The re-rating of the ASX consumer discretionary sector is under threat from a new risk that could punch a big hole in their bottom line.

Retail stocks have been stealing the limelight as Australia emerges from the lockdown to contain the COVID-19 pandemic.

But yesterday’s Federal Court ruling on casual leave entitlements could cost employers billions of dollars if applied across the economy.

ASX stocks in the firing line

This risk is yet to be reflected in the share prices of leading ASX retailers with the sector being a big employer of causal staff.

The Premier Investments Limited (ASX: PMV) share price surged 18% over the past month, while the Breville Group Ltd (ASX: BRG) share price and JB Hi-Fi Limited (ASX: JBH) share price rallied 16% and 12%, respectively.

In contrast, the S&P/ASX 200 Index (Index:^AXJO) is trailing behind with a modest 4% gain over the same period.

Bankruptcy warning

The Federal Court decision, which upheld an earlier lower court ruling, was alarming enough for the National Retail Association (NRA) to issue a blunt warning to the Morrison government.

“Retail has one of the highest proportion of casual workers of any sector,” said NRA chief executive Dominique Lamb.

“If businesses are forced to back-pay leave entitlements to casuals who have worked regular shifts it could spell doom for many businesses and the workers they employ.”

Details of the court case

The court case relates to a casual employee hired by labour hire firm WorkPac to work at two Queensland mines owned by Glencore.

The casual staff, which isn’t entitled to paid leave and other entitlements reserved for permanent employees, was paid a 25% loading in addition to his wage.

But the courts found that the casual should be entitled to all benefits despite being paid a loading because he had “regular, certain, continuing, constant and predictable” work, reported the Australian Broadcasting Corporation.

The NRA is worried that the ruling will force all businesses who employ causal staff to be back-paid billions in entitlements.

Other ASX stocks that could be impacted

It isn’t only retailers that could suffer. There could be ramifications for fast food businesses like Domino’s Pizza Enterprises Ltd. (ASX: DMP) and Collins Foods Ltd (ASX: CKF) too.

Our supermarket giants Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) will be nervously watching this issue also.

Is it time to panic?

But it’s too early to sound the death knell for consumer-facing stocks. Not all casuals will qualify even if the decision is upheld as their work schedules and obligations have to be similar to permanent staff.

Further, there is growing pressure on Industrial Relations Minister Christian Porter to enact a new legislation solution to protect businesses.

There is also talk of another appeal from Workpac, which could set aside the Federal Court’s finding. At the very least, that could delay back payments to casuals for a few more years.

What this means is that it’s too early to price in this risks into ASX share prices, although investors better stay on their toes given what’s at stake.

Watch this space fellow Fools!

More reading

• 2 ASX 200 dividend shares to buy for income in 2021
• This ASX 200 stock has rocketed 63% in 2 months. Is the Ansell share price still a buy?
• 3 strong ASX dividend shares with fully franked yields
• 5 dark horse ASX shares that have tripled in the last 2 months
• The latest ASX stocks hit by broker downgrades today

Motley Fool contributor Brendon Lau owns shares of Breville Group Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool Australia has recommended Collins Foods Limited and 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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It is looking as though 2020 will be a difficult year for income investors.

While this is understandably very disappointing, I’m confident that 2021 will be very different.

This could make it worth looking beyond this year and buying the dividend shares that could provide generous yields in 2021.

Two to consider are listed below:

Commonwealth Bank of Australia (ASX: CBA)

Commonwealth Bank looks to be the best placed bank to pay another dividend in FY 2020. However, given the current trading conditions, it wouldn’t be overly surprising if the bank chose not to pay one. But I wouldn’t let that put you off investing. I expect trading conditions to start to improve once the crisis passes. And although it may be a couple of years until the bank is back to its best, I believe it will still be able to pay shareholders attractive dividends before then. In FY 2021 I estimate that Commonwealth Bank will pay a dividend in the region of ~$3.70 per share. This represents a fully franked 6.25% dividend yield.

