Tag: Fool

The S&P/ASX 200 Index (ASX: XJO) is having a tough time on Thursday. In afternoon trade, the benchmark index is down 0.5% to 7,808.4 points.

Four ASX shares that are falling more than most today are listed below. Here’s why they are dropping:

BHP Group Ltd (ASX: BHP)

The BHP Group share price is down 2.5% to $45.02. The market has responded negatively to news that the Big Australian has made a third offer for Anglo American plc (LSE: AAL). And while the offer has been rejected, the two parties will continue discussions for another week. Commenting on the rejection, the Anglo American board said: “The Board considered BHP’s Latest Proposal carefully, concluded it does not meet expectations of value delivered to Anglo American’s shareholders, and has unanimously rejected it.” It then adds that it is “willing to continue to engage with BHP and its advisers on this topic and has therefore requested a one week extension to the PUSU deadline which has been consented to by the Panel.”

Nufarm Ltd (ASX: NUF)

The Nufarm share price is down over 4% to $4.81. This follows the release of the agricultural chemicals company’s half year results. Nufarm reported revenue of $1.8 billion but a statutory net profit after tax of just $49 million. The good news is that a stronger second half is expected. Nufarm CEO, Greg Hunt, said: “Despite challenging conditions, Nufarm delivered a solid result for the first half of fiscal 24. For FY24 we expect EBITDA of between $350 million and $390 million. The mid-point of our guidance implies growth of 25% YoY in EBITDA in the second half of FY24.”

Peninsula Energy Ltd (ASX: PEN)

The Peninsula Energy share price is down almost 7% to 11.2 cents. This uranium miner is in the process of raising funds. Earlier this week, it revealed that strong demand and support was received from both new and existing global institutional and sophisticated investors as part of its fully underwritten $105.9 million equity raising. The retail component of this raising opened this morning. The proceeds are expected to fully fund operations at the flagship Lance Projects to sustainable free cash flow in 2025.

Regis Resources Ltd (ASX: RRL)

The Regis Resources share price is down 7.5% to $1.96. Investors have been selling Regis Resources and other ASX gold shares on Thursday following a sharp pullback in the gold price overnight. This has seen the S&P/ASX All Ordinaries Gold index lose almost 4% of its value today.

The post Why BHP, Nufarm, Peninsula Energy, and Regis Resource shares are sinking today appeared first on The Motley Fool Australia.

More reading

• Deal or no deal? Why the BHP share price is crumbling today
• 5 things to watch on the ASX 200 on Thursday
• BHP shares on watch after new $74b Anglo American takeover offer rejected
• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Four S&P/ASX 200 Index (ASX: XJO) shares just had their medium-term outlook slashed by leading brokers.

All four are household names.

And they each operate in different sectors.

Here’s why these ASX 200 shares may not perform quite as well over the coming 12 months as these brokers had previously been expecting.

(Broker data courtesy of The Australian.)

Four ASX 200 shares hit with downgrades

The first ASX 200 share getting hit with a downgrade is building materials company James Hardie Industries (ASX: JHX).

The James Hardie share price is up 22% over 12 months but down 20% in 2024. Shares are up 1.4% today at $47.84.

The company reported its full-year results on Tuesday. The past year’s results looked solid, with net sales up 4% year on year to US$3.94 billion. But the outlook for the year ahead looks to have led to the broker downgrades.

Earnings guidance for FY 2025 fell short of consensus expectations. And management noted that the outlook for its housing markets “continues to remain uncertain”.

With those results in mind, JP Morgan cut its rating for James Hardie shares to ‘neutral’ with a $50 price target, which is some 4% above current levels.

Macquarie also reduced its price target by 12% to $55. But the broker raised the ASX 200 share to an ‘outperform’ rating.

According to Macquarie (quoted by The Australian):

The group has made strong progress on cost and working capital reduction and improving the efficiency in procurement and R&D spend. These factors set the group up well for an eventual broad-based recovery.

Which brings us to the second ASX 200 share getting hit with a broker downgrade, Sonic Healthcare Ltd (ASX: SHL).

