Tag: Motley Fool Australia

Warren Buffett has an exceptional track record of outperforming the share market over a long time period. Buffett’s investing strategy aims to buy high-quality companies when they offer wide margins of safety, and hold them over the long term.

As such, it could be a useful strategy for investors to adopt as a means of benefitting from the recent market volatility. It may not produce high returns in the short run, but could significantly improve your financial prospects over the coming years.

Warren Buffett’s investing strategy

One of the most notable aspects of Warren Buffett’s investing strategy is its simplicity. He does not use a plethora of complicated formulas in deciding when or where to invest. He simply seeks to buy stocks when they are trading at attractive prices. This method allowed him to buy a range of companies following the last global recession in 2008/09. Many of those holdings produced high returns as the world economy recovered.

With many stocks currently trading on low valuations, using a value investing strategy could improve your long-term returns. It may enable you to take advantage of the cyclicality of the stock market, and generate high returns during its likely recovery.

Economic moats

As well as seeking to buy stocks when they offer wide margins of safety, Warren Buffett also seeks to purchase companies with economic moats. An economic moat is essentially a competitive advantage that one company has over its sector peers. Examples include a lower cost base, a unique product or strong customer loyalty. These help to protect a company’s financial performance during a downturn and deliver relatively high profitability during economic growth.

At the present time, a number of companies with wide economic moats are trading on low valuations. Therefore, investors have a significant amount of choice. Choice in building a diverse portfolio of companies that produce relatively high returns in the long term.

Holding period

Warren Buffett’s investment strategy also seeks to hold stocks for the long term. In fact, his favoured holding period is apparently ‘forever’.

This attitude could be beneficial given the current outlook for the world economy. A global recession seems highly likely this year. And it could take place over a sustained time period depending on monetary policy, fiscal policy and whether there is a second wave of the coronavirus.

As such, investors who are able to take a long-term view of their holdings could be among those who generate the highest returns. They may be able to overcome short-term market volatility to benefit from the eventual recoveries of their holdings.

Although this may not lead to a portfolio size which rivals Warren Buffett’s, it could, nevertheless, boost your returns in the long run.

More reading

• These were the best performing shares on the ASX 200 last week
• These were the worst performing shares on the ASX 200 last week
• Why the Nearmap share price and one other are on my buy list
• 2 defensive ASX shares to protect your portfolio
• 3 ASX dividend kings to buy and hold forever

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Will Warren Buffett’s investing strategy help you get rich in today’s market? appeared first on Motley Fool Australia.

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I think that defensive ASX shares could be the best way to protect your portfolio.

Businesses with robust business models should hopefully not see much of a hit to their earnings during this COVID-19 period. If the earnings don’t fall much then theoretically the share prices shouldn’t drop too much compared to a riskier cyclical share.

I believe the best defensive ASX shares are the ones that won’t see much of a change in demand for their product or service.

Here are two of the most defensive ASX shares:

Share 1: APA Group (ASX: APA)

APA Group is one of the biggest infrastructure businesses on the ASX.

It owns a vast network of 15,000km of natural gas pipelines around Australia with a presence in every mainland state and the Northern Territory. It also owns or has interests in gas storage facilities, gas-fired power stations and renewable energy generation (wind and solar farms). APA owns, or manages and operates, a portfolio of assets worth more than $21 billion and delivers half the nation’s natural gas usage.

APA delivers an essential service for Australia. The nation needs its natural gas.

I think APA is a defensive ASX share because the demand for gas remains robust. The energy infrastructure giant recently said that there hasn’t been a material change because of COVID-19. It also has $1.2 billion of available liquidity to get through this period if needed.

The business has grown its distribution every year for a decade and a half. It offers a FY20 distribution yield of 4.4%. The distribution can keep growing because APA funds it from its annual cashflow. That cashflow is growing because APA continues to complete new energy projects.

Share 2: Rural Funds Group (ASX: RFF)

I think Rural Funds is another great defensive ASX share. It’s a farmland real estate investment trust (REIT).

COVID-19 caused many other REITs to be sold off. Shopping centres like Scentre Group (ASX: SCG) were hurt as shoppers stayed away and shops were shut. Office property REITs like DEXUS Property Group (ASX: DXS) were sold down as workers stayed home.

But Rural Funds hasn’t faced the same problems. Its agricultural tenants continue to grow produce at the farms. Some of its tenants include Olam, Select Harvests Limited (ASX: SHV) and Treasury Wine Estates Ltd (ASX: TWE).

I think Rural Funds is a really good defensive ASX share for several reasons. It has high-quality tenants like the ones I just mentioned. Rural Funds’ farms are diversified geographically and by farm type – it owns cattle, cotton, vineyard, almond and macadamia properties.

One of the best reasons to like Rural Funds is that it has a weighted average lease expiry (WALE) of more than 10 years. That means the rental income is locked in for more than a decade.

