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The month of February is useful for finding ASX dividend stocks that have sold off heavily. It’s reporting season and provides a great opportunity for investors to have an in-depth look at what’s really going on for some companies.

ASX retail share Universal Store Holdings Ltd (ASX: UNI) is down heavily from its peak. It has a few different brands, including Universal Store, Perfect Stranger, THRILLS and Worship. These are youth fashion apparel brands that sell ‘on-trend’ products aimed at 16 to 35-year-olds.

The Universal Store share price is 50% lower than it was in November 2021 – half the price that it was before.

Declines lead to bigger yields

If a share price falls, not only does the ASX dividend stock become cheaper, but it also boosts the prospective dividend yield. For example, if a company has a dividend yield of 5% and its share price drops 10%, that pushes the yield up to 5.5%. If it falls by 25%, then the 5% yield becomes 6.25%.

Universal Store has grown its dividend each year since it started paying dividends in 2021. In FY23, it paid an annual fully franked dividend per share of 22 cents, so this translates into a trailing grossed-up dividend yield of 7.6%.

The estimate on Commsec currently suggests the retailer could pay an annual dividend per share of 23.1 cents, translating into a grossed-up dividend yield of 8%. Bear in mind a forecast is just an estimate – the dividend could be smaller or bigger than that.

In FY25, the business might pay an annual dividend per share of 25.9 cents — a grossed-up dividend yield of 8.9%. By FY26, it could pay an annual dividend per share of 28.2 cents. This would be a grossed-up dividend yield of 9.7%.

Can the ASX dividend stock pay this passive income?

Universal Store has shown a willingness to pay healthy dividends to shareholders and grow the dividend.

I think the ASX dividend stock has a very good chance of growing earnings in FY25 and FY26, assuming the economy stays as strong as it is.

In November, the company advised told investors in an update that total sales were up 14.7% to $88.4 million, with its underlying gross profit margin being in line with last year at 59% and the cost of doing business being slightly lower than last year. Underlying earnings before interest and tax (EBIT) was up by roughly $2 million.

The company continues to grow its store network, which grows its scale. In the first half of FY24, it was expected to open seven new stores – two Universal Store locations, four Perfect Stranger stores and one new-format THRILLS store.

It indicated it was planning to open another four to seven stores in the six months to June 2024, which would leave it with between 104 to 107 stores.

The ASX dividend stock is trading at just 9x FY26’s estimated earnings, according to Commsec. If we take a longer-term mentality and hold during any short-term volatility, I think it’s materially undervalued at this price. The growing dividend could also be very rewarding.

The post 1 ASX dividend stock down 50% to buy in February appeared first on The Motley Fool Australia.

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More reading

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• Brokers say these ASX dividend stocks are buys
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• Buying ASX retail shares? You’ll want to see these numbers

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 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.

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I want to be able to teach my child about investing in ASX shares to help them financially in the future, and to share the power of compounding. I plan to use the ASX ETF BetaShares Global Sustainability Leaders ETF (ASX: ETHI) to help me do that.

My child won’t turn 20 for many years yet, leaving plenty of time for the money to grow.

Compounding is a very powerful tool – it can turn $1,000 into $2,600 after 10 years if it grows by 10% per annum. The figure becomes $6,700 if it grows by 10% annually for 20 years.

Why I like the ETHI ETF

For starters, it offers the type of strong diversification that I’d want from an ASX exchange-traded fund (ETF).

Being able to buy a basket of 300 shares from across the world is appealing. I don’t want to make an Australian-focused investment and miss out on the rest of the global share market and global economy.

The fund invests in some of the world’s leading businesses such as Nvidia, Visa, Mastercard, Apple, Home Depot, Toyota, ASML and Salesforce.

But I’m not interested in it just because it offers diversification and has strong holdings, though that helps a lot.

It also has an ethical overlay that ensures it’s only invested in climate leaders. The ASX ETF excludes various sectors such as tobacco, weapons, alcohol, gambling and so on. It avoids businesses that lack gender diversity on the board and does not invest in businesses where there are supply chain concerns (such as child labour).