The Sonic Healthcare share price is down 28% over the past 12 months. Shares are up 3.5% today, however, at $25.40.

The medical diagnostic company released a disappointing earnings update on Tuesday, which saw management cut full year revenue and earnings guidance. The company flagged headwinds including inflation, adverse currency exchange rates, and delayed margin improvement initiatives.

On the back of this update, Citi cut its target price on Sonic Healthcare shares by 19% to $25.

Moving on, the third ASX 200 share getting a downgraded broker outlook is Telstra Group Ltd (ASX: TLS).

The Telstra share price is down 21% over the past 12 months. Shares are up 0.6% today at $3.44 apiece.

Australia’s biggest telco announced some significant organisational restructuring on Tuesday.

Among the bombshells, the ASX 200 share said that ongoing inflationary cost pressures will see 2,800 employees cut from its workforce.

And in a move that looks to have spurred the broker downgrade, Telstra said it was axing its annual inflation-linked postpaid mobile plan price reviews.

On the back of the update, Macquarie cut Telstra to a ‘neutral’ rating with a $3.70 price target.

The broker cited the removal of the inflation-linked price hikes as a “key negative” for the stock.

According to Macquarie analyst Darren Leung:

While Telstra indicated this provides them with greater flexibility to respond to market conditions, we view it as a negative for the industry when the market leader is no longer leading the upward price trajectory.

Put another way, pricing decisions are now increasingly dependent on Telstra’s peers, who have had a mixed track record.

Which brings us to the fourth ASX 200 share getting a broker downgrade, Westpac Banking Corp (ASX: WBC).

Westpac hasn’t released any price-sensitive reports since its half-year results on 6 May.

The Westpac share price is up 26% over the past 12 months. Shares are down 1.1% today at $26.78.

Despite today’s dip, Goldman Sachs believes that, like its peers, the big four bank’s valuations are still stretched. The broker cut Westpac shares to a ‘sell’ rating with a $24.10 price target.

Goldman Sachs analyst Andrew Lyons noted:

With earnings risks more balanced, valuations skewed heavily to the downside, and our analysis suggesting previous sector de-ratings not being catalysed by absolute or relative earnings downgrades, we take a more negative view on the banks.

The post Why these 4 ASX 200 shares just got downgraded by top brokers appeared first on The Motley Fool Australia.

More reading

• Dividend deals: 2 top ASX shares that still look undervalued
• An ASX dividend giant I’d buy over Westpac shares right now
• Top brokers name 3 ASX shares to buy today
• What are brokers saying about the Telstra share price after this week’s update?
• 5 things to watch on the ASX 200 on Wednesday

Citigroup is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group, JPMorgan Chase, and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group and Telstra Group. The Motley Fool Australia has recommended Sonic Healthcare. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Betashares Nasdaq 100 ETF (ASX: NDQ) has just hit another all-time high today. During late morning trading on Thursday, shares in the exchange-traded fund (ETF) were peaking at $43.16.

As shown in the chart below, the ETF has lifted 15% in 2024 and 133% in the last five years.

Is the NDQ ETF a buy at an all-time high?

Of course, past performance is not a reliable indicator of future performance, but the chart above shows how the NDQ ETF has continued to eclipse its previous all-time highs.

Ultimately, a company’s financial and operational performance drives the share price over the long term. And the biggest businesses within the Betashares Nasdaq 100 ETF have succeeded in steadily growing earnings. These include Microsoft, Apple, Nvidia, Amazon, Broadcom, Meta Platforms and Costco.

I think the US technology stocks, including Alphabet, Microsoft, and Nvidia, have powered the ETF’s latest all-time high.

Indeed, Nvidia has reported its FY25 first quarter, which showed annual revenue growth of 262% to $26 billion, and adjusted earnings per share (EPS) jumped 461% to $6.12. These numbers beat market expectations.

Additionally, the NDQ ETF gives Aussies exposure to 100 globally leading US businesses that deliver products, services, and technological advancements that are changing how people work, learn, communicate, and entertain themselves. These are the sorts of companies we should want to own in our portfolio.

