Tag: Motley Fool

The ASX dividend income beasts in this article are leading contenders for passive income as well as achieving capital growth through their business plans, in my opinion.

A dividend is paid from a company’s profit, so if it’s able to grow that profit over time, then this could unlock higher shareholder payments as well as a rising share price if the market appreciates the growing profit profile.

Here’s why I think these two ASX shares are worth watching for appealing dividend payments and growth.

Wesfarmers Ltd (ASX: WES)

Wesfarmers owns many well-known brands in Australia, including Bunnings, Kmart and Officeworks. The company is doing a solid job of growing earnings over the longer term, with Bunnings the key profit generator.

One of Wesfarmers’ goals is to increase its shareholder payment over time. To achieve that, the dividend income beast may be able to generate good growth over the long term with its expansion into lithium and healthcare.

In March 2022, the company acquired Australian Pharmaceutical Industries (API), which saw it take control of brands like Priceline and Clear Skincare Clinics. It’s currently offering to buy the ASX business SILK Laser Australia Limited (ASX: SLA).

Wesfarmers is attracted to healthcare because it “provides access to structural growth”, with opportunities for bolt-on acquisitions. This division includes ‘well-being’ and ‘beauty’ as well. Ageing demographics could be a useful tailwind for this segment’s earnings.

The company is also working on the Mt Holland Lithium Project in Western Australia. Wesfarmers sees strong growth ahead for lithium thanks to increasing demand for electric vehicles and other types of batteries.

Indeed, one fund manager has suggested that Mt Holland could generate more than $1 billion of earnings for Wesfarmers each year when operational.

According to Commsec, Wesfarmers could pay an annual dividend per share of $2.08 by FY25. This would be a grossed-up dividend yield of 5.75%, which would be a solid payout from the ASX dividend income beast.

Brickworks Limited (ASX: BKW)

When it comes to dividend history, Brickworks is impressive, in my opinion. It has maintained or grown its dividend every year since 1976. In other words, it’s been 47 years since the company last decreased its dividend payments to shareholders. And Brickworks has grown its dividend each year over the past decade.

I think the shares it owns in Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) have been key for enabling resilient dividends and growth over the past few decades. However, Brickworks’ industrial property trust could have an increasingly important role over the next five to ten years.

This is where excess Brickworks land is sold into an industrial property trust that owns industrial estates across Sydney and Brisbane with high-quality tenants. Brickworks owns half of the trust, with Goodman Group (ASX: GMG) owning the other half.

The property trust made up to $2 billion of net asset value (NAV) for Brickworks at 31 January 2023.

Further industrial estates may be built in the future thanks to the identification of key development sites, including in Horsley Park in NSW, in Craigieburn in Victoria and in Pennsylvania in the United States.

Over the next five years, Brickworks expects the leased asset value of the property trust could increase by around 33%. The rental income could grow by at least 54% as property developments are finished and organic rental growth flows through.

Those future potential land sales from Brickworks into the property trust could mean that even more capital value and rental income are achieved through the trust.

By FY25, the ASX dividend income beast could be paying an annual dividend per share of 69 cents, according to Commsec, which would be a grossed-up dividend yield of 4%.

The post 2 dividend income beasts with big growth ideas appeared first on The Motley Fool Australia.

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More reading

• How does $50,000 of annual passive income sound? Buy 78,100 shares of this ASX 200 stock
• How much would I need to invest in ASX shares for a retirement income of $65,000 per year?
• Hunting for passive income? Guess what you’re earning if you invested $5,000 in Wesfarmers shares last June
• UBS tips 4 ASX 200 retail shares to benefit from the federal budget
• 3 ASX 200 building shares that could rise now that house prices have bottomed

Motley Fool contributor Tristan Harrison has positions in Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended Brickworks, Washington H. Soul Pattinson and Company Limited, and Wesfarmers. The Motley Fool Australia has recommended Goodman Group and Silk Laser Australia. 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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Macquarie Group Ltd (ASX: MQG) shares are frequently sought out for their reliable dividend payments as well as a lengthy run of capital gains.

Since January 2013, the diversified S&P/ASX 200 Index (ASX: XJO) financial stock has gained some 400%.

And in 2013, and every year since then, Macquarie shares have also delivered two partly franked dividends. That’s placed it high on the radar of investors seeking some useful passive income.

So far in 2023, the Macquarie share price is up 6.5%. Shares closed yesterday trading for $174.84 apiece.