That rental income is rising as each rental contract has built-in rental indexation. The rental indexation is either a fixed 2.5% increase or linked to CPI inflation, with market reviews. This helps the management of the defensive ASX share forecast that the distribution can grow by 4% per annum. I think that’s a good growth rate, it’s comfortably higher than inflation.

Another factor helping distribution growth is productivity investing. Rural Funds retains around 20% of its annual cash rental profit. The official term its cash rental profit is ‘adjusted funds from operations’ (AFFO). Rural Funds re-invests 20% of AFFO into productivity improvements at its farms for its tenants benefit. This increases the value of the farms and grows rental income.

Occasionally the defensive ASX share will acquire a new farm that will add to earnings. It has been focusing on buying cattle properties in the last couple of years.

It currently offers a FY21 distribution yield of 5.7%.

Foolish takeaway

I think both businesses are defensive ASX shares. At the current prices I’m more drawn to Rural Funds because of its consistent growth and higher distribution yield. However, I’d be happy to have both businesses in my portfolio for reliable income.

More reading

• The pros and cons of investing in high yield dividend shares
• 12 top ASX dividend shares to buy in June 2020
• 3 high yield ASX dividend shares for income
• Not keen on Westpac? Then buy these top ASX dividend shares instead
• 2 strong ASX dividend shares to bolster your income

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

The post 2 defensive ASX shares to protect your portfolio appeared first on Motley Fool Australia.

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I believe there are a few ASX dividend kings that can fit nicely into almost any share portfolio. Especially in the current market, dividend shares can be like gold in providing a steady income stream.

Here are a few of my favourite dividend picks that are worth holding for the long term.

3 ASX dividend kings to buy and hold forever

It’s hard to look past Harvey Norman Holdings Limited (ASX: HVN). The Harvey Norman share price has fallen 13% lower in 2020 but that’s not what caught my eye.

The Aussie retailer recently announced a special dividend for shareholders. The 6 cents per share distribution comes following strong sales during the coronavirus pandemic. The retailer had previously scrapped its planned 12 cents per share distribution in April.

Harvey Norman isn’t the only ASX dividend king on my watchlist. I also like the look of Commonwealth Bank of Australia (ASX: CBA) right now.

CommBank announced an interim dividend of $2.00 per share in February in the pre-COVID-19 market. The largest of the Aussie banks reports its earnings before the other majors and paid investors prior to APRA calling on banks to defer or reduce dividends in April.

However, I think CommBank will bounce back strongly. The ASX bank share is down 15.7% in 2020 but has some strong momentum behind it. If you’re willing to buy and hold forever, I think Commonwealth Bank remains a strong ASX dividend share.

I also like some of the ASX real estate investment trusts (REITs) for the long term. In terms of ASX dividend kings, it’s hard to look past Scentre Group (ASX: SCG) right now.

Scentre shares are currently yielding 8.39% but I don’t know if this will remain the case in the short term. Aussie retail is doing it tough even with considerable government stimulus measures in place.

However, if you’re buying and holding forever, what happens today or tomorrow isn’t too important.

With a strong balance sheet and significant real estate holdings, I think Scentre can remain a strong ASX dividend share for decades to come.

Foolish takeaway

These are just a few ASX dividend kings that I like the look of right now but there are plenty of good options on the market.

More reading

• How I would build a balanced portfolio worth $100,000 with 10 ASX shares
• 12 top ASX dividend shares to buy in June 2020
• Why the Lovisa share price is at risk of falling further over the coming weeks
• ASX 200 falls 1.9%, big 4 ASX banks retreat
• The latest ASX shares to be hit by broker downgrades to “sell” today

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Scentre Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 3 ASX dividend kings to buy and hold forever appeared first on Motley Fool Australia.

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Building a truly well-balanced and diversified $100,000 ASX portfolio is a daunting task – and one that can take years. But the rewards are lucrative enough that I think all ASX investors should aspire to hit the 6-figure mark – whether that takes 5 years or 20.

But choosing the right shares across the right sectors is equally important. Here at the Fool, we are always preaching the benefits of diversification, of not having all of your eggs in one basket.

So in saying that, here are 10 ASX shares that I think would make the perfect (in my eyes, anyway) balanced portfolio with $10,000 invested in each.

Vanguard Australian Shares Index ETF (ASX: VAS) 

As a starter, I think this exchange-traded fund (ETF) forms a solid bedrock of an ASX portfolio. By having the largest 300 companies as holdings, VAS gives us instant diversification and a well-rounded foundation for our other companies to sit upon.

CSL Limited (ASX: CSL) 

The big dog of the ASX, I think it would be amiss to exclude CSL from any ASX-based portfolio. CSL is one of the best blue chips money can buy in my view. It’s a diversified healthcare giant that’s active on the global stage. It’s also the most growth-orientated ASX blue chip in my view and has been quietly building its dividend over the last few years. Therefore, I think an investment in CSL is a great place to have your money over the coming decade.