Finally, its annual management fee is 0.48%, which is cheaper than most active fund managers and, therefore, relatively appealing.

Does the valuation make sense?

According to BetaShares, at the end of April 2024, the NDQ ETF was trading on a forward price/earnings (P/E) ratio of 24.6x, which is higher than other share markets like Australia and the United Kingdom.

However, the large US tech names have delivered long-term earnings growth, which the market continues to underestimate. I think a higher valuation is justified if future earnings growth is (expected to be) strong.

The US share market could be volatile in the next year or even the next four years. But if profit keeps rising over the rest of the decade, the NDQ ETF can generate adequate returns to 2030.

While I’d prefer to invest in the Betashares Nasdaq 100 ETF at a lower price, I still think its five-year return can outperform the S&P/ASX 200 Index (ASX: XJO).

The post Should you buy Betashares Nasdaq 100 ETF (NDQ) at an all-time high? appeared first on The Motley Fool Australia.

More reading

• 3 excellent ASX ETFs for beginner investors to buy
• 3 reasons the Betashares Nasdaq 100 ETF (NDQ) is a great ASX ETF pick
• Why these ASX ETFs could be fantastic buy and hold options
• 2 ASX ETFs to buy and hold forever in your investment portfolio
• 5 ASX ETFs to invest $10,000 into next week

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, BetaShares Nasdaq 100 ETF, Costco Wholesale, Meta Platforms, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has positions in and has recommended BetaShares Nasdaq 100 ETF. The Motley Fool Australia has recommended Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Sayona Mining Ltd (ASX: SYA) share price is charging higher today.

Shares in the S&P/ASX 300 Index (ASX: XKO) lithium stock closed yesterday at 4.2 cents. In late morning trade on Thursday, shares are swapping hands for 4.4 cents apiece, up 4.8%.

For some context, the ASX 300 is down 1.0% at this same time.

Here’s what’s spurring investor interest today.

What’s boosting the ASX lithium share?

The Sayona Mining share price is smashing the benchmark today after the miner reported it has kicked off reverse circulation (RC) drilling at its Tabba Tabba Lithium Project, located in Western Australia.

Sayona is exploring a region where air core drilling previously identified high-potential pegmatite systems. RC drilling will enable the miner to drill significantly deeper.

The initial campaign comprises more than 2,000 metres of RC drilling across 14 holes. Sayona plans to conduct additional drilling throughout 2024 as it gains more geological information across the prospective area.

On the funding front, Sayona Mining could be getting a boost after the lithium miner reported it had secured a $180,000 co-funding grant from the WA Government’s Exploration Incentive Scheme (EIS).

Sayona said the government grant will help finance innovative exploration drilling in the search for flat lying spodumene pegmatite systems within the Tabba Tabba lease.

According to the ASX lithium stock:

Flat lying pegmatite systems often have limited surface expression and require a systematic exploration approach to best focus drilling into the most prospective target areas.

Sayona is advancing this process, being guided by gravity data, mapping, rock and soil sampling and drill information.

What did management say?

Commenting on the drill campaign sending the Sayona Mining share price sharply higher today, CEO James Brown said:

We are excited to have commenced RC drilling over the highly prospective Tabba Tabba lease which has known lithium mineralisation in close proximity and along strike.

Previous soil sampling and air core drilling identified areas of anomalous geochemistry that have been confirmed to also contain gravity features of significance. We now intend to test these targets with RC and possibly diamond drilling as supported by results.

We are highly committed to our wholly owned Western Australian lithium assets and intend to continue an active exploration program over the 2024 field season.

Sayona Mining share price snapshot

While today’s gains will be most welcomed by shareholders, the Sayona Mining share price is still down a precipitous 80% from this time last year.

The post Why did the Sayona Mining share price just leap 5%? appeared first on The Motley Fool Australia.

More reading

• These are the 10 most shorted ASX shares
• Down 80% in a year, are Sayona Mining shares now a buy?
• Why ANZ, Fletcher Building, Macquarie, and Sayona Mining shares are dropping today
• What’s happening with the Sayona Mining share price on Monday?
• These are the 10 most shorted ASX shares

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The BHP Group Ltd (ASX: BHP) share price is taking a tumble today.