I think owning a portfolio of large, environmentally sustainable and ethical companies can perform well.

Whether it’s coincidence or influential that these ethical businesses have performed well, the ETHI ETF has delivered an average return per annum of 17.6% since it started in January 2017.

I think it’s the type of investment that could help grow in value for my child over the longer term, it can do well for the planet, and we can feel good owning it. The annual management fee is just 0.59%, which I think is reasonable for how much work has gone into constructing the portfolio.

The post I’m planning to buy this top ASX ETF for my child appeared first on The Motley Fool Australia.

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• How I’m investing in ASX shares for my child
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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 ASML, Apple, Home Depot, Mastercard, Nvidia, Salesforce, and Visa. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool Australia has recommended ASML, Apple, Mastercard, Nvidia, and Salesforce. 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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There are a lot of options for income investors on the Australian share market.

Two high-yield ASX dividend stocks that analysts at Morgans think investors should be buying are listed below.

Here’s what the broker is saying about them:

Baby Bunting Group Ltd (ASX: BBN)

Morgans thinks that this baby products retailer could be an ASX dividend stock to buy.

The broker currently has an add rating and $2.00 price target on its shares.

Although it has been disappointed with the company’s recent performance, Morgans believes that management’s strategy will turn things around and drive growth.

In the meantime, the broker is still forecasting some attractive dividend yields. It expects fully franked dividends per share of 9.5 cents in FY 2024 and then 12.4 cents in FY 2025. Based on the current Baby Bunting share price of $1.80, this will mean yields of 5.3% and 6.9%, respectively.

Morgans has an add rating and $2.00 price target on the company’s shares.

HomeCo Daily Needs REIT (ASX: HDN)

Morgans also believes that HomeCo Daily Needs could be an ASX dividend stock to buy.

It is a property company with a focus on neighbourhood retail, large format retail, and health and services. HomeCo Daily Needs has a high quality tenant base with over 80% either ASX-listed and/or national retailers.

The broker currently has an add rating and $1.37 price target on its shares.

And much like Baby Bunting, Morgans expects some above-average yields from the company in the near term. It is forecasting dividends per share of 8.3 cents in FY 2024 and then 8.5 cents in FY 2025. Based on the current HomeCo Daily Needs share price of $1.27, this will mean yields of 6.5% and 6.7%, respectively.

The post Morgans says these high-yield ASX dividend stocks are buys appeared first on The Motley Fool Australia.

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More reading

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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 recommended HomeCo Daily Needs REIT. 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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At the start of each week, I like to look at ASIC’s short position report to find out which shares are being targeted by short sellers.

This is because I believe it is well worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, here are the 10 most shorted shares on the ASX this week according to ASIC:

• Pilbara Minerals Ltd (ASX: PLS) continues its long run as the most shorted ASX share despite its short interest easing to 19.2%. Short sellers appear to believe that lithium prices are going to stay lower for longer.
• Syrah Resources Ltd (ASX: SYR) has short interest of 16.9%, which is down week on week. This graphite producer has been struggling with weak battery materials prices. Short sellers don’t seem to believe this will improve any time soon.
• Core Lithium Ltd (ASX: CXO) has short interest of 13%, which is up slightly week on week. This lithium miner recently announced plans to restrict production to reduce costs.
• Sayona Mining Ltd (ASX: SYA) has 11.4% of its shares held short, which is down slightly since last week. This lithium miner is currently paying more to mine its lithium than it receives from sales.
• Deep Yellow Limited (ASX: DYL) has seen its short interest rise to 10%. There are doubts about the bullish outlook of uranium prices following a recent update from a large miner.
• IDP Education Ltd (ASX: IEL) has 9.9% of its shares held short, which is flat week on week. This is likely to be down to unfavourable regulatory changes and the loss of its testing monopoly in Canada.
• Genesis Minerals Ltd (ASX: GMD) has seen its short interest ease to 9.1%. This may be due to concerns over integration risks from its recent acquisition spree.
• Weebit Nano Ltd (ASX: WBT) has short interest of 8.6%, which is down since last week. Short sellers don’t appear confident this semiconductor company will ever live up to its market capitalisation of almost $750 million.
• Chalice Mining Ltd (ASX: CHN) has short interest of 8.4%, which is down week on week. This mineral exploration company’s shares have crashed deep into the red over the last 12 months following news that its production is still years away.
• Flight Centre Travel Group Ltd (ASX: FLT) has 8.1% of its shares held short, which is down since last week. There are concerns over this travel agent’s growth and revenue margin assumptions.

