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Insurance Australia Group Ltd (ASX: IAG) shares are in the ASX 200 spotlight this Tuesday. Not because the IAG share price has slipped by a notable 0.8% in early trading so far. IAG shares are currently down to $4.94 a share after closing at $4.98 yesterday.

That’s a loss that trails the broader S&P/ASX 200 Index (ASX: XJO), which is currently down by 0.36%.

But that’s not the primary reason IAG shares are making news today, although it is probably a consequence.

This ASX 200 insurance share had some big news for investors this morning. Just before market open, IAG released an ASX announcement that heralded some major changes at the company.

IAG has revealed its chief financial officer, Michelle McPherson, is to retire. McPherson will be leaving IAG at the end of the 2023 calendar year. She has only been in the role since early 2020.

But it’s not just the CFO that is leaving IAG. The company has also revealed she will be joined by IAG’s chief insurance and strategy officer, Tim Plant, who’s also heading for the door. Plant will be departing a little earlier, with his retirement from the company pencilled in for 30 June.

In Plant’s case, his role seems to have been made surplus to IAG’s future requirements. Here’s what the company’s statement said about his departure:

IAG’s Chief Insurance & Strategy Officer Tim Plant will be leaving IAG on 30 June 2023 as the company consolidates its group functions to better support its three operating businesses: Direct Insurance Australia, Intermediated Insurance Australia, and New Zealand.

IAG CEO and managing director Nick Hawkins made the following comments about both executives’ departures:

Michelle has played an important role in helping drive the business to achieve its strategic goals during a challenging time for the industry and economy. I would like to thank Michelle for her contribution and wish her all the best in her retirement later this year…

Our plans are clear. We want to accelerate the delivery of our plans and ensure our three operating businesses can continue to meet customer needs in this rapidly changing environment. Tim has established greater discipline and alignment on how we execute our strategic priorities and helped to strengthen our underwriting governance during his time at IAG. I thank him for his contribution.

So a big day of change for Insurance Australia Group and IAG shares today. Perhaps this big shakeup is what’s driving investor uncertainty with the IAG share price so far this Tuesday.

An IAG share snapshot

Although IAG shares are having a rough time of it today, this ASX 200 financials share has had a fairly decent year in 2023 to date. IAG is currently still up a healthy 5.36% since the start of the year and has risen by 6.28% over the past 12 months.

That compares pretty favourably against the ASX 200, which is ‘only’ up by 4.4% year to date, and by 1.85% over the past 12 months:

The current IAG share price gives this insurance giant a market capitalisation of just over $12 billion, with a dividend yield of 2.24%.

The post Why is everyone talking about IAG shares on Tuesday? appeared first on The Motley Fool Australia.

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More reading

• I’d invest $10,000 into these excellent ASX shares for the long-term
• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today  
• Here are the 3 most heavily traded ASX 200 shares on Monday
• Which ASX 200 travel share has already taken off by 48% in 2023?

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 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 Commonwealth Bank of Australia (ASX: CBA) share price is sliding today, down 0.5%.

Shares in the S&P/ASX 200 Index (ASX: XJO) bank stock closed yesterday trading for $97.12. Shares are currently changing hands for $96.60 apiece.

This comes following this morning’s release of CBA’s quarterly update for the three months ending 31 March, and, for some context, at a time when the ASX 200 is down 0.2%.

Here’s what the big four bank reported.

CBA share price dips despite profit leap

• Unaudited cash net profit after tax (NPAT) of $2.6 billion, up 10% from the prior comparative quarter
• Home lending increased by $6.9 billion, or 5.2% from the March 2022 quarter
• Business lending was up by $2.6 billion, a 12.0% year on year increase
• CET1 (Level 2) ratio of 12.1% under APRA’s revised capital framework, unchanged in the quarter

What else happened during the quarter?

Over the three months, the bank progressed with its on-market share buyback, which has been offering some tailwinds for the CBA share price.

As at 8 May 2023, CommBank had completed approximately $2 billion of the $3 billion share buyback. CBA also purchased some $600 million worth of shares on-market to neutralise the impact of the 1H23 Dividend Reinvestment Plan.

On the cost front, operating expenses excluding remediation, fell by 1%, largely driven by lower staff costs. The bank spent more on IT, marketing and New Zealand flood relief payments.

Perhaps pressuring the CBA share price today was the bank’s report that its net interest income came in 2% lower during the quarter. CBA said volume growth was offset by lower net interest margins (NIM). The bank’s NIM came under some pressure from some stiff competition for home loans as well as its customers switching to higher-yielding accounts.