Shares in the S&P/ASX 200 Index (ASX: XJO) mining giant closed yesterday trading for $46.24. In morning trade on Thursday, shares are swapping hands for $44.96, down 2.8%.

For some context, the ASX 200 is down 0.9% at this time.

BHP’s underperformance today comes following the latest developments in its ongoing multi-billion takeover efforts of Anglo American (LSE: AAL).

What’s happening with the Anglo American takeover?

The BHP share price is under selling pressure after the ASX 200 miner reported that it had lobbed a third improved takeover offer for Anglo American. And that this offer, too, was swiftly rejected by Anglo’s board.

BHP announced its first takeover bid back on 26 April.

The big Aussie miner is mostly interested in Anglo copper assets. Should BHP succeed in its acquisition, it will become the world’s top copper producer. BHP has indicated it will likely divest some of Anglo’s assets, like its South African platinum and iron ore projects.

The first takeover offer was rejected as undervaluing Anglo’s assets and growth prospects and being too complex. The BHP share price initially fell on that news as well.

On 14 May BHP reported a sweetened offer valued at around $64 billion. This was also quickly waved off by Anglo’s board.

This third, and likely final, offer is valued at $59.64 per Anglo American share, a hefty premium to Anglo American’s recent share price. The new offer equates to around $74 billion.

“BHP’s revised proposal will offer immediate value for Anglo American shareholders and allow them to benefit from the long-term value generation of the combined group,” BHP CEO Mike Henry said.

But Anglo American chairman Stuart Chambers is not convinced. “The board is confident in Anglo American’s standalone future prospects,” he said.

But that doesn’t mean a deal is off the table.

If Henry’s goal was to get negotiations rolling in earnest, it looks like he may have scored.

According to Chambers:

The board is willing to continue to engage with BHP and its advisers on this topic and has therefore requested a one-week extension to the PUSU deadline which has been consented to by the panel.

The one-week extension moves the new takeover deadline to 29 May.

“BHP looks forward to engaging with the board of Anglo American to explore this unique and compelling opportunity to bring together two highly complementary, world class businesses,” Henry said.

Commenting on the developments pressuring the BHP share price today, James Whiteside, metals and mining corporate research director at Wood Mackenzie said (quoted by Bloomberg), “The companies believe that they’re getting closer. Anglo has probably signposted what needs to happen to get it over the line.”

BHP share price snapshot

The BHP share price is up 3% over the past 12 months.

The post Deal or no deal? Why the BHP share price is crumbling today appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• BHP shares on watch after new $74b Anglo American takeover offer rejected
• ASX 200 mining stocks flying higher on ‘most relaxed’ Chinese stimulus ever
• BHP shares charging higher as the clock ticks down on the Anglo American takeover
• ASX 200 mining shares charging higher amid China’s $210 billion cash injection

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Xero Ltd (ASX: XRO) share price is moving with gusto this morning after releasing its full-year results for FY24.

An hour into trade, the cloud-based accounting software company shares are up 7.6% to $133.49. The move starkly contrasts the 1.02% slump in the S&P/ASX 200 Index (ASX: XJO) after the US Federal Reserve revealed it had contemplated more interest rate rises.

So, what about Xero’s results enable its share price to perform while the rest of the market is struggling?

Profitable growth sparks Xero share price

Xero shareholders are celebrating this morning amid the company’s latest result. Here’s a look at the key numbers driving today’s excitement:

• Operating revenue up 22% year-on-year to NZ$1.71 billion
• Subscribers grew by 419,000 to 4.16 million
• Average revenue per user (ARPU) up 14% to NZ$39.29
• Gross margin up from 87.3% to 88.2%
• Net profit after tax (NPAT) swinging to NZ$174.6 million from NZ$113.5 million loss

Xero’s ability to balance revenue growth and profitability in FY24 is significant after years of lacking the latter. Importantly, the company has now achieved the Rule of 40 — a metric that implies a software company’s revenue growth and free cash flow margin should be 40% or more for a healthy business.