Woolworths Group Ltd (ASX: WOW)

A stalwart of ASX consumer staples and a highly defensive, mature business, Woolworths earns a place in our balanced portfolio today. It’s dominance of the Aussie groceries market and its familiar and powerful brand give this company an edge in my view and one that can protect your portfolio in any kind of downturn.

Telstra Corporation Ltd (ASX: TLS) 

Telstra is the dominant telco in Australia and commands a healthy market share across both fixed-line internet and mobile. Its mobile network is inarguably the best in the country and leaves its rivals like Optus and Vodafone/TPG Telecom Ltd (ASX: TPM) in the dust in my view. It’s also a healthy dividend payer, and I’m excited about its foray into 5G technology.

Macquarie Group Ltd (ASX: MQG) 

I’m not too excited about the ASX banks like Commonwealth Bank of Australia (ASX: CBA) right now, and so I think Macquarie is a great alternative. It does do traditional banking services like mortgages, but most of its business these days is in asset management and investment banking. Macquarie also pays a healthy dividend, but I think of this company as more a growth stock compared with the major ASX banks.

Wesfarmers Ltd (ASX: WES)

I don’t think we can have a balanced portfolio without including this conglomerate. Wesfarmers is already a highly diversified company. It owns the Bunnings, Target, Kmart and Officeworks chains, as well as a plethora of other businesses across different sectors of the economy. Most recently, it’s expanded into the lithium space with its acquisition of Kidman Resources. As such, I think Wesfarmers is one of the best blue chips on the ASX and a must for our portfolio.

BHP Group Ltd (ASX: BHP)

This year has already well and truly proved the value of holding ASX resources shares in my view. Big miners like BHP have held up remarkably well in the face of the coronavirus crash we saw earlier in the year. Commodity prices can be volatile, but they can also act independently of the rest of the economy, which can be a very handy cushion for a portfolio to have. BHP is one of the largest miners in the world, but also one of the most diversified. It has operations across the coal, oil, copper and iron ore spaces.

As such, I think the ‘Big Australian’ is a great stock to have in our $100,000 portfolio.

Altium Limited (ASX: ALU)

Altium is more of a high-growth, high-volatility share, but that’s why I think its a great inclusion in our portfolio. This company provides software that assists with the design of printed circuit boards – which are an essential component of most electronic devices. It’s been growing rapidly and has a very scalable software as a service business (SaaS) model to boot.

Afterpay Ltd (ASX: APT)

I would feel amiss if I didn’t include this superstar of an ASX company in our $100,000 portfolio. Yes, Afterpay is one of the most volatile shares on the ASX. We’re talking about a company that has had a ~470% swing in value over the last 3 months, after all. But I think Afterpay’s potential is too great to ignore and anyone who has ever bet against this company has always lost. As such, it joins our portfolio with aplomb.

Magellan Global Trust (ASX: MGG)

Our last share to finish off our portfolio is actually a listed investment trust (LIT). MGG invests in a basket of global shares, which include quality names like Microsoft, Alphabet and Tencent. I think all ASX portfolios should have at least some international exposure thrown in, and here MGG is a great candidate for the job in my view. It has a stellar track record of delivering for its investors and also has a top-notch fund manager in Magellan Financial Group Ltd (ASX: MFG)’s Hamish Douglass.

As such, I think this trust is a great stock to round out our $100,000 portfolio.

More reading

• 3 ASX dividend kings to buy and hold forever
• Got $20,000? These are the ASX shares I’d buy during COVID-19
• Here’s how you invest in super to get a free $500
• 12 top ASX dividend shares to buy in June 2020
• 3 ASX shares I’d buy if the market hits 23 March levels again

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sebastian Bowen owns shares of Alphabet (A shares) and Telstra Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of AFTERPAY T FPO, Altium, and CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Telstra Limited. The Motley Fool Australia owns shares of Wesfarmers Limited and Woolworths Limited. The Motley Fool Australia has recommended Alphabet (A shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post How I would build a balanced portfolio worth $100,000 with 10 ASX shares appeared first on Motley Fool Australia.

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Do you have $20,000? There are some ASX shares that I’d love to buy for my portfolio to take advantage of the market selloff.

The ASX has fell quite hard over Thursday and Friday. Yesterday the S&P/ASX 200 Index (ASX: XJO) dropped by 1.9%. In morning trading it was down over 3%. Ouch.

This second selloff seems to have been caused by the comments made by US Federal Reserve boss Jerome Powell. He suggested that the US economy is going to take a while to recover. Some people may not be able to find jobs as quickly as they’d like to.