Sydney Airport Holdings Pty Ltd (ASX: SYD)

With its passenger traffic currently down ~98% because of the pandemic, I think Sydney Airport shareholders will be lucky if they get any dividends this year. However, travel markets will rebound and traffic will start to flow through its airports again in the not so distant future. I believe this leaves the airport operator well-placed to pay a decent dividend in FY 2021. At present I estimate that it will pay ~27 cents per share to shareholders. This equates to a generous forward 4.8% yield. After which, in FY 2022 I expect a recovery in international tourism to allow Sydney Airport to lift its dividend to around ~37 cents per share. This will be a very attractive yield of 6.6% if it proves accurate.

More reading

• ASX retail stocks facing new billion-dollar earnings scare during COVID-19 recovery
• This ASX 200 stock has rocketed 63% in 2 months. Is the Ansell share price still a buy?
• 5 dark horse ASX shares that have tripled in the last 2 months
• The latest ASX stocks hit by broker downgrades today
• Top brokers name 3 ASX 200 shares to sell today

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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It will hardly come as a surprise to many that shares in Ansell Limited (ASX: ANN) have surged 63% since they bottomed out at $21.43 in March. The manufacturer of personal protective equipment (PPE) and healthcare products is one of only a handful of S&P/ASX200 Index (ASX:XJO) companies that have benefited from the challenging COVID-19 environment.

Having seen Ansell’s share price reach an all-time high of $35.07 earlier today, many prospective investors may be wondering if they’ve missed this buying opportunity.

Here are a few reasons I believe the Ansell share price may have its best days ahead yet. 

Unprecedented demand for healthcare products

The operations of manufacturing companies are currently being strained to meet unprecedented global demand for healthcare safety products. Reflecting this trend, on 3 March the World Health Organization (WHO) called on governments and industry to increase manufacturing by 40% to adequately meet demand for medical equipment. Based on WHO modelling, it is estimated that a mammoth 76 million disposable gloves will be required each month for the foreseeable future as an essential part of the global COVID-19 response.

In its business update to the market on 30 March, Ansell confirmed it had upscaled its production of hand and body protection products, including single and multi-use surgical gloves. Healthcare production normally accounts for 52% of total company revenue. However, this figure is set to increase as demand for industrial products (48% of total revenue) weakens due to coronavirus factory closures. The company commented:

The Ansell teams are working tirelessly to maximize output including making selective investments in new capacity and by leveraging manufacturing locations that are not affected and we expect to be able to continue to ship large quantities of product to key markets.

The market has undoubtedly priced the current demand for PPE into the Ansell share price. Despite this, I believe the sheer volume of demand for its healthcare products will allow the company to outperform market expectations when it reports its full year FY20 results in August this year.

Robust working capital

A key metric of a company’s short-term liquidity, defined as the ability for a business to meet its day-to-day financial obligations, is working capital. Many investors commonly use the current ratio (current assets divided by current liabilities) to calculate working capital.

As seen from Ansell’s balance sheet as of 18 February, the company has a current ratio of 2.91. This means that Ansell has the necessary funds to meet all of its short-term payments almost 3 times over. It also highlights the strength of Ansell to withstand the challenging current economic environment.

Furthermore, in its COVID-19 business update, Ansell re-affirmed its FY20 earnings guidance of US$112c to 122c earnings per share. It also confirmed it had $500 million in cash reserves with no significant debt obligations for the next 12 months. This robust financial position may also afford the company some flexibility to boost its inventory, sales or staff volumes to reflect the upsurge in demand for its healthcare products.

Notably, Ansell’s high working capital suggests the company is efficiency managed and well-positioned for increased growth for the remainder of FY20 and beyond. This is a positive sign for prospective investors that the company share price may not have yet peaked.

Social implications of COVID-19

Many believe the current relentless demand for PPE and health products will persist beyond a widely available COVID-19 vaccine. It is hypothesised that industries will be forced to implement rigorous new OH&S standards, the use of gloves and masks will become commonplace for consumer-facing businesses. More broadly, caution toward superior hygiene will be embedded in societies.

Even if there is only a fraction of truth to this outlook, the increased daily demand for Ansell’s healthcare products creates a significant opportunity for prospective investors. As a manufacturer, Ansell relies on economies of scale to increase its profits. With the enlarged volumes of gloves and other PPE expected to be produced and distributed over the next 3–5 years, Ansell shareholders are likely to primarily benefit from wider profit margins and improved earnings growth.