The company noted that it focused on balancing subscriber additions with ARPU during FY24. This might explain the 11% reduction in net subscriber additions compared to FY23. However, the positive is that Xero’s gross margin is improving while it manages its cost to serve customers.

Furthermore, Xero implemented price changes during FY24, boosting ARPU. Despite increasing prices, the 0.99% monthly churn rate is a positive indicator of product stickiness.

What did management say?

Xero CEO Sukhinder Singh Cassidy touted the full-year result, stating:

This result shows we’re doing what we said we’d do. We’ve delivered a strong and profitable FY24 result and Rule of 40 outcome, demonstrating our commitment to balancing growth and profitability.

We have a clear and focused strategy to win on purpose, and Xero is positioned well as we move into FY25.

Australia and New Zealand continue to be strong markets for the accounting platform. Xero achieved 22% revenue growth across the two countries, growing its subscriber count in the region to 2.4 million.

Meanwhile, revenue in its international markets (the United Kingdom, North America, and the Rest of the World) rose 24% to NZ$734.9 million. The company has 1.8 million subscribers in these expanding markets.

The road ahead

No light was shed on future earnings or revenue estimates for FY25. However, Xero expects total operating expenses as a percentage of revenue to be approximately 73% in the next financial year.

Product design and development costs are also forecast to be a larger portion of revenue.

Xero share price in review

The Xero share price is up 20% over the past 12 months. However, it was a considerably different story towards the end of last year.

Shares in the software company fell as low as roughly $70 apiece. Yet, positive sentiment has since returned to the technology sector.

The post Xero share price leaps 8% on staggering earnings upheaval appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Thursday
• 5 stellar ASX growth shares to buy for strong returns
• Here are the top 10 ASX 200 shares today
• Own Xero shares? Here’s what to expect from next week’s results
• Brokers name 2 rapidly growing ASX 200 tech stocks to buy

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Xero. The Motley Fool Australia has positions in and has recommended Xero. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Origin Energy Ltd (ASX: ORG) share price is marching higher today.

Shares in the S&P/ASX 200 Index (ASX: XJO) energy provider closed yesterday trading for $10.16. In morning trade on Thursday, shares are changing hands for $10.23 apiece, up 0.7%.

For some context, the ASX 200 is down 0.9% at this same time.

This outperformance comes after Origin announced that the Eraring Power Station will keep producing electricity for much longer than previously targeted.

What’s happening with Eraring?

The Origin share price is in the green after the ASX 200 utility reported it has agreed to delay the retirement of Eraring by two years.

The agreement with the New South Wales government is intended to support the security of the state’s electricity supply through the ongoing energy transition.

The freshly inked Generator Engagement Project Agreement (GEPA) will see Eraring remain operational until at least 19 August 2027.

Eraring commenced full scale power generation in 1984. Origin had previously targeted closing the 2,880 MW black coal plant as early as August 2025, subject to market conditions.

The Origin share price could be getting some support with the company reporting New South Wales could offer compensation to help cover operating costs. Origin could recover a portion of any Eraring operating losses over the extension period, capped at $225 million a year.

If Eraring turns a profit rather than running at a loss, Origin will pay the NSW government 20% of that profit, capped at $40 million a year.

The coal-fired power plant could potentially remain in operation through to April 2029, the final closure date.

Commenting on the extended operations, Origin CEO Frank Calabria said:

We believe this agreement strikes the right balance, with an extension to operations enabling Eraring to continue supporting security of electricity supply in New South Wales through the energy transition, while making compensation available to Origin in the event economic conditions for the plant are challenging…

Importantly, today we can give our Eraring employees, our suppliers and the local community greater certainty around the future of the plant as we transition towards its retirement.

With a nod to the potential environmental impact, Calabria added, “Origin does not shy away from the need to exit coal generation as soon as there is sufficient renewable energy, firming and transmission capacity available.”

The ASX 200 utility has committed to constructing a large-scale battery at Eraring. The first phase of the project consists of a 460 MW two-hour battery located next to the power station. The battery is planned to begin operating in late 2025.

Origin share price snapshot

With today’s intraday moves factored in, the Origin share price is up 24% in 12 months.