I think that the market declining is throwing up another opportunity to buy ASX shares at cheaper prices again. If I had $20,000 to invest, I’d go for these ASX shares:

Magellan Global Trust (ASX: MGG) – $6,000

I think Magellan Global Trust is one of the best listed investment businesses on the ASX. It aims for companies it thinks are the highest-quality in the world. These are businesses with excellent economic moats, coronavirus-resistant business models and strong balance sheets. It’s rare to find ASX shares that are as large and powerful as the businesses this listed investment trust (LIT) goes for.  

Some of the shares that it owns are: Alibaba, Alphabet, Microsoft, Tencent, Facebook, Visa, Mastercard, Reckitt Benckiser and Novartis. Many of these names offer digital services which can still be used even during lockdowns. A business like Reckitt Benckiser is a great idea today because it owns cleaning product brands like Dettol and Lysol.

The Aussie dollar is quite strong right now, making it cheaper to buy international shares. Magellan Global Trust is currently priced at a 5% discount to its net asset value (NAV).

Pushpay Holdings Ltd (ASX: PPH) – $4,000

Pushpay is one of my favourite small cap ASX shares. It’s an electronic donation business. Digital giving is in higher demand these days, particularly because of COVID-19 social distancing. We can see this change in demand from the growth that Pushpay is reporting. The fact that Pushpay offers a livestreaming option is very useful for its US church client base.

In the recent FY20 result Pushpay reported that its operating revenue increased by 28% to US$123.1 million, which excludes the Church Community Builder acquisition.

One of the most attractive things to me about this ASX share is that it continues to see improvement with its gross margin. FY20 saw an increase of five percentage points from 60% to 65% for the gross margin. This means that more of the revenue turns into profit for Pushpay.

In FY21 the company is expecting to approximately double its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) to between US$48 million to US$52 million.

Over the long-term Pushpay is targeting a market share of over 50% of the medium and large US church segments, which the company thinks is an annual revenue opportunity of more than US$1 billion. I think this ASX share has a long growth runway.

Future Generation Global Invstmnt Co Ltd (ASX: FGG) – $6,000

Future Generation Global is one of my favourite listed investment companies (LIC). It doesn’t charge any management fees or performance fees.

It invests in the funds of Australian fund managers who invest in overseas shares. These fund managers work for free. Why? So that the LIC can donate 1% of its net assets to youth mental health charities each year.

The LIC’s gross investment performance has beaten its MSCI AC World Index (AUD) benchmark over the past year, three years and since inception in September 2015. Some of the fund managers delivering this performance include Magellan Financial Group Ltd (ASX: MFG), Cooper Investing and Marsico Capital Management.

At the moment we can buy this ASX share at a 22% discount to the net tangible assets (NTA) at 31 May 2020.

Bubs Australia Ltd (ASX: BUB) – $4,000

Bubs is another exciting small cap ASX share in my opinion.

It has a range of goat milk products which are proving popular with consumers. Woolworths Group Ltd (ASX: WOW), Coles Group Limited (ASX: COL) and Baby Bunting Group Ltd (ASX: BBN) have all recently expanded their distribution footprint of Bubs products.

In the third quarter of FY20 Bubs achieved revenue of $19.7 million. This was 36% higher than the December 2019 quarter and 67% better than the March 2019 quarter.

The ASX share achieved a positive operating cashflow of $2.3 million last quarter and ended with a solid cash balance of $36.4 million. Positive operating cashflow makes Bubs a safer choice in my opinion. 

I think Bubs is definitely one to watch for its international growth. The last quarter showed Chinese revenue rose by 104%. It’s also growing strongly in Vietnam.

Foolish takeaway

I believe all four of these ASX shares can beat the ASX 200 over the next three to five years. I like the diversification that Magellan Global Trust and Future Generation Global bring. But I also think that Pushpay and Bubs are two of the brightest prospects on the ASX today.

More reading

• 3 ASX shares I’d buy if the market hits 23 March levels again
• Leading fund manager names 4 ASX stocks set to benefit from a faster re-opening of the Australian economy
• ASX 200 falls 1.9%, big 4 ASX banks retreat
• Down 20% in 7 trading hours… Worse to come?
• 3 fantastic ASX shares to buy and hold to make you wealthy

Tristan Harrison owns shares of MAGLOBTRST UNITS. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BUBS AUST FPO and PUSHPAY FPO NZX. The Motley Fool Australia owns shares of COLESGROUP DEF SET. The Motley Fool Australia has recommended BUBS AUST FPO and PUSHPAY FPO NZX. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Got $20,000? These are the ASX shares I’d buy during COVID-19 appeared first on Motley Fool Australia.

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We’re nearing 30 June, which means it could be time to invest in your super. The Federal Government may make a co-contribution to your retirement account up to a maximum amount of $500.

It may sound too good to be true, but it’s really not. Here’s how to receive a handy boost to your retirement accounts today.