The post These are the 10 most shorted ASX shares appeared first on The Motley Fool Australia.

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More reading

• 3 things ASX investors should watch this week
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• If I invest $10,000 in Flight Centre shares, how much dividend income will I receive in 2024?
• ASX mining shares up amid Labor plan to spend multibillions on renewables revolution
• Why Fletcher Building, GQG, Pilbara Minerals, and Tyro shares are climbing 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 positions in and has recommended Idp Education. The Motley Fool Australia has recommended Flight Centre Travel Group and Idp Education. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Westpac Banking Corp (ASX: WBC) share price is one to watch today following the release of the bank’s first-quarter update for the three months ending 31 December.

The S&P/ASX 200 Index (ASX: XJO) bank stock closed on Friday trading for $24.57 a share.

Here’s what the big four bank just reported.

Westpac share price on watch as net interest margins shrink

• Unaudited net profit of $1.5 billion, down 6% from the 2H 2023 average
• Unaudited net profit excluding notable items of $1.8 billion, in line with 2H 2023
• Core net interest margin (NIM) of 1.80%, down 0.04% from 2H 2023
• Common Equity Tier 1 (CET1) capital ratio of 12.3%, down 0.09% from September 2023

What else happened with Westpac during the quarter?

The 6% drop in net profit for the quarter may not have a material impact on the Westpac share price today, with the bank noting the decline was due to notable items that exclusively related to hedge accounting which, management noted “will reverse over time”.

Westpac’s pre-provision increased by 1% over the three months. Revenue and expenses were both up by 2% over the period. The increased expenses were fuelled by higher amortisation expenses and ongoing inflationary pressures.

The 0.04% drop in NIM was predominantly driven by ongoing mortgage competition among the Aussie banks. While the bank said the 0.09% fall in the CET1 ratio reflected the second half dividend payment “more than offsetting earnings for the quarter”.

Credit impairment provisions of $5.1 billion as at 31 December came in $1.5 billion above the expected losses of Westpac’s base case scenario.

The big four bank has completed 31% of the $1.5 billion on market share buyback it announced in November.

What did management say?

Commenting on the results that could move the Westpac share price today, CEO Peter King said:

I’m pleased with our efforts to strengthen the Westpac franchise. Our Consumer NPS [net promoter score] has increased reflecting improved mortgage servicing capability and Westpac Institutional Bank’s rankings across key industry surveys are higher.

From a credit quality perspective, we saw a reduction in business stress while a rise in 90+ day mortgage delinquencies reflects the tougher economic environment.

What’s next?

Looking to what could impact the Westpac share price in the months ahead, King added:

We expect the economy to remain resilient, supported by low unemployment and healthy corporate sector balance sheets. The economic slowdown, combined with abating inflationary pressures, should provide scope for monetary policy to become less restrictive within the next year.

We continue to prioritise financial strength with capital, funding and liquidity well above regulatory minimums. Risk management remains a priority.

Following the completion of 100% of CORE [customer outcomes and risk excellence] program activities, we have commenced the transition period which will continue throughout 2024.

Westpac share price snapshot

The Westpac share price is up 7% in 12 months.

Shares the ASX 200 bank stock have gained 20% since the recent October lows.

The post Westpac share price on watch following $1.8 billion quarterly profit appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
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• Forget Westpac and buy these top ASX dividend stocks
• Big news: 15 ASX 200 shares smashing 52-week highs this Tuesday
• Westpac shares at a 52-week high ahead of results: What’s the market expecting?

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.

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Artificial intelligence (AI) is a rapidly developing technology with the potential to change the world if utilised correctly. A leading fund manager has picked out an S&P/ASX 200 Index (ASX: XJO) share that could be a major winner from AI: Megaport Ltd (ASX: MP1).