Foolish takeaway  

Having risen steeply in the past month, the Ansell share price appears likely to remain near the $35.00 mark for the foreseeable future. Yet, due to Ansell’s strong financial position and the continuing demand for its niche range of health and PPE products, I believe there remains significant upside for investors still looking to add this company to their portfolio.

More reading

• ASX retail stocks facing new billion-dollar earnings scare during COVID-19 recovery
• 2 ASX 200 dividend shares to buy for income in 2021
• 5 dark horse ASX shares that have tripled in the last 2 months
• The latest ASX stocks hit by broker downgrades today
• Top brokers name 3 ASX 200 shares to sell today

Motley Fool contributor Toby Thomas has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ansell 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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Receiving investment income from ASX dividend shares is a wondrous thing. But it’s even better when those dividends come with full franking credits. With the benefits of franking, the real yield you receive can be a lot more beneficial to your finances that just the cash payment alone.

So with that in mind, here are 3 ASX dividend shares that come with full franking credits. And don’t worry, these 3 shares will actually pay dividends in 2020, in my opinion.

Woolworths Group Ltd (ASX: WOW)

Woolworths is a company that was the face of the coronavirus pandemic for a few weeks in March and April. It’s fair to say the record levels of panic buying we saw during this time were pretty healthy for Woolworths’ bottom line. As such, I think this is a company that will be easily able to afford its dividend payments in 2020. And historically, these come with full franking credits.

On current prices, Woolworths shares are offering a trailing yield of 2.98% – which grosses-up to 4.26% including franking.

Telstra Corporation Ltd (ASX: TLS)

Telstra is another dividend share to consider in 2020. This telco giant should also be able to weather the COVID-19 storm reasonably well. With large numbers of Australians working remotely, our home internet use is likely to have exploded over the past few months.

Although the economic shutdowns have impeded the T22 cost-cutting plan Telstra has been working on, I still think this company will be a healthy dividend-payer this year and beyond. On current prices, Telstra shares are offering up a dividend yield of 5.01% – based on the company’s previous 12 months of payouts at 16 cents per share. When you include the benefits of full franking, this yield grosses-up to 7.16%.

Medibank Private Ltd (ASX: MPL)

Medibank is our final dividend pick today. This company is Australia’s largest private health insurer, despite it only being listed on the ASX since 2014. Since then, Medibank has amassed a pretty solid track record of dividend payments, delivering shareholders a dividend pay rise every year.

Medibank has already paid its interim dividend for 2020, which was paid in March, but I don’t see any reason why Medibank won’t be able to keep the streak alive later this year. The private health business has felt some impacts from the coronavirus, but they shouldn’t be enough to seriously dent this company’s finances in my view. On current pricing, Medibank shares are offering a 4.63% yield – which grosses-up to 6.6% with the company’s full franking credits.

More reading

• ASX retail stocks facing new billion-dollar earnings scare during COVID-19 recovery
• Insiders have been buying Medibank and this ASX share
• 3 ASX retail shares to own for the next 20 years
• Aussie retail numbers paint a gloomy ASX picture
• The Bubs share price is up 20% in May, will it catch up to the A2 Milk share price?

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. 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.

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If you’re looking for growth shares then I think the mid cap side of the market is a great place to start.

At this side of the market there are a good number of companies with the potential to grow materially in the future.

Three to consider buying are listed below:

Bravura Solutions Ltd (ASX: BVS)

Bravura Solutions is a ~$1.1 billion fintech company which provides software and services to the wealth management and funds administration industries. The key product in Bravura’s portfolio for me is the Sonata wealth management platform. This software is used to connect and engage with clients anytime, anywhere, via computers, tablets or smartphones. I expect demand for the platform to continue to grow and drive strong earnings growth in the coming years.

Bubs Australia Ltd (ASX: BUB)

Bubs is a $605 million infant formula and baby food company. It has come a long way in recent years and now sees its products stocked in hundreds of Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) supermarkets across the country. Thanks to this and growing demand from China, I’m optimistic the company has now reached a scale which will make its operations more and more profitable in the coming years. As a result, I think it could be a great long term option for investors.

Kogan.com Ltd (ASX: KGN)

Another option to consider is $840 million ecommerce company, Kogan. I believe Kogan has the potential to grow very strongly in the coming years thanks to the popularity of its offering and the ongoing shift to online for shopping. At present only ~10% of consumer spending is online, but this is likely to grow materially over the next couple of decades. I expect Kogan to be one of the biggest winners from the shift.