Home loan arrears remained at a low 0.44%. Management said this reflects the low levels of unemployment and stability in savings buffers over the quarter.

Total credit provisions came in at $5.7 billion. There was a small increase in collective provisions to $5 billion and an $82 million increase in individual provisions to $700 million.

The bank’s balance sheet remained strong in the quarter, with customer deposit funding flat at 75%.

CBA reported having an $8.7 billion capital surplus to the minimum regulatory requirement.

What did management say?

Commenting on the results that have yet to lift the CBA share price today, CEO Matt Comyn said:

Our capital position remained strong with CET1 (Level 2) ratio at 12.1% following the payment of $3.5 billion in 1H23 dividends, well above APRA’s minimum regulatory requirement of 10.25%.

We have maintained our disciplined approach to managing credit, interest rate, funding and liquidity risks, and our balance sheet strength positions us well to continue to support our customers and extend the credit required to grow the Australian economy.

What’s next?

Looking at what could impact the CBA share price in the months ahead, Comyn said, “As higher interest rates impact the Australian economy in the period ahead, we expect economic growth to continue to moderate.”

However, he added that Australia and CommBank are well positioned, with a strong national banking system and a return to population growth.

Comyn added:

We remain positive on the medium-term outlook. The strength of our balance sheet means we are well placed to continue supporting our customers and the broader Australian economy while delivering predictable and sustainable returns to our shareholders.

CBA share price snapshot

The CBA share price is down 6% over the past 12 months. Longer-term, shares are up 37% over five years.

The post CBA share price slips today despite $2.6 billion cash profit appeared first on The Motley Fool Australia.

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More reading

• What’s the outlook for the CBA share price in May?
• Banking crisis continues: What’s up (and down) with ASX 200 bank shares today?
• Here’s how I’d aim for $200 a month in passive income using ASX 200 bank shares
• 4 reasons to buy ASX 200 banks stocks right now
• Why did the CBA share price lag the ASX 200 in April?

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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The South32 Ltd (ASX: S32) share price is in the red on Tuesday. That’s despite the company revealing an exciting win for its Hermosa Project – the only advanced operation able to supply two designated critical minerals, zinc and manganese, within the US.

The Arizona-based project is officially the first mining project added to the US Federal Permitting Improvement Steering Council’s FAST-41 process.

Its inclusion on the FAST-41 dashboard is expected to support the company to gain federal permits for the development of the project’s Taylor and Clark deposits.

Right now, the South32 share price is $4.19, 0.24% lower than its previous close.

For comparison, the S&P/ASX 200 Index (ASX: XJO) is down 0.32% at the time of writing.

Let’s take a closer look at today’s news from the diversified ASX 200 mining stock.

Hermosa Project added to FAST-41 process

The South32 share price is falling this morning amid what CEO Graham Kerr dubbed “an important milestone” for its Hermosa Project.

Now the project has qualified for the FAST-41 process, the US government will work with the company to create a coordinated project plan. That’s expected to provide a more efficient and transparent pathway for federal approvals.

Commenting in today’s release, Kerr said:

The inclusion of Hermosa as the first mining project added to the FAST-41 process is an important milestone that recognises the project’s potential to strengthen the domestic supply of critical minerals in the US.

South32 expects to complete the project’s Taylor zinc-lead-silver deposit’s feasibility study in the second half of 2023.

Meanwhile, work at the Clark manganese deposit has confirmed its battery-grade production could be sold to the North American electric vehicle supply chain.

The company will now kick off a definition phase pre-feasibility study at the Clark deposit. Its efforts will also see sample product sent to potential customers, while pilot plant production has already begun.

South32 share price snapshot

Fortunately, today’s slump hasn’t been enough to send the South32 share price into the year-to-date red.

The stock is still 6% higher than it was at the start of 2023. Though, it has fallen 10% since this time last year.

Meanwhile, the ASX 200 has gained 4% so far this year and 2% over the last 12 months.

The post South32 share price slumps amid ‘important’ US milestone appeared first on The Motley Fool Australia.

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More reading

• ‘Buying opportunity’: 2 ASX 200 mining shares ripe to snap up now
• Here’s why brokers say these ASX dividend stocks with big yields are buys
• Top ASX passive income shares to buy in May 2023
• Here are the 3 most heavily traded ASX 200 shares on Thursday
• Here are the 3 most heavily traded ASX 200 shares on Wednesday

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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Lynas Rare Earths Ltd (ASX: LYC) shares are in the green again today after a spectacular 12% lift yesterday.

Lynas shares are currently trading for $7.45, up 1.09% on yesterday’s closing price of $7.37.