Of course, no company is guaranteed to do well just because it has a connection to AI. For example, telco companies didn’t necessarily win significantly from the introduction of the Internet. Instead, the big gains went to names like Amazon.com and Meta Platforms that developed platforms like Facebook and Instagram.

Megaport is not a telco. It’s an “enterprise software and services organisation that enables data connection between companies and data centres”, according to fund manager Wilson Asset Management.

The ASX 200 share is primed for growth

The fund manager noted that the Megaport share price has been rising after its quarterly earnings update beat market expectations. The ASX 200 share announced it had won a large US-based healthcare customer worth $4.2 million over the next three years, its largest deal to date.

WAM then said:

Megaport is a beneficiary of an increase in data connectivity and artificial intelligence and we believe the company is well-positioned to continue taking advantage of the demand for its services over the next few years.

How fast is it growing?

In the quarterly update for the three months to December 2023, Megaport advised its total revenue was $48.6 million — 5% higher than the FY24 first quarter. When you annualise that growth, it’s solid growth.

Profitability is now accelerating, even though the business is investing hard for growth.

Its earnings before interest, tax, depreciation and amortisation (EBITDA) was $12.7 million, up $10.3 million, or 429%, compared to the second quarter of FY23.

The ASX 200 share’s net operating cash flow was an inflow of $15.2 million for the FY24 second quarter, an increase of $4.5 million (or 42%) quarter over quarter and an increase of $15 million compared to the second quarter of FY23.

With revenue growth and even faster profit growth, it’s looking good for the company and shareholders.

Megaport share price snapshot

Over the past year, the Megaport share price has risen by more than 110%.

The post This ASX 200 share is predicted to benefit from AI demand for years appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Monday
• How to build a $1 million superannuation fund
• Here’s how the ASX 200 market sectors stacked up this week
• Here are the top 10 ASX 200 shares today
• 7 ASX 200 shares with ex-dividend dates next week

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. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, 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 Amazon, Megaport, and Meta Platforms. The Motley Fool Australia has recommended Amazon, Megaport, and Meta Platforms. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Telstra Group Ltd (ASX: TLS) share price has been going in the wrong direction in recent times. It’s down 5% since 2 February and more than 12% lower than in June 2023.

The telco company recently reported its FY24 first-half result, which was a solid report with good growth.

The S&P/ASX 200 Index (ASX: XJO) is only down by 0.5% from early February, and it has increased by 4% since June 2023. The Telstra share price has noticeably underperformed.

How good was the result?

Most of Telstra’s numbers went in the right direction.

In its HY24 result, the company reported that total income rose 1.2% to $11.7 billion, earnings before interest, tax, depreciation and amortisation (EBITDA) grew 3.8% to $4 billion, net profit after tax (NPAT) rose 11.5% to $1 billion and earnings per share (EPS) went up 12% to 8.4 cents.

Telstra increased its interim dividend by 5.9% to 9 cents per share, which, at the current Telstra share price, equates to a grossed-up dividend yield payment of 3.3%.

The company’s mobile division is benefiting from more subscribers and the average revenue per user (ARPU), which I think is the key segment.

Telstra has a great deal of mobile infrastructure which it has invested a lot of money into. The more users it can spread that cost across, the stronger the profit margin is likely to be. Revenue growth is one thing, but being able to make more profit per revenue dollar is appealing.

Telstra’s mobile division saw income growth of 4% to $5.3 billion and EBITDA growth of 13% to $2.5 billion. Its number of mobile services in operation (SIO) grew by 4.6%, while the average revenue per user saw 3.4% growth.

Is the Telstra share price too low?

In terms of the income statement, I think the most important number to look at is the earnings per share (EPS) because it tells us how much profit each share is assigned. This drives the underlying value of each share. As a reminder, Telstra saw an EPS of 8.4 cents for this result.

If we simply doubled that EPS and assumed 16.8 cents for FY24, the Telstra share price is valued at 23x of that annualised figure.

But, analysts think the company is going to generate more EPS than that (though forecasts can change or be wrong). On Commsec, the forecast EPS for FY24 is 18.1 cents, which suggests the Telstra share price is valued at 21x FY24’s estimated earnings.