How to invest in super and receive $500

The basic premise of the scheme is to encourage Aussies to support their own retirement. More self-funded retirees are good for the government as it reduces the burden on Australia’s social security.

It’s important to note that this co-contribution is only available for ‘low or middle-income earners’ who invest in super. That’s a little bit vague, so let’s dive into exactly who fits this category.

To be eligible for the contribution, you must have made at least 1 after-tax super contribution during the financial year (i.e. 23 before June), be less than 71 years old, not hold a temporary visa, lodge your tax return and have a total superannuation balance less than $1.6 million.

There’s also the income test which is key to this. To be eligible for a co-contribution, you must have total income (i.e. all income before salary packaging) of less than $53,464.

If you earn less than $38,564 and invest $1,000 in super, you may be eligible for a 50% match or $500. According to the ATO, “if your total income is between the two thresholds, your maximum entitlement will reduce progressively as your income rises.”

That means a $1,000 investment could get matched with an instant $500. It’s hard to beat an instant 50% return on investment right now.

What’s the catch?

There really is no catch to this if you want to invest in super. Of course, that money is locked away until the preservation age and is subject to potential liquidity or regulatory issues.

If you really want to invest in Afterpay Ltd (ASX: APT) shares or other ASX shares then maybe the co-contribution scheme isn’t for you.

However, savvy investors could do well to invest in super and cash in on the Federal Government’s retirement boost.

More reading

• 3 ASX shares I’d buy if the market hits 23 March levels again
• ASX 200 falls 1.9%, big 4 ASX banks retreat
• Tech shares! Should we even invest in anything else?
• S&P quarterly rebalance: A2 Milk added to ASX 50 & NEXTDC in the ASX 100
• All Technology Index sees stunning comeback

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

The post Here’s how you invest in super to get a free $500 appeared first on Motley Fool Australia.

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Investing in high yield dividend shares has both pros and cons.

The Reserve Bank of Australia (RBA) interest rate is now very low at just 0.25%. I think ASX dividend shares are the best way to solve this income problem. But are high yield dividend shares a good idea? To answer that, I’m going to tell you about franking credits first.

Franking credits

Australia gives dividend investors a unique advantage compared to the rest of the world. The Australian taxation system generates franking credits for companies.

According to the ATO: “dividends paid to shareholders by Australian resident companies are taxed under a system known as imputation. This is where the tax the company pays is imputed, or attributed, to the shareholders. The tax paid by the company is allocated to shareholders as franking credits attached to the dividends they receive.”

This is really helpful in making the high yield dividend share’s yield even bigger.

For example, a large company could generate $100 of net profit. The ATO will tax it at rate of 30%. Then there’s $70 left in the company’s hands and $30 in tax is paid to the ATO. If the company pays out that $70 as a dividend it will attach the $30 as franking credits for the shareholder.

Franking credits can turn a fully franked dividend yield of 7% into a grossed-up dividend yield of 10%.

The pros of high yield dividend shares

Get more income from your capital 

We only have so much money at our disposal. Depending on your needs, you may want to generate a certain amount of investment income each year. High yield dividend shares could allow you to achieve the required income from a smaller capital balance. For example, a 10% grossed-up dividend yield would generate $10,000 of income from $100,000 of capital. You’d need $200,000 of capital to make $10,000 with a 5% yield.

Don’t have to sell shares to be rewarded 

Some shares like Berkshire Hathaway are famous for not paying a dividend. However, if you need money to live then you’d have to sell shares to get money. I wouldn’t want to be worrying about when I should be selling shares. High yield dividend shares allow you to regularly benefit from the profit they’re making as they pay out those nice dividends.

The cons of high yield dividend shares

Tax

If you’re earning income from your work you’re probably paying tax. Dividends count as taxable income. The more you receive in dividends the more you have to pay in tax.

If you’re in one of the highest tax brackets then high yield dividend shares could mean handing over a lot of your annual return over to the ATO each year.

Low re-investment

If a business makes $10 million of profit and pays out $9 million of it as a dividend then it’s only retaining 10% to re-invest back into the business. It might be better for the long-term returns of the business to keep $2 million or even $5 million to re-invest.

We should want our shares to invest back into the business if it’s possible to earn a decent return on that money. Dividends are important, but capital growth is also an important part of total returns.

A high yield could indicate a risky share

Some high yield dividend shares have a yield simply because they pay out most of their profit each year.

However, other shares could have a high yield because the market doesn’t price the company’s earnings very highly.

For example, two businesses could have the same dividend payout ratio of 50%. One could have a price/earnings (p/e) ratio of 10, which would equate to a dividend yield of 5%. The other could have a p/e ratio of 20, which would equate to a dividend yield of 2.5%.