The post Origin share price outpacing the ASX 200 on Eraring lifeline extension appeared first on The Motley Fool Australia.

More reading

• Which ASX shares could be set to benefit from the federal budget?
• Where to find value inside the top 50 ASX shares in May
• An ASX dividend giant I’d buy over NAB shares for 2024
• Here’s how the ASX 200 market sectors stacked up last week
• 2 unexpected ASX 200 stocks to buy now for the AI revolution

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Fortescue Ltd (ASX: FMG) shares are often seen as a passive income option due to the large dividend yield. Could the ASX mining share continue its large payouts or is it a dividend trap?

The idea of a dividend trap is that a stock seems to offer a good yield based on the last dividend payments, but the upcoming dividends are likely to be much smaller – the historical yield is a mirage.

Let’s first look at what the miner is actually distributing to shareholders.

How big is the Fortescue dividend yield right now?

Despite the Fortescue share price being up by 33% in the past year, as seen on the chart below, the trailing yield is still very high.

The last two dividend payments from the ASX mining share amount to $2.08 per share, which equates to a grossed-up dividend yield of 10.9%.

Fortescue’s latest dividend, the HY24 payment of $1.08 per share, was the biggest six-month payment since 2022 and 44% higher than the HY23 payout.

Could Fortescue shares be a dividend trap?

The ASX mining share’s profit is highly dependent on the strength of the iron ore price. Mining costs don’t typically change much in the shorter term, so any extra revenue for its production can largely translate into extra net profit.

Fortescue has a dividend payout ratio policy to pay out between 50% to 80% of underlying net profit after tax (NPAT), so higher profit should also translate into a bigger dividend.

However, the reverse can happen when the iron ore price falls – it largely cuts into net profit, and the dividend suffers too. The Fortescue annual payout decreased in FY22 and FY23 partly because of a lower iron ore price.

With the iron price currently sitting around US$117 per tonne, analysts have forecast that Fortescue’s annual dividend per share will increase in FY24 compared to FY23.

The estimate on Commsec suggests the FY23 annual payout could be $1.94 per share, which would be a rise of 10.7% year over year. However, the FY24 final payment may be lower than the FY23 final payment, leading to the FY24 grossed-up dividend yield being projected to be 10.1%.

However, analysts don’t think the iron ore price will stay this high for long, which could lead to Fortescue’s profit falling in FY25 and FY26, causing the Fortescue annual dividend payout to drop to $1.47 per share in FY25 and $1.09 per share in FY26.

Those projections would mean Fortescue shares could have a grossed-up dividend yield of 7.7% in FY25 and 5.7% in FY26. If those projections come true, it would suggest Fortescue shares are a bit of a dividend trap because the future yield could be materially lower than what it pays in FY24.

However, the iron ore price has been very difficult to predict because of the uncertainty of Chinese demand. It’s possible that the iron ore price could be materially stronger or weaker than analysts expect. Over the last three years, we’ve seen the extremes – the iron ore price has been above US$210 per tonne and below US$90 per tonne.

Would I invest today?

I own Fortescue shares, but I’m not looking to invest right now, as the share price is not far off its all-time high. I prefer to invest when the market is fearful about iron ore miners. But, I’m planning to be a long-term shareholder because of the green energy efforts of the business.

The post Are Fortescue shares a dividend trap? appeared first on The Motley Fool Australia.

More reading

• Own Fortescue shares? Here’s why you now own an ASX tech stock!
• ASX 200 mining stocks flying higher on ‘most relaxed’ Chinese stimulus ever
• Top ASX dividend shares to buy in May 2024
• ASX 200 mining shares charging higher amid China’s $210 billion cash injection
• What’s the outlook for ASX iron ore shares after the federal budget?

Motley Fool contributor Tristan Harrison has positions in Fortescue. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Recent developments in the field of artificial intelligence (AI) have captured the public imagination over the past year or so. One of the byproducts of this trend has been the surging stock prices of companies at the forefront of this paradigm shift in technology. Nowhere is this more apparent than with chipmaker Nvidia (NASDAQ: NVDA), whose graphics processing units (GPUs) have become the gold standard for AI.