What’s the dividend yield on Macquarie shares bought on 3 October?

The Macquarie board declared a final dividend of $4.50 per share, 40% franked when the company reported its full-year results earlier this month.

With profits coming in at $5.2 billion, that was a 29% increase from the $3.50 final dividend Macquarie shares delivered the prior year.

The stock traded ex-dividend yesterday, 15 May. Shareholders will see that passive income land in their bank accounts on 4 July.

Together with the $3.00 per share interim dividend, paid out on 13 December, that adds up to a full-year payout of $7.50 per share.

That’s approximately $2.9 billion of passive income delivered to shareholders over the 12 months.

At the current share price, that equates to a trailing yield of 4.3%, with some potential tax benefits from the franking credits. Or $430 in annual passive income from a $10,000 investment.

Of course, like all stocks, Macquarie shares haven’t gone up in a straight line. There are always plenty of dips and peaks along the way.

Well-advised, well-researched, or just plain lucky investors who bought shares on 3 October, when the stock closed for $151.41 per share, will be sitting pretty today.

First, they’ll have enjoyed a 16% lift in the Macquarie share price.

Even more importantly, from a passive income perspective, they’ll be earning a dividend yield of 5.0% on that investment.

Or a very handy $500 second income from that $10,000 investment. And, mind you, that’s just since October.

The post Did you buy the October dip in Macquarie shares? Here’s the dividend yield you’re now earning appeared first on The Motley Fool Australia.

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More reading

• The top 10 ASX shares held by millionaires
• The 2 ASX 200 shares with the highest profit margins right now
• 2 top ASX 200 dividend shares to buy this week: brokers
• Here are the top 10 ASX 200 shares today
• ‘A quality franchise’: Why this broker sees major upside ahead for Macquarie 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 positions in and has recommended Macquarie 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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The Telstra Group Ltd (ASX: TLS) share price pushed higher on Monday after the telco giant announced mobile plan increases.

The company’s shares ended the day 0.7% higher at $4.35.

This latest gain means the Telstra share price is now up 9% since the start of the year.

Are these plan increases good news for the Telstra share price?

Analysts at Goldman Sachs have responded to the news positively and believe this action is supportive of solid earnings growth in FY 2024.

The broker also believes that the price increases are evidence of rational competition in the telco industry, which is good news for future returns. The broker explains:

Telstra has announced that postpaid mobile plans will be increasing in price by $3-6/m from July-23, in-line with inflation & our recent expectations. Although not impacting our earnings forecasts, today’s announcement: (1) Reinforces our confidence in our +5.6% EBITDA growth in FY24E, which is driven by Telstra mobile division (=99% of our EBITDA growth); (2) Is evidence of Telstra continuing to be a rational incumbent, leading mobile market pricing higher, and signaling to competitors it remains focused on improving industry returns; and (3) Increases the likelihood that Telstra will fully utilize CPI within its 2024 plan revision – with our +3.1% inflation forecast in the Mar-24 qtr implying a $2/m increase.

In light of the above, Goldman remains very positive on the Telstra share price and has reiterated its buy rating and $4.70 price target.

This implies potential upside of 8% for investors over the next 12 months from current levels.

In addition, the broker is expecting a 17 cents per share dividend in FY 2023 and an 18 cents per share dividend in FY 2024. This equates to fully franked yields of 3.9% and 4.1%, respectively, stretching the total potential 12-month return to approximately 12%.

The post Broker says mobile price increases are good news for the Telstra share price appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• 3 reasons I’m tipping the Telstra share price to keep rising in 2023
• 5 ASX shares I’d buy for a US recession
• How to invest $10,000 in ASX dividend shares in May
• I’m following Warren Buffett and preparing for a stock market crash

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 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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If you’re looking for exposure to the sky high gold price, then you may want to check out what analysts at Morgans are saying about a few ASX 200 gold shares.

As you will see below, the broker believes that only one of these three popular ASX 200 gold shares are buys right now.

Let’s see what its analysts are saying:

Evolution Mining Ltd (ASX: EVN)

This ASX 200 gold share has been a great place to invest in 2023. Since the start of the year, Evolution’s shares are up 32%. In light of this, the broker believes its shares are fully valued now. Morgans has a hold rating and $3.74 price target on them. It commented:

EVN’s share price reflects a solid run in the gold price. The gold miner is trading above our target price, and given revised production and underperformance at Red Lake, we maintain a Hold.

