread into the markets it has yet to conquer, then today’s price might still be cheap. Afterpay’s current market capitalisation is around $20.67 billion, which still looks pretty good compared with a payments giant like Visa Inc. (with a ~US$418 billion market cap) if you think it can rival companies like this one day.

For me though, the current Afterpay share price is still a little frothy, so I’m happy to wait until a better buying opportunity presents itself.

More reading

• ASX 200 drops 0.8%, JB Hi-Fi jumps 4.5%
• Telstra share price hit by broker downgrade today
• The Starpharma share price jumps on new partnership deal
• What experts are saying about JB Hi-Fi’s profit results as the stock surges to record
• Are BNPL shares like Afterpay officially recession proof?

Sebastian Bowen owns shares of Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Visa. 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 Zicom Group Limited (ASX: ZGL) share price has rocketed 66.7% higher today on news the equipment manufacturer has entered the surgical mask game. Zicom Group announced that it will leverage its in-house engineering and manufacturing experience to design and build its own production line to manufacture masks.

What does Zicom Group do?

Zicom is a manufacturer of marine deck machinery, hydraulic system services, concrete mixers, foundation and geotechnical equipment, and fluid metering stations. With most of its customers in the capital goods business, many have held back buying decisions due to current uncertainty, adversely impacting Zicom’s revenues. There has been a slump in the offshore marine sector and the precision engineering and technologies sector has not been spared the impact of the trade war. 

Why the pivot into face masks? 

Zicom Group says the move into face masks is part of its corporate social responsibility obligations, given global shortages. The company can leverage internal experience manufacturing medical technology as well as the short term availability of manpower due to COVID-19 lockdown measures. Having built its own production line, the company has entered production within 3 months of conception. 

Initial capacity allows Zicon to produce 3 million surgical masks a month. The masks have been approved by regulatory authorities in Australia and Singapore, with European regulatory approval expected in the next few weeks. US approval is expected within the next 3–4 months. The focus is on producing high quality surgical masks to provide protection to healthcare personnel and the general public. Zicom says this distinguishes its product from ordinary face masks being sold widely. 

What’s next for Zicom? 

Zicom says growing demand for high quality surgical masks has convinced it of the long-term commercial feasibility of its latest project. Soft launch has just been initiated, and has apparently shown an encouraging pick up in sales.

Zicom has decided to develop and potentially expand this new business and is confident it will generate recurrent revenue to supplement the capital goods business. This will no doubt serve as a relief to investors after first half revenues fell 40%, leading to a $4.2 million loss for the period. 

The Zicom share price soared by almost 67% today, to close trade at 7.5 cents per share. 

More reading

• 3 ASX dividend shares to buy for income
• ASX 200 drops 0.8%, JB Hi-Fi jumps 4.5%
• Investing $1,000 in these ASX shares could be a smart move
• If you invested $10,000 in Afterpay shares in March, this is how much you’d have now
• 3 reasons the Altium share price is in the buy zone

Motley Fool contributor Kate O’Brien 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 Altium Limited (ASX: ALU) share price was a positive performer on Monday and pushed higher following its full year results release.

The electronic design software company’s shares ended the day almost 1.5% higher at $33.92.

Is it too late to buy Altium shares?

I don’t believe for a second that it is too late to buy Altium shares.

In fact, I continue to believe that it remains one of the best buy and hold options on the local market. Here are three reasons why:

Favourable tailwinds.

Altium’s electronic design software platform and businesses are benefiting from very favourable tailwinds at present. The rapidly growing Internet of Things and artificial intelligence markets are underpinning the proliferation of electronic devices globally and driving strong demand for its offering. The good news is that these tailwinds are only just building and Altium looks set to have the wind in its sails for a long time to come.

Positive long term growth potential.

In FY 2020 Altium achieved revenue growth of 10% to US$189 million despite the negative impact of the pandemic on its end of year sales. Pleasingly, given the aforementioned tailwinds, Altium’s growth isn’t expected to stop any time soon. This morning management revealed that it remains committed to its 2025 target of US$500 million in revenue. And while it acknowledges that the pandemic could delay it achieving this by 6-12 months, it appears confident it will get there.

Market dominance.

As well as targeting US$500 million in revenue by 2025, the company is aiming to grow its active subscribers to 100,000. This will be up from 51,006 in FY 2020. Management believes that if it achieves this it will have market domination and be in a position to compel key industry stakeholders to support its agenda to transform electronic design and its realisation. This will then leave Altium well-placed to start the next level of its growth.