The ASX rare earths stock soared 11.84% yesterday on news the company won’t have to close its Malaysian processing plant — the world’s largest single rare earths processing plant — in July.

Let’s recap what’s happening.

What’s pushing Lynas up this week?

As we reported yesterday, Lynas announced that the Malaysian government is allowing it to continue importing and processing lanthanide concentrate until 1 January 2024.

This is six months later than was initially allowed under the licence renewal Lynas received in February.

The Malaysian government imposed the ban due to environmental concerns. It announced the change back in 2020.

Upon receiving its renewal in February, Lynas appealed the ban. The rare earths company argued it would force it to temporarily shut down the entire Malaysian facility while it waited for feedstock to become available from its new Kalgoorlie Rare Earths Processing Facility.

In its statement yesterday, Lynas said it would be reviewing further legal avenues.

As my colleague Brooke reports, ASX investors have fallen out of love with Lynas shares this year.

A number of curveballs for the miner have weighed on investor sentiment.

But the ASX share appears to be on an upward trajectory now.

Is it too late to buy Lynas shares?

Lynas shares were in the dirt for most of the first quarter of 2023, as shown above.

In March, the ASX rare earths stock kept testing its 52-week low and eventually hit rock bottom on 6 April at $6.02.

That presented one heck of a buy-the-dip opportunity, given Lynas shares have since recovered by more than 20%.

As reported in The Australian today, three brokers have now upgraded their ratings on Lynas shares.

Translation: These guys think it’s not too late to buy Lynas shares.

Macquarie has raised its rating on Lynas to outperform and CLSA has raised its rating to buy.

Bell Potter has increased its 12-month share price target by 11% to $8.90.

Citi has cut its rating to neutral.

The post Is it too late to buy Lynas shares following this week’s surge? 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  
• Here are the 3 most heavily traded ASX 200 shares on Monday
• Why Lynas, Piedmont Lithium, Westpac, and Woodside shares are rising
• Why is ASX 200 share Lynas Rare Earths leaping 12% on Monday?

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Bronwyn Allen has positions in Macquarie Group. 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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Swarms of investors have gravitated toward holding ‘defensive‘ ASX shares as the winds of economic uncertainty have picked up. However, many assume that must mean investing in mature companies with little to no potential for further expansion.

Who says you need to give up on growth to own defensive investments? While rare, I genuinely believe the best companies to invest in simultaneously carry the sword and the shield, so to speak. Such companies are able to aggressively pursue greater ambitions without too much concern about being breached by the competition.

If I had a spare $5,000 — or any reasonable amount — to invest right now, I’d be running the ruler over a few specific defensive ASX shares. Their moats (competitive advantages) are hard to come by.

ASX shares I’d consider for a defensive portfolio

Before I dive into the nitty-gritty of how each company could be safeguarded from disruption, let’s take a look at one metric that suggests a moat is present.

A rule of thumb Warren Buffett follows for evaluating whether a company is in possession of a moat is a net profit margin consistently above 20%. If 20 cents or more can be made on every dollar generated by a product or service, there’s probably some form of sustainable advantage at play.

All three defensive ASX shares that I will mention have achieved this, by a substantial margin, during the past three to five years.

Ideally, this margin would be stable or growing. This isn’t the case for Clinuvel Pharmaceuticals Limited (ASX: CUV), as depicted in the chart above. However, the upwards trend is visible over a longer time span.

Meanwhile, Carsales.Com Ltd (ASX: CAR) has maintained a net margin above 30% for many years. Reassuringly, its cash from operations has been steadily growing during this time.

Finally, Deterra Royalties Ltd (ASX: DRR) appears as the most lucrative on this list — delivering net margins above 60% since 2019. The majority of its revenue is derived from its royalty over BHP Group Ltd‘s (ASX: BHP) Mining Area C.

Network effect

It is only logical to seek out the platform with the largest audience when hoping to sell a vehicle. The more visitors to the site, the greater the odds of finding a buyer. Conversely, the more vehicles advertised on a single site, the better experience it is as a potential buyer.

The above scenario is network effects in a nutshell. Toting the most popular vehicle marketplaces in several countries by a considerable margin (pictured above), Carsales is a cut above the rest. At the same time, the company could still satisfy further expansion through new markets.

Carsales shares are up 27.8% over the past year, outpacing the S&P/ASX 200 Index (ASX: XJO) by 25.6%.

Profit machine

Mining companies seldom make an appearance in my portfolio. The high capital and operational expenditure (CapEx and OpEx) associated with the industry can result in extremely lumpy cash flows. However, there is an ASX share that I believe is more defensive than many others on the local bourse… Deterra Royalties.