Newcrest Mining Ltd (ASX: NCM)

With its proposed $28.8 billion takeover by Newmont looking likely to happen, the broker believes investors should skip Newcrest now. Morgans has a hold rating and $25.70 price target on the mining giant’s shares. It said:

NCM’s share price is gravitating towards the Newmont offer price and currently trades at 8.8x EV/EBITDA. We see limited upside from here and maintain a Hold rating.

Regis Resources Ltd (ASX: RRL)

Regis Resources is the ASX 200 gold share to buy right now according to Morgans. With its shares underperforming the rest of the industry this year, the broker believes a buying opportunity has been created. Particularly given its recent quarterly update, which impressed Morgans. The broker has an add rating and $2.51 price target on its shares. It commented:

RRL delivered a decent March quarter result, with a healthy AISC margin of US$650/oz. RRL expects a better Q4FY23 as the capex phase tapers off and the cash build begins. RRL’s McPhillamys (growth project) FID is anticipated in Q3FY24.

Within our current formal coverage, Regis Resources (RRL) remains our preferred producer for its attractive valuation, low-risk profile (assets in WA/NSW), sustained capital spending, and organic growth project. Additionally, consolidation in the large cap domain will benefit RRL, in our view.

The post Buy this ASX 200 gold share instead of Newcrest: broker appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today
• Why InvoCare, Newcrest, Silver Lake, and Silver Mines shares are rising today
• Newcrest share price lifts as $28.8 billion Newmont takeover greenlighted
• Did you invest $5,000 in Evolution Mining shares in 2018? If so, here’s how much dividend income you’ve earned

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.

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The fund manager Wilson Asset Management (WAM) has identified two undervalued All Ordinaries (ASX: XAO), or ASX All Ords shares, in its portfolio that did well in April 2023.

WAM predominately looks for growth businesses it believes are mispriced by the market and where there could be a catalyst that sends the share price higher.

Let’s dive into two of the ASX All Ords share names that WAM talked about.

IPH Ltd (ASX: IPH)

The fund manager described IPH as an international intellectual property services group. It’s made up of a network of member businesses, servicing more than 25 countries.

In March, the company’s law business detected a portion of its IT systems had been subject to unauthorised access. That access was “primarily limited to the document management systems of the IPH head office and two IPH member firms in Australia, Spruson & Ferguson (Australia) and Griffith Hack, and the practice management systems of those member businesses”.

After becoming aware of the incident, IPH said it immediately isolated the systems and removed them from the network. It then implemented its “business continuity plan” to resolve the cyber incident.

WAM pointed out that in April, the ASX All Ords share confirmed it had established new network infrastructure and enhanced security. Those measures “helped alleviate concerns held by the market, which ultimately led to the share price rallying throughout the month”.

Estimates on Commsec currently suggest that IPH could grow its earnings per share (EPS) by 16% between FY23 to FY25.

Emerald Resources (ASX: EMR)

Another business WAM talked about was Emerald Resources. The fund manager described the Perth-based company as a business that explores and develops gold projects.

In April, the ASX All Ords share announced it had achieved its quarterly guidance for the three months to March 2023. It produced 28,764 ounces of gold at the Okvau gold mine in Cambodia.

The investment team noted the mine’s operating cash flow of US$34.9 million “continues to underpin Emerald Resources’ ability to advance its exploration and development”.

WAM explained its positivity on the business with the following comments:

We continue to see positive results in gold exploration at its other sites in Cambodia and domestically, and further growth opportunities for the business in its underexplored projects.

The post 2 ASX All Ords shares that are ‘mispriced opportunities’: fund manager appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today

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 recommended IPH. 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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Yes, you should try to buy S&P/ASX 200 Index (ASX: XJO) shares at the lowest possible price.

But there is an old saying in investment: don’t catch the falling knife.

Buying a stock that’s just plunged might seem like a bargain at the time, but there could be a good reason why people are fleeing a burning building.

On the other hand, catching a rising star can make an excellent investment.

While you might have given up some early returns when buying stocks that have already soared, if the business is going places then there will be more to come.

In this spirit, the team at the ECP Growth Companies Fund is proud to keep backing two ASX 200 shares that went gangbusters last month:

Tech company does something it never did before

Megaport Ltd (ASX: MP1) investors were all smiles in April as the technology stock rocketed an unbelievable 36.7%.

The ECP analysts attributed this climb to the third quarter results reported at the end of the month.