More reading

• ASX 200 drops 0.8%, JB Hi-Fi jumps 4.5%
• ASX 200 down 0.85%: JB Hi-Fi impresses, Altium shoots higher, Bendigo and Adelaide Bank sinks
• Why Altium, Beach, JB Hi-Fi, & Starpharma shares are charging higher
• Altium share price on watch after FY 2020 result
• 3 five-star ASX shares to buy

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 Altium. 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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Enabling Australians to withdraw up to $20,000 from their superannuation funds has been one of the more controversial government policies for dealing with the coronavirus pandemic.

Eligible Australians were allowed to withdraw up to $10,000 in the 2020 financial year (FY20) from their superannuation accounts, and have access to a further $10,000 in FY21 (up until December).

The early super withdrawal scheme is being administrated by the Australian Taxation Office (ATO).

What are the arguments?

Proponents argue that it is necessary for Aussies undergoing financial and economic hardship to have access to ‘their’ money to ride out the crisis.

On the other hand, critics of the scheme argue that it is undermining the retirement safety net of our country. Reports that anyone who applies to access the money has been allowed to withdraw from super, regardless of hardship, have further damaged the scheme’s credibility (although the ATO is reportedly following these up).

Regardless of your views, it’s hard to argue with damning new analysis that has just been released.

ASX exchange-traded funds (ETFs) provider BetaShares has released modelling of the early super withdrawal scheme. It makes for some fascinating reading, to say the least.

Early super withdrawals prove costly

Its headline finding is that the $30 billion (as of 29 July) in early super withdrawals will cost the retirement system between $100 billion and $130 billion in the coming years. This is made up of lost returns from investments that would have added value had they remained within a fund. Extra pension payments the government will have to pay as a result are also included.

BetaShares CEO, Alex Vynokur, had this to say of the early superannuation withdrawal modelling:

This was a well-intentioned but misguided policy from the start. The true cost of allowing people to access their super early will ultimately be paid by future Australian governments and taxpayers… An amount between $100 billion and $130 billion represents a very significant future shortfall (which will only increase as further super is released early). It will need to be funded by future Australian governments and therefore the Australian public will ultimately bear the cost, as those who have withdrawn super will be less able to fully fund their own retirement needs.

The BetaShares modelling also shows that young Australians have the most to lose from this policy. It estimates that a $10,000 withdrawal represents a lost $70,400 in retirement funds for an investor with 40 years until retirement, using consumer price index (CPI) + 5% modelling. If CPI + 7% is used, the figure jumps to $149,745. This comes after Treasury figures quoted by BetaShares revealed that half of all early super release claims are being made by people aged under 35.

The report also quotes data that reveals 64% of people who accessed early release “spent the money on discretionary items such as clothing, food, gambling and alcohol”.

Sobering stuff indeed!

More reading

• 3 ASX dividend shares to buy for income
• ASX 200 drops 0.8%, JB Hi-Fi jumps 4.5%
• Investing $1,000 in these ASX shares could be a smart move
• If you invested $10,000 in Afterpay shares in March, this is how much you’d have now
• ASX stock of the day: Zicom share price rockets 66% high on surgical mask investment

Motley Fool contributor Sebastian Bowen 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 Telstra Corporation Ltd (ASX: TLS) share price tumbled to a three-month low on Monday after the stock was downgraded by a leading broker.

Shares in Australia’s largest telco fell 1.9% to $3.05 when the S&P/ASX 200 Index (Index:^AXJO) declined 0.8% today.

If it’s any consolation to shareholders, Telstra’s peers also finished in the red. The TPG Telecom Ltd (ASX: TPG) share price slipped 1.2% to $7.36 while the Vocus Group Ltd (ASX: VOC) share price gave up 1% to $2.92.

Broker downgrade weighs down TLS share price

Telstra was the laggard as it was weighed down by JPMorgan’s downgrade. It cut its recommendation on the stock to “neutral” from “overweight”.

The move comes after the company posted Telstra’s disappointing FY20 profit results last week, which prompted the broker to cut its earnings forecast for the group.

“Our initial review has highlighted a number of significant structural challenges facing the company,” said the broker. “Furthermore, an estimated 4.2% dividend yield is not overly compelling.”

Structural headwinds

One of these structural challenges include the impact of the NBN eroding profit margins on Telstra’s fixed broadband business.

Rising competition on Telstra’s mobile division is cited as another headwind, while the COVID-19 travel restrictions have decimated its mobile roaming revenue.