Unlike some other royalties, Deterra’s claim to 1.232% of MAC revenue is indefinite with no expiration. That means Deterra will be clipping the ticket on all future revenue over the life of BHP’s mine — an attractive proposition considering iron ore production at the mine is anticipated to increase moving forward.

The royalty model is highly advantageous. By definition, Deterra doesn’t need to ‘compete’ against anyone, keeping operating expenses low and maximising shareholder returns.

Deterra shares are largely flat compared to a year ago, yet have returned 7.6% when including dividends.

Patented protection

Finally, Clinuvel Pharmaceuticals is a defensive ASX share with herculean potential, in my opinion. In recent times, the upcoming drug developer has enjoyed rapidly growing revenues by in large due to its Scenesse product.

Treating an extremely rare condition known as erythropoietic protoporphyria (EPP), Clinuvel holds a strong market position as the only US-approved drug. The company also holds patents over Scenesse ranging from 2026 to 2033.

As a result, Clinuvel is relishing in jumbo earnings that can be redeployed into the future development of other proprietary drugs.

Clinuvel shares are up 31.3% over the past year and are trading on a price-to-earnings (P/E) ratio of 40 times.

The post 3 defensive ASX shares surrounded by wide moats I’d buy with $5,000 appeared first on The Motley Fool Australia.

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More reading

• 2 ‘undervalued’ ASX 200 shares to ‘beat market’ before everyone else wakes up
• Capital deities and destroyers: The best and worst at putting money to work among ASX 200 shares
• 2 ASX 200 shares just upgraded by brokers
• Why I won’t ignore the chance to buy this top high-yield ASX 200 dividend share in 2023

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Carsales.com. 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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Insider buying is often seen as a sign that those who know what’s going on behind the scenes at a company are optimistic about its stock’s future. And there’s been plenty of insider buying happening among S&P/ASX 300 Index (ASX: XKO) shares lately.

Indeed, directors at three ASX 300 shares forked out a combined $274,000 to bolster their holdings in their respective companies late last week. Here are all the details.

3 ASX 300 shares being snapped up by directors

Dicker Data Ltd (ASX: DDR)

Shares in ASX 300 tech company Dicker Data have been the subject of insider buying in recent sessions.

The company’s executive director and chief operating officer Vladimir Mitnovetski snapped up 20,000 shares on Thursday, paying $7.90 apiece to do so.

That sees the insider having forked out a total of $158,000 to bolster his stake, bringing his total interest to around 873,000 stocks.

Ramsay Health Care Ltd (ASX: RHC)

Also buying shares in their company last week was non-executive director Karen Penrose, who sits on the board of the ASX 300’s Ramsay Health Care.

Penrose indirectly purchased 822 securities in the healthcare services provider for $60.733 apiece on Friday. That represents a total spend of around $49,900.

She holds an interest in 3,245 Ramsay Health Care shares following the purchase.

AGL Energy Limited (ASX: AGL)

Finally, AGL director Mark Twidell has also forked out cash to invest in his company’s stock.

He poured nearly $66,400 out to buy 7,500 shares in the ASX 300 energy provider for $8.85 apiece on Friday.

Twidell was one of four nominated by billionaire and major shareholder Mike Cannon-Brookes to join the company’s board last year.

As we reported at the time, all four director nominations were elected. That was despite the AGL board recommending shareholders only appoint Twidell.

On the back of Friday’s purchase, Twidell boasts interest in around 15,200 AGL shares.

The post 3 ASX 300 shares being bought up by insiders appeared first on The Motley Fool Australia.

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More reading

• 4 ASX 200 shares just upgraded by brokers
• Are AGL shares the most underrated ASX 200 stock opportunity?
• Brokers say buy these ASX dividend stocks for their big fully franked yields
• Why Amcor, oOh!Media, Ramsay, and Woodside shares are falling today
• 3 ASX 200 stocks getting hammered following trading updates

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 positions in and has recommended Dicker Data. The Motley Fool Australia has positions in and has recommended Dicker Data. 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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Woodside Energy Group Ltd (ASX: WDS) shares are known for paying a fairly high dividend yield. But how large is it going to be?

The business is the largest oil and gas ASX share with a market capitalisation of around $63 billion according to the ASX.

After the merger with the BHP Group Ltd (ASX: BHP) petroleum business, it’s now paying very big dividends. But investors need to know what the dividend yield for an individual Woodside share could be.