“Monthly recurring revenue accelerated in 3Q, growing 14% QoQ,” they said in a memo to clients.

“This was driven by higher yield primarily, due to Cloud VXC repricing implemented in March.”

The virtual network provider has been a cash-burning growth business for most of its life, but has strived in recent months to be more profitable.

As such, ECP analysts noted that, in the April update, the company did something it had never done before.

“Megaport issued guidance for the first time, expecting EBITDA of $16 million to $18 million in FY23 vs consensus of $9 million, and $41 million to $46 million in FY24 vs consensus of $30 million, driven by cost-cutting initiatives.”

The majority of the wider professional community is also celebrating Megaport’s turnaround.

According to CMC Markets, eight out of 14 analysts currently rate the stock as a strong buy.

Big contract win, with more to come

Corporate Travel Management Ltd (ASX: CTD) soared 15.8% over the month of April to add 5.2% to its weighting within the ECP fund.

The analysts reckoned investors flocked to the travel stock due to “confidence in FY23 and FY24 guidance”, but a certain catalyst also helped.

“The company announced a major multi-year UK government contract that will drive large TTV [total transaction value] outcomes,” read the memo.

“This contract will deliver both near-term and longer-term revenues, which given the cost leverage story, should result in substantial profit contributions.”

Many of ECP analysts’ peers are also loving Corporate Travel Management, with ten out of 17 analysts currently surveyed on CMC Markets rating it as a strong buy.

“Corporate Travel Management has been successful in building a reputation in the government solutions market, and we would expect to see further contract wins over the next few years.”

The post 2 ASX 200 shares that had a MASSIVE April, set for more gains appeared first on The Motley Fool Australia.

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More reading

• Here are the 10 most shorted ASX shares
• Here are the top 10 ASX 200 shares today
• Morgans names the best ASX 200 growth shares to buy in May
• 2 ASX 200 travel stocks (not Qantas!) just upgraded by Citi
• Buy these top ASX growth stocks: experts

Motley Fool contributor Tony Yoo has positions in Corporate Travel Management and Megaport. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Megaport. The Motley Fool Australia has recommended Corporate Travel Management and Megaport. 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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We already have a notable appetite for lithium merger and acquisition (M&A) activity of late. Could Core Lithium Ltd (ASX: CXO) shares be the next S&P/ASX 200 Index (ASX: XJO) morsel to make the merger plate? Let’s take a look.

At the close of trade on Monday, stock in the lithium hopeful-turned-producer was trading at $1.17 a share, up 0.43%.

M&A heats up among ASX 200 lithium shares in 2023

It’s been a big few months for fans of both M&As and lithium shares.

Of course, the Allkem Ltd (ASX: AKE) merger has been the talk of the town this week. On Thursday, the company announced its plan to join forces with Livent Corp (NYSE: LTHM), creating a $15.7 billion giant.

But before that took the market by storm, we were all talking about Liontown Resources Ltd (ASX: LTR).

The lithium up-and-comer was approached not once, not twice, but three times by giant Albemarle. It announced it had rejected all three offers in late March.

It’s unlikely the excitement of those deals had dissipated before some market watchers began to speculate which ASX 200 lithium share could be next to receive a merger offer. Could Core Lithium be the obvious answer?

Could Core Lithium be next to face merger action?

While there are plenty of reasons Core Lithium could appear to be a tasty investment, some brokers aren’t convinced a suitor will come knocking.

The ASX 200 lithium producer recently outlined multiple factors it believes makes its stock worth looking at. They included its battery-quality product, its newly established cash flows, the Finniss Project’s attractive location, and its secured offtake agreements.

Finniss recorded its first production in the March quarter. Core Lithium is now working to progress the project towards nameplate capacity.

Not to mention, it’s not strapped for cash. It had $97.8 million in the bank and no debt as of 31 March.

It also has a $25 million exploration plan underway, suggesting the company is more focused on organic growth rather than M&A expansion. Though, in a recent presentation, the company said it hopes its disciplined capital allocation will help it assess and value both organic and inorganic opportunities.

But, while there’s apparently a lot to like about Core Lithium for now, it’s unlikely to be a target for merger action, according to Morgans. Its analysts said, as quoted by my Fool colleague James last month:

A takeover bid is less likely given the smaller resource size, higher EV / resource, and likely higher cost operations.

Meanwhile, Goldman Sachs thinks Core Lithium shares are overvalued and worthy of a sell rating. It tips the stock to tumble to 80 cents per share – 31% lower than its current price.