The company’s consistent execution and unrivaled business performance have fueled its meteoric ascent. Nvidia stock has gained 540% since early last year, driven by triple-digit revenue and profit growth resulting from surging demand for AI. Yet that’s just the beginning. Since Nvidia’s IPO in early 1999, the stock has soared from a split-adjusted price of $0.25 to more than $939, representing eye-popping gains of 375,500%.

On Wednesday, in conjunction with the release of the company’s quarterly results, Nvidia announced plans to split its stock for the first time since July 2020. The stock has gained more than 800% in the nearly four years since, which is likely the catalyst for the split. This revelation is sparking a fresh wave of interest in an already well-followed stock. Let’s review the mechanics of a stock split and what it means for investors.

The stock-split details

Nvidia announced that its board of directors had approved a 10-for-1 forward stock split. This will result from an amendment to the company’s Restated Certificate of Incorporation, which Nvidia says “will result in a proportionate increase of the number of shares of authorized common stock.”

As a result of this split, shareholders of record as of June 6, 2024, will receive nine additional shares of stock for each share they own after the market close on Friday, June 7. The stock is expected to begin trading on a split-adjusted basis on June 10.

Nvidia investors won’t need to take any steps in order to receive the additional shares of stock. Brokerage firms and investment banks handle the particulars, with the adjustments being handled behind the scenes. The stock-split shares will simply appear in investor accounts with no further action necessary. The timing can vary from brokerage to brokerage, so investors shouldn’t worry if the newly issued shares aren’t there immediately on June 7, as it can take hours, or in some cases days, for the additional shares to make an appearance.

Adding numbers can provide context regarding how the stock-split process plays out. For each share of Nvidia stock a shareholder owns — it’s currently trading for roughly $950 per share (as of this writing) — post-split, investors will hold 10 shares worth $95 each.

Is a stock split a good thing?

As the above example shows, the total value of ownership won’t change based on the split alone; it’s merely a different way of viewing the whole. Put another way, if you buy a pizza, it doesn’t matter if you cut it into eight slices or 16 slices — the total amount of pizza remains the same. By the same token, Nvidia stockholders will simply have a greater number of lower-priced shares.

There are those who believe that investor psychology will ultimately play a part, with excitement about the upcoming stock split driving up the share price. It’s also been suggested that the lower share price can increase demand for those shares among retail investors. Indeed, management notes in the announcement that the purpose of the split is to “make stock ownership more accessible to employees and investors.” While that’s frequently the case, that kind of temporary euphoria historically subsides, leaving investors to focus on what matters — the company’s operational and financial performance — which will ultimately drive the stock price higher or lower.

Is Nvidia stock a buy?

While the stock split alone isn’t reason enough to buy Nvidia, there are plenty of reasons the semiconductor specialist is a buy. Investors need to look no further than the company’s financial report for evidence to support that contention.

In its fiscal 2025 first quarter (ended April 28), Nvidia reported revenue that soared 262% year over year to a record $26 billion, marking an 18% quarter-over-quarter increase. This drove adjusted earnings per share (EPS) up 461% to $6.12.

For context, analysts’ consensus estimates were calling for revenue of $24.65 billion and EPS of $5.59, so Nvidia sailed past expectations with ease.

If there was any doubt, robust demand for generative AI fueled record data center revenue of $22.6 billion, up 427% year over year and representing 87% of Nvidia’s total sales.

Another important announcement for shareholders is that Nvidia increased its quarterly dividend by 150%, from $0.04 to $0.10 per share, or $0.01 on a post-split basis. The first increased dividend payment will be made on June 28. Even at the new, higher level, the yield will still be paltry, amounting to just four-tenths of 1%.

It’s still very early in the AI revolution, which is even more reason to be optimistic. The worldwide AI market clocked in at $2.4 trillion in 2023 and is expected to rise to $30.1 trillion — a compound annual growth rate of 32% — by 2032, according to Expert Market Research. As the gold standard for GPUs used in AI, Nvidia is well-positioned for future success.