Mobile is a key earnings driver for Telstra, which tried to lift prices on its mobile plan recently. That backfired as competitors doubled down on low prices to win market share from the market leader.

Telstra’s dividend is unsustainable on payout guidance

What is concerning for shareholders is the dividend. JPMorgan is forecasting a cut in the group’s annual payment to 13 cents a share from 16 cents.

That’s below consensus with the average broker estimate tipping a 14 cents a share payout. But JPMorgan believes 13 cents is all Telstra can afford. This is because that would represent 90% of Telstra’s forecast net profit – which is the top end of Telstra’s payout ratio.

“While Telstra does not provide dividend guidance, it indicated at the result that EBITDA would need to be ~A$7.5-$8.5 billion to maintain its 16cps dividend, well above guidance of A$6.7 billion,” added JPMorgan.

How Telstra can keep paying a 16cps dividend in FY21

However, not every broker agrees with this. Goldman Sachs believes Telstra could keep paying 16 cents as management may not strictly apply its payout ratio policy.

“Although 16cps is now unsustainable across FY21-22 on the existing payout policy, we note TLS further shifted its dividend focus to FCF [free cash flow] (i.e. TLS justified the 99%, out-of-policy EPS payout as this was well supported by cashflow),” said Goldman.

“Hence, we have not revised our 16c dps, believing Telstra will maintain this through FCF, if it believes that is on track for $7.5bn by FY23E.”

Goldman stuck to its “buy” recommendation on the stock, which is also on its “conviction list”. The broker’s 12-month price target on Telstra is $3.90 while JPMorgan’s target price is $3.40 a share.

More reading

• The Starpharma share price jumps on new partnership deal
• What experts are saying about JB Hi-Fi’s profit results as the stock surges to record
• Millennials be warned! ASIC to examine irresponsible ‘social trading’
• These 3 ASX stocks just got upgraded by top brokers to “buy” today
• ASX 200 down 0.85%: JB Hi-Fi impresses, Altium shoots higher, Bendigo and Adelaide Bank sinks

Motley Fool contributor Brendon Lau owns shares of Telstra Limited. Connect with him on Twitter @brenlau.

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The Brainchip Holdings Ltd (ASX: BRN) share price has risen by 30% since last Tuesday, and 109% over the past month. This ASX-listed artificial intelligence (AI) company is the largest of its type in the world. It is currently developing what is known as a neuromorphic Akida chip, which will mimic the human brain and nervous system and is a first-of-its-kind technology.

Nevertheless, the company already has products in the marketplace that generate revenue. For example, the Akida neural chip is useful for facial recognition and pattern recognition. Accordingly, casinos use it to monitor patterns of play, payout amounts, dealer behaviour and much more. Many international airports also use the company’s products to detect terrorism suspects, as do 2 European subways to detect wanted criminals. 

What moved the Brainchip share price?

The Brainchip share price moved today after the company announced it has partnered with Magik Eye Inc., developers of revolutionary 3D sensors.  The agreement is to market a breakthrough solution for object detection, classification and gesture recognition by combining MagikEye’s invertible light 3D depth sensing technology and the Akida neuromorphic processor.

This opens up a new sales channel into Japan. Customers for fast 3D object detection and recognition includes robotics, automotive and emerging consumer products, such as virtual reality and others. The companies can jointly address gesture recognition in smart home applications, such as gaming and other consumer products. As well as, smart transportation and smart city applications are all primary markets for collaboration. This includes advanced driver assistance systems and autonomous vehicles.

Management commentary

In today’s announcement, Richard Wawrzyniak, principal analyst at market research company Semico Research Corp. highlighted that 3D imaging is attracting a good deal of interest in the market and commented that the BrainChip architecture is the “right fit for this class of operations”. He added:

It is not surprising their solution would be paired with the MagikEye’s Invertible Light Technology for real-time object detection in all types of applications, where low power and high throughput are valued elements for success. Semico believes this technology partnership is a winning combination for the market.

Commenting on the partnership, Louis DiNardo, Brainchip CEO stated:

Our relationship with MagikEye is exciting. The innovation brought to the market by their proprietary Invertible Light technology is impressive and this collaboration provides both companies an opportunity to address large and growing markets with outstanding technology to solve difficult real-world challenges.

Brainchip share price

The Brainchip share price rocketed by 17.5% during Monday’s trading, and is up by 30.5% since the open of trading last Tuesday. Its market cap is currently $345 million. Over the past month the Brainchip share price has risen by 113.6%, and it is up by 370%, year-to-date. 

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Motley Fool contributor Daryl Mather 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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