Though, Macquarie was bullish on the lithium share last month, slapping it with a $1.20 price target and an outperform rating – a potential 3% upside.

The post Could Core Lithium shares make the merger menu next? appeared first on The Motley Fool Australia.

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More reading

• Here are the 3 most heavily traded ASX 200 shares on Monday
• Power portfolios: Millionaire investors shun ASX 200 lithium shares
• Here are the 10 most shorted ASX shares
• Here are the top 10 ASX 200 shares today
• Here are the 3 most heavily traded ASX 200 shares on Friday

Motley Fool contributor Brooke Cooper 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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One of the big pieces of ASX 200 news last week involved ASX 200 lithium shares. Specifically,  Allkem Ltd (ASX: AKE) shares. Last Thursday, Allkem announced that it was planning a merger with the US lithium stock Livent Corp (NYSE: LTHM).

The merged company, given the tentative name of ‘NewCo’, would emerge as a US$10.6 billion global lithium giant if the union was to go ahead.

Investors have reacted euphorically to this news. Since last Thursday, the Allkem share price has risen by a hefty 15.10%, even after factoring in yesterday’s 1.85% drop at the close.

Over in the United States, Livent investors have also responded with excitement. Since the news became public, Livent stock has risen by a solid 5.3%.

If the merger does go through, it would result in Allkem investors receiving one share in ‘NewCo’ for every Allkem share owned. Livent investors would receive 2.406 NewCo shares for every Livent share owned.

After the merger is complete, Allkem investors would own 56% of the merged company, with Livent investors owning the other 44%.

NewCo would then be primarily listed on the New York Stock Exchange (NYSE). Conversely, ASX investors would own their new shares through a new CHESS Depositary Interest (CDI) arrangement. This would be similar to what happened to Afterpay investors when that company was acquired by Block Inc (ASX: SQ2). 

So is it time for Allkem investors to cash out? Or is the ‘NewCo’ evolution of Livent/Allkem worth sticking to?

What does the future hold for Allkem shares?

Well, let’s start with some numbers. According to Allkem, the combined company would have made US$1.9 billion in revenue in the 2022 calendar year. It also would have produced an estimated US$1.2 billion of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA).

The companies also anticipate that merging the two businesses will result in US$125 million in annual synergies and US$200 million in one-off capital expenditure savings.

So does this make it a no-brainer for investors?

Well, one ASX expert is definitively in this camp. As we covered last week, ASX broker Goldman Sachs is cheering the merger on. It is anticipated that NewCo will be a global “top 3 lithium producer” with a strong balance sheet that it can use to support growth opportunities.

Here’s some of what Goldman’s analysts had to say:

The merger would also imply a stronger/more defensive balance sheet to fund the proposed and possible growth pipeline, where management noted the current execution pipeline will continue without taking pause as both businesses are already fully funded to execute respective projects.

So that’s how one ASX expert rates Allkem’s future as part of NewCo. But it’s worth pointing out that the merger isn’t a done deal yet, so be sure to watch this space.

The post Is a slice of Livent worth holding onto Allkem shares? appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• Brokers name 3 ASX shares to buy now
• Here’s what brokers are saying about the Allkem merger with Livent
• 5 things to watch on the ASX 200 on Friday
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Sebastian Bowen 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 Block. The Motley Fool Australia has positions in and has recommended Block. 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 Insurance Australia Group Ltd (ASX: IAG) share price is having a mildly positive time in 2023.

Since the start of the year, the insurance giant’s shares are up approximately 3%.

This is largely in line with the performance of the ASX 200 index.

Where next for the IAG share price?

If the team at Goldman Sachs is to be believed, the IAG share price could be approaching fair value.

According to a recent note, the broker has a neutral rating and $5.18 price target on the insurer’s shares. This implies potential upside of 5.9% from where its shares are currently trading.

And with the broker also expecting a 15.5 cents per share fully franked dividend in FY 2023, which equates to a 3.1% yield, the total potential return stretches to approximately 9%.

While not amazing, it certainly is not terrible in the current environment.

What did the broker say?

Goldman does sees positives on the horizon for the company from rate increases. However, it appears to believe this is more than built into the IAG share price now. It highlights that its shares trade at a significant premium to rival Suncorp Group Ltd (ASX: SUN). Goldman explains:

We remain Neutral on IAG. 1) We think 2H guidance continues to be a stretch target noting that more appropriate rate increases were only applied late last year in Motor. 2) We think yield curve movements over 2H23 are also placing 2H guidance at risk. 3) Perils allowances at risk from NZ events with Australia are proving benign to date.