More reading

• 1 ASX growth company I’d buy with $2,000
• 3 ASX retail shares to own for the next 20 years
• $2,500 invested in these 3 ASX shares could make you a fortune in 10 years
• The Bubs share price is up 20% in May, will it catch up to the A2 Milk share price?
• 2 millionaire-maker ASX internet growth shares

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Bravura Solutions Ltd and BUBS AUST FPO. The Motley Fool Australia owns shares of and has recommended Kogan.com ltd. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool Australia has recommended Bravura Solutions Ltd and BUBS AUST 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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Is China about to blow up the dividends of BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG)?

What has happened with China?

According to reporting by the Australian Financial Review, China is changing the supervising rules for inspecting iron ore.

The worry is that China could cause major disruptions to Australia’s iron ore exports. It could mean Australian iron ore gets checked but Brazilian imports don’t have the same checks.

But BHP isn’t worried about it and actually thinks it could lead to a quicker process. Fortescue also confirmed it was part of a process that has been in the works for years.

Plenty of people are linking Australia’s support for a coronavirus inquiry to a potential backlash by China. We have already seen the Asian superpower put tariffs onto Australian barley.

If China were to put tariffs onto Australian ore, or stop buying altogether, then it could be devastating for the dividend and profit of BHP, Rio Tinto and Fortescue. Indeed, state and federal governments would feel the effects of it too. Let’s hope China doesn’t do anything else. 

What have the miner share prices done?

At the time of writing, the BHP share price is slowly down (after being up in the morning), the Rio Tinto share price is down 0.3% and the Fortescue share price is down 2.3%.

It’s this type of event that could cause the mining environment to dramatically shift. The outlook for miner dividends is (was?) good, but things can change quite rapidly if demand for iron or the price of iron goes down.

I wouldn’t own a miner for dividends, just for the theoretical expected profit generation (and valuation of those cashflows). I’m not interested in owning miner shares and this news puts me off even more.

More reading

• Why ASX 200 iron ore miners are your best bet for dividends right now
• Why these ASX shares have just stormed to record highs
• Here’s why the Fortescue share price hit an all-time high today
• Macquarie picks the best stocks to buy for the post COVID-19 rebound
• Could ASX 200 iron ore shares save the Australian economy?

Motley Fool contributor Tristan Harrison 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 Qantas Airways Limited (ASX: QAN) share price has been an exceptionally strong performer over the last couple of months.

It was around this time in March that the airline operator’s shares sank to a multi-year low of $2.03.

Since then Qantas’ shares have rebounded remarkably strongly and are fetching $3.58 on Thursday afternoon. This means they are up more than 76% since hitting that March low.

Is it too late to invest?

Whether Qantas’ shares are undervalued, fair value, or overvalued will depend largely on how quickly travel markets recover from the pandemic.

Based on current economic reopening expectations, I would say that the company’s shares are closing in on fair value now.

However, if a vaccine is successfully developed and distributed in the coming month, then travel markets could rebound far quicker than expected. In this scenario, I would say Qantas’ shares are very good value.

For this reason, I’ll be watching the progress of Moderna’s COVID-19 vaccine candidate, mRNA-1273 very closely. The early results have been promising, but there’s still a bit of work and further testing to go before we’ll know whether it is the key to unlocking global borders.

Morgan Stanley retains its overweight rating.

One broker that is bullish on Qantas is Morgan Stanley. This morning it retained its overweight rating on the company’s shares with a slightly reduced price target of $5.20.

This price target implies potential upside of almost 45% over the next 12 months.

According to the note, the broker believes that Qantas’ business will normalise in FY 2023. However, it suspects it could return to profitability a year earlier.

Though, it has warned that there is a lot of uncertainty, not least with rival Virgin Australia Holdings Limited (ASX: VAH) in voluntary administration. It feel that what happens with Virgin Australia could have a major impact in the coming years.

More reading

• Small-cap ASX aviation share soars 30% higher as it re-establishes earnings guidance
• Why investing in these COVID-19 stricken ASX shares won’t be the same again for a very long time
• ASX 200 climbs 1% in positive start to the week
• Virgin narrows its shortlist down to 4 suitors
• 5 ASX 200 winners and 5 losers of the week

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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