My view on Telstra shares

It’s not exactly cheap for how fast it’s growing, but if it can keep growing earnings then it could be undervalued today.

ASX mining shares are at the mercy of whatever happens with the commodity prices. ASX bank shares face a lot of competition and an uncertain period when it comes to arrears.

I actually think Telstra is well-positioned with its strong market position, inflation-linked ARPU growth, growing subscriber base and its compelling efforts to diversify earnings.

I’d prefer to buy Telstra shares at the moment than many other ASX blue-chip shares. If it can continue to successfully work on its cost base, improve profit margins and profit improve further, it could be quite appealing at this level.

The grossed-up dividend yield would be 6.7% if it pays another 9 cents per share dividend in six months.

The post Is the Telstra share price too low, after another strong set of results? appeared first on The Motley Fool Australia.

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More reading

• Why these 3 top ASX 200 stocks grabbed the Motley Fool’s headlines this week
• 5 steps to becoming a milionaire with ASX shares
• Brokers name 3 ASX shares to buy now
• Down 12% from their highs: Are Telstra shares a post-results bargain buy?
• 3 high-quality ASX 200 dividend shares to buy for a second income

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 no position in any of the stocks mentioned. 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.

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BHP Group Ltd (ASX: BHP) shares are under the spotlight this week as the company is due to report its FY24 half-year result tomorrow. Should investors buy the ASX mining share before it reports?

The BHP share price has fallen in recent times, down by 9.75% since the start of the year.

What’s gone wrong lately for BHP shares?

It’s understandable why investors are a little less optimistic than before. The iron ore price has dipped below US$130 per tonne, whereas it was above US$140 per tonne at the start of January 2024.

Conditions have deteriorated for the nickel industry, putting pressure on the profitability potential for that segment. The ASX mining share recently recognised a huge impairment of its nickel division to the tune of US$3.5 billion, pre-tax.

BHP also said it would recognise an income statement charge of approximately US$3.1 billion, pre-tax. This relates to the Samarco dam failure in Brazil.

BHP Brasil’s provision for the Samarco dam failure will be US$6.5 billion as at 31 December 2023. It reflects the “assessment of the estimated costs to resolve all aspects of the Federal Public Prosecution Office claim and the framework agreement obligations”.

Time to buy before earnings results?

We already know a lot about the BHP result – we’ve heard about the large impairments and also the operational update. We know how much the company produced, the realised price and the production cost.

There may not be much of a surprise in the result in the income statement, so the BHP share price may not react strongly either way.

I think there is a question mark hanging over what size the BHP dividend will be. Significant items that were recently announced (the nickel and Samarco issues) could lead to BHP paying a smaller dividend than it otherwise may have. If investors are focused on the dividend, there’s a chance they could be disappointed.

Of course, the BHP share price has already fallen, so investors may already have factored in the bad news.

According to the estimate on Commsec, BHP shares are valued at 10.7x FY24’s estimated earnings with a possible grossed-up dividend yield of 7.6%.

Foolish takeaway

Regardless of the fact that BHP is set to report tomorrow, I don’t think now is the best time to invest because the iron ore price is still at a strong level.

A strong iron ore price is good for short-term profitability, but it also means the BHP share price is higher than if the iron ore price was around, say, US$100 per tonne.

The right time to invest in an ASX mining share is when the commodity price is weak, in my opinion. I believe we can make good returns with cyclical ASX shares as long as we buy at the weak point of the cycle.

The post What are the pros and cons of buying BHP shares before the company reports? appeared first on The Motley Fool Australia.

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More reading

• I’d need this many BHP shares for passive income of $10,000 a year
• Why these 3 top ASX 200 stocks grabbed the Motley Fool’s headlines this week
• 5 steps to becoming a milionaire with ASX shares
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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 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.

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If you’re searching for an income boost, then it could be worth checking out the two ASX dividend shares listed below that analysts are bullish on.

Here’s what you they are saying about these income options:

Accent Group Ltd (ASX: AX1)

The first ASX dividend share for investors to consider buying for income is footwear-focused retailer Accent.