The lower p/e business may be valued lower because it’s riskier and there may be more of a chance of a dividend cut. Dividends are not safe like term deposits. We’ve already seen some dividend cuts in this COVID-19 era. 

Foolish takeaway

High yield dividend shares can be a good way of getting more income for your money. However, I’d only be interested in some of the more reliable dividend shares out there like WAM Research Limited (ASX: WAX), Naos Emerging Opportunities Company Ltd (ASX: NCC) and Rural Funds Group (ASX: RFF).

More reading

• 12 top ASX dividend shares to buy in June 2020
• 3 ASX shares I’d buy if the market hits 23 March levels again
• Get paid huge amounts of cash to own these ASX dividend shares
• 3 high yield ASX dividend shares for income
• Not keen on Westpac? Then buy these top ASX dividend shares instead

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

The post The pros and cons of investing in high yield dividend shares appeared first on Motley Fool Australia.

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The recent stock market crash means that many high-quality businesses are now trading on attractive valuations. Although they could experience further challenges in the short run from threats such as geopolitical uncertainty concerning the United States and China, over the long run they offer recovery potential.

With the stock market having always recorded higher highs following its past bear markets, now could be the right time to buy a diverse range of companies and hold them for the long run.

Recovery potential

The stock market’s track record of recovery is extremely strong, and is the key reason why now could be the right time to buy bargain shares.

Certainly, it has experienced major declines such as that recorded in the recent market crash. However, it has always been able to post new record highs in the months or years following its declines.

For example, major indexes such as the FTSE 100 lost more than half their value during the global financial crisis. Yet they were able to recover to record levels in the decade-long bull market that took place as the world economy gradually recovered from the challenges it experienced in 2008/09.

Although the global economy looks set to experience a significant slowdown in its growth rate in the short run, the stock market is likely to post high returns in the coming years as investor sentiment gradually improves. Therefore, investors who are able to invest now while many companies trade on low valuations could maximise their returns as the economy, and stock market, experience improving growth rates in the coming years.

Risk management

Of course, the stock market is unlikely to grow in a smooth and uneventful fashion. Past recoveries have shown that volatility can be high while risks remain on the horizon. For example, over the coming months, a second wave of coronavirus cases could hurt investor sentiment and cause stock prices to come under pressure.

As such, it is crucial that investors manage risks through strategies such as diversification and purchasing companies with sound finances.

Diversifying across a range of industries and geographies may limit your exposure to companies that experience challenging trading conditions, as some sectors and regions may be less affected by the likely economic slowdown than others. And, by purchasing companies with sound balance sheets, it may be possible to increase your exposure to those businesses that are most likely to survive difficult operating conditions.

Starting today

Although it may require a significant amount of self-discipline to buy bargain shares after a market crash, doing so could boost your long-term return prospects. The stock market has an excellent track record of rebounding from its various bear markets. It is very likely to do likewise after its recent market crash, which could make today the ideal time to buy a range of solid businesses to hold for the long run.  

More reading

• Got $20,000? These are the ASX shares I’d buy during COVID-19
• Here’s how you invest in super to get a free $500
• The pros and cons of investing in high yield dividend shares
• 12 top ASX dividend shares to buy in June 2020
• Why the Seven Group share price was up 2% on Friday

Motley Fool contributor Peter Stephens has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 1 reason why I’d buy bargain shares today appeared first on Motley Fool Australia.

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Along with our Top ASX Stock Picks for June, we also asked our Foolish writers to pick their favourite ASX dividend shares to buy this month.

Here is what the team have come up with…

Sebastian Bowen: Coles Group Ltd (ASX: COL)

Coles is a company we’d all be familiar with. I think 2020 has shown the worth of having a consumer staples giant like Coles in a dividend portfolio. Whilst this company might not have the largest dividend on the market, it is (in my view) one of the most reliable.

Coles also has a very dividend-friendly policy of paying out 80–90% of earnings each year in dividends, which typically come fully franked as well. As such, I would happily add Coles to a diversified ASX dividend portfolio this June and be comfortable in the knowledge this is a stock you can conceivably hold forever.

Motley Fool contributor Sebastian Bowen does not own shares of Coles Group Ltd. 

Michael Tonon: Rural Funds Group (ASX: RFF)

Rural Funds now has a 5-year-strong track record of increasing its dividend payments to shareholders. This means it didn’t stumble like many companies recently when it came to paying out its quarterly dividend.

Rural Funds’ strong dividend growth comes from its long weighted average lease expiry of 11.5 years and the structural rental growth built into these leases. This provides it with a significant amount of reliability when it comes to increasing and predicting future dividends. For these reasons, if you’re looking for a steady yield, I believe it’s a no brainer.

At the time of writing, Rural Funds currently trades with a FY21 distribution yield of 5.5%.

Motley Fool contributor Michael Tonon owns shares of Rural Funds Group.