However, outside of this, we think IAG is accelerating rate increases to around 10-15% in motor and 15-20% in home suggesting that IAG’s broad intention to price for underlying claims inflation and reinsurance costs should manifest in margins over time even if not completely in 2H23. IAG will also benefit as claims inflation tapers off. We think IAG should also do well through commercial which is seeing strong rate increases helping toward its FY24 target of A$250m insurance profits. IAG trades at around 14x our FY24 forecasts about 2 P/E points more expensive than SUN.

The post Here’s what Goldman Sachs is saying about the IAG share price appeared first on The Motley Fool Australia.

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More reading

• Why Goldman Sachs is bullish on Suncorp shares
• Invested $9,000 in Suncorp shares in 2018? Here’s how much dividend income you’ve realised
• Why is everyone talking about IAG shares on Tuesday?
• Brokers say these ASX dividend shares are top buys
• Why were IAG shares such a good investment in April?

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.

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The ASX share market is a great place to find potential investments that can perform well. Some of them, with the ability to increase prices, can outperform the S&P/ASX 200 Index (ASX: XJO) right now.

A high inflation environment is generally not what society wants – that’s why central banks like the Reserve Bank of Australia (RBA) and the US Federal Reserve are increasing interest rates so much to bring down overheated demand in the economy.

But, while inflation isn’t a good thing for many households, there are a number of companies that are benefiting. This economic environment could enable them to achieve good shareholder returns and beat the ASX 200 index.  

What is pricing power?

An easy way to think of pricing power is the ability to increase prices for customers without much detrimental impact on demand.

Think of commodity traders like iron ore and copper shares or farmers. If they want to sell their product, they have to sell at the going rate, or customers will just go to the next seller for a better price.

ASX mining shares just have to bear the cost of higher wages and so on, regardless of what commodity prices are doing.

But price makers have much more control over the price they charge.

Think of a business like an airport – if a traveller wants to fly or park their car at the airport, they don’t have much choice but to pay the necessary cost. If the airport increases the prices, visitors would have to pay up or simply not use the airport.

Here are two ASX shares that are passing on cost increases (and perhaps more) to customers, which could enable them to continue to beat the ASX index.

ASX shares with pricing power

Coles Group Ltd (ASX: COL) is a consumer staples stock and one of the largest supermarket businesses on the ASX. Food inflation has been one of the key inputs of inflation in Australia.

Coles (and Woolworths Group Ltd (ASX: WOW)) have been passing higher prices of meat, packaged goods, fruit and vegetables onto customers. But, if we dig a little deeper, we can see that Coles’ gross profit has also increased, meaning it’s passing on more than just the cost increase of products.

In the FY23 first half result, Coles supermarkets’ gross profit margin improved by 43 basis points (0.43%) to 26.5%. For the overall continuing business, it achieved sales revenue growth of 3.9%, while net profit after tax (NPAT) grew by 11.4%.

This helped fund a 9.1% dividend increase. All of those numbers are helpful for shareholder returns. Indeed, the Coles share price has gone up by 11.3% this year to date, as we can see on the chart below, beating the ASX 200 index return over the same period of 4.6%.

Xero Limited (ASX: XRO) is another ASX share that is passing on a strong price increase which can help the company’s earnings. Last year, the tech company announced impressive increases in its Australia, New Zealand and United Kingdom markets.  

In the company’s FY23 half-year result, its average revenue per user (ARPU) increased by 13% to $35.30. The business reported a 30% increase in operating revenue, while free cash flow jumped 145%.

Xero recently revealed its plan to improve its profitability, balancing growth and profit. Xero will report its FY23 result soon, so we’ll get more insights.

Improving margins appears to have been a key driver for the Xero share price rising around 20% since 8 March 2023, as we can see on the chart below.

The post Why I’d buy companies with pricing power to comfortably beat the ASX index appeared first on The Motley Fool Australia.

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More reading

• 2 ASX 200 dividend stocks brokers rate as top buys
• 3 things ASX investors should watch this week
• 5 ASX shares I’d buy for a US recession
• Top brokers name 3 ASX shares to buy next week
• How to invest $10,000 in ASX dividend shares in May

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 Xero. The Motley Fool Australia has positions in and has recommended Coles Group and Xero. 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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