It owns a large stable of brands such as Hype DC, Platypus, Stylerunner, and Sneaker Lab.

Bell Potter is positive on the company. This is because of “continuing casual footwear trends and as sports, fitness & wellness related spending remains a priority.”

The broker expects this to underpin fully franked dividends per share of 12 cents in FY 2024 and then 14.1 cents in FY 2025. Based on the latest Accent share price of $2.27, this represents dividend yields of 5.3% and 6.2%, respectively.

Bell Potter has a buy rating and $2.80 price target on its shares.

Dexus Convenience Retail REIT (ASX: DXC)

Another ASX dividend share that has been given the thumbs up is Dexus Convenience Retail REIT.

It is a convenience retail and service station property fund with a portfolio of 101 assets located across Australia but concentrated on the eastern seaboard. Management notes that its portfolio is leased to high-quality tenants on attractive, long-term leases.

Bell Potter is also a fan of the company and highlights that “DXC trades at a circa 34% discount to stated NTA which we think is overly punitive for a sub-sector where there is clear price discovery, and investors for commercial real estate have a clear preference for smaller cheque size assets.”

In addition, it is expecting some big yields in the near term. The broker is forecasting dividends per share of 20.9 cents in FY 2024 and 20.5 cents in FY 2025. Based on its current share price of $2.80, this equates to yields of 7.5% and 7.3%, respectively.

Bell Potter has a buy rating and $3.00 price target on its shares.

The post 2 ASX dividend shares to buy to supercharge your income appeared first on The Motley Fool Australia.

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More reading

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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 recommended Accent Group. 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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Many punters would be surprised at how few shares you need to potentially generate regular passive income.

Is the prospect of an extra $1,500 each month tempting enough for you to try investing?

While diversification is imperative in every portfolio, to demonstrate how achievable the above goal is, let me pick out one particular S&P/ASX 200 Index (ASX: XJO) stock.

What does Goodman Group do?

Goodman Group (ASX: GMG) is a developer and manager of industrial real estate.

That might not sound all that exciting on face value. But the continuing transition of retail from bricks-and-mortar to online has been a goldmine for Goodman.

The retail sector is increasingly needing the type of warehouse and industrial park properties to be able to execute e-commerce capabilities.

In fact, US behemoth Amazon.com Inc (NASDAQ: AMZN) is a tenant of Goodman’s.

And to further fuel growth, Goodman is starting to develop properties for data centres, which are crucial for cloud computing and artificial intelligence.

How is Goodman Group going?

Last Thursday alone Goodman shares rocketed 6.5% at one stage, after it revealed boom results that morning.

The company showed off a 98.4% occupancy rate, 29% increase in operating profit and available liquidity of $3 billion.

Goodman Group has $12.9 billion of development in progress across 85 different projects.

Chief executive Greg Goodman said its well-located real estate was allowing tenants to “increase investments in digitisation and automation to improve efficiency”.

“Our growth in data centre capacity underscores our ability to deliver digital infrastructure, where we’re securing power on our sites and developing data centres in cities with high demand.”

$40,000 and six years: all you need for passive income

So that’s all good, but how can Goodman shares generate passive income for you?

Let’s say you bought $40,000 worth of stock right now, which equates to about 1,400 shares at the current price.

While past performance is no indicator of the future, for the purposes of this hypothetical, let’s look back at the five-year track record.

The Goodman share price has gained 119%, excluding dividends, which equates to a compound annual growth rate (CAGR) of just under 17%.

Because the stock pays out a small dividend each year, let’s round it up to 17% for ease of calculation.

That $40,000, if you allow it to grow at 17% per annum compounded monthly, will reach $110,136 after just six years.

From that point on, instead of keeping the returns and dividends in the investment, just cash out.

The 17% would provide you with an average passive income of $18,723 each year.

And that’s a monthly payout of $1,560.

Done.

The post For $1,500 in monthly passive income, buy 1,400 shares of this ASX 200 stock appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
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Motley Fool contributor Tony Yoo 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 Goodman Group. The Motley Fool Australia has recommended Goodman Group. 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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