Brendon Lau: Commonwealth Bank of Australia (ASX: CBA)

I suspect CBA’s final dividend (to be declared in August) won’t be cut as much as the market believes. This is because the economy is slowly but surely recovering from the COVID-19 fallout. Pressure on banks to cut or suspend their dividends to shore up capital buffers is easing and that should give our largest bank greater flexibility in paying its dividend.

Motley Fool contributor Brendon Lau owns shares of Commonwealth Bank of Australia.

Daryl Mather: Vicinity Centres (ASX: VCX)

In my opinion, Warren Buffett’s saying “be greedy when others are fearful” applies to Vicinity Centres. The company recently undertook a placement to strengthen its balance sheet. It also cancelled its most recent distribution and flagged revenue difficulties due to the pandemic.

So why invest? At its current share price, the company has a 12-month trailing average distribution of 9.6%. Its share price is down by around 35%, year to date. Yet, it is still the same great company it always was.

I think investing in Vicinity today provides an exceptionally low entry price to a great REIT and locks in future high dividend yields.  

Motley Fool contributor Daryl Mather does not own shares in Vicinity Centres. 

Tristan Harrison: Brickworks Limited (ASX: BKW)

I think Brickworks is one of Australia’s most reliable ASX dividend shares. It hasn’t decreased its dividend for over 40 years.

It has three attractive divisions. The first is a large long-term holding of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) shares, which delivers a growing stream of dividends. The second is an attractive industrial property trust which is steadily growing net rental profit for Brickworks. The third is its building products businesses in Australia and the US. It’s a strong combination of assets.

At the time of writing, Brickworks shares have a grossed-up yield of 5.1%.  

Motley Fool contributor Tristan Harrison does not own shares of Brickworks Limited.

Toby Thomas: Harvey Norman Holdings Limited (ASX: HVN)

In my mind, it’s tough to go past this retail juggernaut in June. Having announced earlier this week that franchise sales had rocketed by as much as 17% in the second half of FY2020, the company further revealed that a ‘special dividend’ of 6 cents per share would be paid to shareholders later this month. This sees the annual dividend yield for Harvey Norman total 8.6% on a fully-franked basis.

Its strong sales performance has undoubtedly come off the back of government stimulus and stronger consumer spending on electronics and home appliances during COVID-19 lockdowns. As people look to go out less and invest in home improvements instead, I think a strong investment case can be made for owning shares in Harvey Norman.

Motley Fool contributor Toby Thomas does not own shares of Harvey Norman Holdings Ltd.

Phil Harpur: Dicker Data Ltd (ASX: DDR) 

Dicker Data is a wholesale distributor of computer hardware, software, as well as cloud-based solutions. It is also the largest Australian-owned hardware distributor in Australia and New Zealand. Dicker Data has evolved over the past 40 years from a small family run business to a company with an impressive market capitalisation of around $1.35 billion today.

Dicker Data has also seen a recent uplift in sales. It recorded its strongest ever revenue month to date in March. Sales have continued to be strong despite the coronavirus crisis.

Dicker Data currently pays a forward fully franked dividend yield of around 3.8% at the time of writing.

Motley Fool contributor Phil Harpur does not own shares of Dicker Data Ltd.

Chris Chitty: BHP Group Ltd (ASX: BHP)

My dividend stock for June is Australia’s largest and most famous resources producer. BHP has fared relatively favourably recently due to interruptions to competitor Vale in Brazil. It is also leveraged to an economic recovery, following the unprecedented stimulus that has been added to the world economy in recent months.

At the time of writing, BHP trades on a generous trailing dividend yield of 5.87%, fully franked. It has continued its dividend in the recent climate and, with its high quality assets, BHP looks set to continue its long-term growth.

Motley Fool contributor Chris Chitty does not own shares in BHP Group Ltd.

Lloyd Prout: Cochlear Limited (ASX: COH)

Cochlear is a medical device company that is a leader in the design, manufacture and supply of implantable hearing devices.

The Cochlear share price is down around 25% from its February highs. COVID-19 caused sales revenue to temporarily fall ~60% in the month of April compared to the prior corresponding period. On top of this, the recent ruling in its long-running patent infringement case will see Cochlear pay approximately US$280 million in damages.

These are temporary impacts that, in my view, present a great entry point for a high quality, long term dividend payer. At the time of writing, Cochlear shares currently yield 1.72% or 2.45% grossed up.

Motley Fool contributor Lloyd Prout does not own shares in Cochlear Limited and expresses his own opinion.

Matthew Donald: Woolworths Group Ltd (ASX: WOW)

Woolworths is Australia’s largest supermarket chain, carving out a 32.9% market share according to the Fresh Food and Grocery Report.

Regardless of the economic climate, people need to buy groceries, which means Woolworths shares boast defensive characteristics. Defensive companies with stable cash flow can provide dividends even in the bleakest economic conditions.