Investors shouldn’t buy shares for the pending stock split. However, Nvidia’s long track record of consistently strong operating and financial results — and blistering stock price gains — show why it continues to be such a winning investment.

Some investors will balk at Nvidia’s valuation, but you get what you pay for. Despite four consecutive quarters of triple-digit revenue and EPS growth, Nvidia stock is selling for 37 times forward earnings. That’s a small price to pay for such robust growth.

That’s why Nvidia stock is a buy.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Nvidia announces a 10-for-1 stock split. Here’s what investors need to know. appeared first on The Motley Fool Australia.

More reading

• Forget Nvidia: This ASX growth stock is poised for its own bull run
• Here’s why Nvidia stock could sustain its stunning bull run after May 22
• History says an Nvidia stock-split announcement might be coming on May 22
• Nvidia stock’s next big catalysts could come on May 22. Should you buy shares before then?
• 3 reasons to buy Nvidia stock before May 22 (and 1 reason to sell)

Danny Vena has positions in Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

There are few things better than being able to snap up high quality ASX shares when they are cheap.

The good news is that there are two household names that are trading on the ASX boards at a fraction of what investors were paying 12 months ago.

The even better news is that analysts see significant room for their shares to rise from current levels. They also expect some attractive dividend yields to sweeten the deal further.

Let’s take a look at two ASX shares that Goldman Sachs thinks could be undervalued right now:

Telstra Group Ltd (ASX: TLS)

The first ASX share to look at is the nation’s largest telecommunications company, Telstra. After another selloff this week, the company’s shares are now down 21% over the last 12 months and at multi-year lows.

While Goldman wasn’t overly impressed with Telstra’s update this week, it remains very positive on the investment opportunity here. It said:

Overall we revise TLS FY24-26 EBITDA -1% and EPS by -1% to -3%, reflecting the revised mobile outlook and broader restructure. Our 12m TP is -7% to A$4.25, given earnings and reduction in mobile EBITDA multiple to 6.0X (was 6.5X) on increased mobile uncertainty. Buy.

As you can see above, Goldman has put a buy rating and $4.25 price target on this ASX share. This implies potential upside of 24% for investors over the next 12 months.

In addition, the broker is now forecasting fully franked dividends of 18 cents per share in FY 2024 and then 18.5 cents per share in FY 2025. Based on the current Telstra share price of $3.42, this will mean yields of 5.25% and 5.4%, respectively.

That’s a total potential return of almost 30% according to Goldman.

Woolworths Limited (ASX: WOW)

Another ASX share that has been sold off (down 18% year on year) and could be in the buy zone now is supermarket giant Woolworths. Investors have been selling its shares due to concerns over market share losses and regulatory risks.

Goldman isn’t fazed by either and thinks investors should be snapping up Woolworths’ shares while they are undervalued. It said:

WOW is the largest supermarket chain in Australia with an additional presence in NZ, as well as selling general merchandise retail via Big W. We are Buy rated on the stock as we believe the business has among the highest consumer stickiness and loyalty among peers, and hence has strong ability to drive market share gains via its omni-channel advantage, as well as its ability to pass through any cost inflation to protect its margins, beyond market expectations. The stock is trading below its historical average (since 2018), and we see this as a value entry level for a high-quality and defensive stock.

Goldman has a buy rating and $39.40 price target on its shares. This suggests potential upside of almost 26% for investors.

In addition, the broker is forecasting fully franked dividends per share of $1.08 in FY 2024 and then $1.14 in FY 2025. Based on the current Woolworths share price of $31.33, this equates to dividend yields of 3.45% and 3.6%, respectively. Once again, this brings the total potential return to almost 30%.

The post Dividend deals: 2 top ASX shares that still look undervalued appeared first on The Motley Fool Australia.

More reading

• Top brokers name 3 ASX shares to buy today
• What are brokers saying about the Telstra share price after this week’s update?
• 5 things to watch on the ASX 200 on Wednesday
• 3 ASX 300 shares hitting new 52-week lows: Are they cheap buys?
• Telstra share price slips amid 2,800 cuts for growth

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.