After the initial surge in demand for groceries at the height of the pandemic and the threat of a second wave, Woolworths could act as a fort for investors as markets reassess risk. 

Disclosure: Motley Fool contributor Matthew Donald does not own shares in Woolworths Group Ltd.

Ken Hall: Harvey Norman Holdings Limited (ASX: HVN)

Harvey Norman is my top ASX dividend share for June after a strong start to the month.

The Aussie retailer recently announced booming sales during the early stages of coronavirus restrictions. Strong sales meant the ASX retail share announced a 6 cents per share special dividend last week. That’s despite the company having previously cancelled its 12 cents per share interim dividend in April.

With more Aussies working from home in 2020, Harvey Norman could be well-placed for a surprisingly good year. The Harvey Norman share price is still trading lower in 2020 and could be a bargain buy right now.

Motley Fool contributor Ken Hall does not own shares in Harvey Norman Holdings Ltd.

Nikhil Gangaram: Medibank Private Ltd (ASX:MPL)

In my opinion, Medibank would be a great share to park your money in, given the current uncertain trading environment. The company boasts a great net cash balance and offers a dividend yield of around 4–5% after franking.

With people becoming more conscious of their overall health, many might look to spend money on private health insurers like Medibank for peace of mind. In addition, with the federal government’s budget coming under pressure post-pandemic, private healthcare might become more popular as public health systems become constrained.

Motley Fool contributor Nikhil Gangaram does not own shares in Medibank Private Limited.

More reading

• Why the Lovisa share price is at risk of falling further over the coming weeks
• 3 defensive ASX shares to buy if the sell-off continues
• ASX 200 falls 1.9%, big 4 ASX banks retreat
• ASX shares I’d buy if this decline is a second COVID-19 crash
• The latest ASX shares to be hit by broker downgrades to “sell” today

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia owns shares of and has recommended Brickworks, Dicker Data Limited, RURALFUNDS STAPLED, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths Limited. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post 12 top ASX dividend shares to buy in June 2020 appeared first on Motley Fool Australia.

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The Seven Group Holdings Ltd (ASX: SVW) share price is up 2% today following an investor presentation released this morning. The presentation was given to analysts by Mr Ryan Stokes AO, Managing Director and CEO of Seven Group.

What was in the announcement?

The article included updates about the company’s WesTrac and Coates hire subsidiaries. It also included updates regarding Seven Group’s energy assets, media assets and capital management situation. It was a positive announcement overall which was reflected by the company’s higher share price today.

WesTrac

Seven Group’s Westrac subsidiary has performed well through the recent coronavirus crisis. According to the announcement, the pandemic has so far had a minimal impact on the key drivers of mining production along with fleet utilisation and age. Revenue of the subsidiary for the year to May 2020 was up 15% on the prior corresponding period. WesTrac was recently awarded new contracts from several mining companies including Rio Tinto Limited (ASX: RIO).

Coates Hire

The group’s Coates Hire business has been negatively affected by coronavirus with both the events hire and construction hire businesses impacted. Lockdown measures are estimated to have adversely impacted vertical construction productivity by 30% and horizontal construction activity by 10%. Despite this, the business reported that year to date revenue was up 2% on the prior corresponding period. It also announced that governments were focused on accelerating ‘shovel ready’ projects with demand for engineering and construction poised to benefit. The company reported that Australia was in the midst of its largest ever transport infrastructure boom with investment set to reach $18 billion per annum by 2023.

Energy

Seven Group reported that gas prices for 2020 contracts had remained strong. It also boasted that through its investments in Beach Energy Ltd (ASX: BPT) and SGH Energy the company had the potential to take advantage of a projected supply gap for gas beyond the next 2-3 years.

Media

The company reported that government measures surrounding coronavirus had negatively impacted advertising revenue for Seven West Media Ltd (ASX: SWM). It also announced that it had made some media asset sales and realised more than $140 million in the process. Additionally, it reminded investors that Seven also had other media investments that would expose the group to growth in China’s media, entertainment and consumer sectors.

Capital management

Seven Group’s announcement regarding its capital management was positive with the group reporting it has over $700 million in new funding available. It also announced that its private placement, priced in May, was oversubscribed with US$865 million in bids received. It also has $616 million in existing committed undrawn facilities.

About the Seven Group share price

The Seven Group Holdings share price is up 95% since its 52-week low of $8.92 reached in March this year. The company’s share price closed at $17.35 on Friday which is 10.89% down since the beginning of the year.

More reading

• Keep a watch on these 3 ASX trends next week
• 3 top ASX dividend shares to add to your portfolio in June
• 3 quality ASX dividend shares to solve your income needs
• 2 top ASX dividend shares for income in 2020
• Can the Boral share price continue to rise?

Motley Fool contributor Chris Chitty 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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