Projections

Woodside is currently benefiting from fairly high energy prices. If you remember, the Russian invasion of Ukraine sent energy prices jumping. Prices have reduced from the peak, but they are still at a high enough level for Woodside to be making a lot of money.

In the first quarter of 2023, it achieved a portfolio average realised price of $85 per barrel of oil equivalent. The ASX oil share also saw revenue of US$4.33 billion – this was down 16% from the fourth quarter of 2022 because of lower production and lower realised prices.

According to Commsec, the business could pay an annual dividend per share of $2.425 per share.

At the current Woodside share price, this would represent a grossed-up dividend yield of 10.2%.

So, it certainly seems that investors may see a very attractive dividend yield in 2023.

But, there’s more to a company’s passive income potential than just one calendar year. I think it’s worthwhile considering what the following two financial years could show.

In 2024 it might pay an annual dividend per share of $2.307, which would be a grossed-up dividend yield of 9.7%.

In 2025, Woodside shares could pay an annual dividend per share of $1.98, which translates into a grossed-up dividend yield of 8.3%.

So, it seems that investors are going to get large dividend yields to 2025. But, this is dependent on energy prices. If prices go higher than expected, then the dividend yield could be even better. But, the dividends could be worse than expected if earnings aren’t as good.

What’s driving the Woodside share price higher?

There are a couple of things that have seemingly helped Woodside shares over the past two days – higher energy prices and that the proposed changes to the Petroleum Resource Rent Tax (PRRT) may now not affect Woodside as much as it could have.

Instead, the PRRT changes could be more painful to other LNG project operators.

With Woodside’s future net profit being hurt less by the change, as well as higher energy prices, it seems there’s quite a lot for investors to celebrate.

If Woodside earnings can continue to perform well, then this bodes well for future Woodside dividends.

The post Is the 10% dividend yield on Woodside shares legit? appeared first on The Motley Fool Australia.

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More reading

• Why Lynas, Piedmont Lithium, Westpac, and Woodside shares are rising
• Could this tax change end up burning the Woodside share price?
• ASX 200 energy shares expected to jump after oil prices surge
• 5 things to watch on the ASX 200 on Friday
• Woodside share price lifts amid wild oil price swings 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 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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Are 18 months of torture enough for ASX technology shares?

More than one expert reckons tech will have its day in the sun again as interest rates are nearing their peak. We might even see a rate cut in the next year or so!

If you’re on board with this theory, then these two ASX shares nominated as buys might interest you:

This stock ‘should be trading on higher multiples’

Singaporean software outfit Dropsuite Ltd (ASX: DSE) is one tech business that’s bucked the trend over the past couple of years.

Rather than seeing its share price tumble, Dropsuite shares have actually risen 6% since its November 2021 peak.

BW Equities equity salesperson Tom Bleakley knows exactly why the “cloud backup services and data protection” platform provider is going so well.

“Annual recurring revenue of $28.2 million in the first quarter of fiscal year 2023 was up 66% on the prior corresponding period and 11% on the previous quarter,” Bleakley told The Bull.

“With a high growth rate and a durable customer base, we believe Dropsuite should be trading on higher multiples.”

Being a $180 million small cap, the software maker is not widely covered by other professional investors.

But both the analysts currently surveyed on CMC Markets rate the tech stock as a strong buy.

An oldie but a goodie

Meanwhile, Shaw and Partners senior investment advisor Jed Richards is loving the look of an old favourite.

The Xero Limited (ASX: XRO) share price has climbed more than 31.7% year to date, thanks to the new chief executive’s promises of transitioning the business from a hyper-growth to a profit-making phase.

“The company dominates market share and has a solid growth pipeline,” said Richards.

The macroeconomic signs are also favourable for the long-term health of Xero shares from here.

“Central banks may be nearing the end of interest rate tightening, as inflation shows signs of cooling,” Richards said.

“Consequently, expect a brighter outlook for the high-growth technology sector.”

Despite the rally this year, Xero shares are still down in excess of 40% since the November 2021 peak.

The post ‘High growth rate’: 2 ASX tech shares you need to look at right now appeared first on The Motley Fool Australia.

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

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The Sonic Healthcare Limited (ASX: SHL) share price has rallied 20% in 2023 to date. I think there are a number of reasons to be positive about further potential growth.

The ASX healthcare share is a leading pathology company not just here in Australia but also in the United States, Germany, Switzerland and the United Kingdom. It’s building a strong position in radiology in Australia.

Healthcare is widely regarded as a defensive sector because people don’t choose when they get sick or need medical help.

Sonic Healthcare, in particular, appears to be a solid business, and pathology is an integral part of the healthcare system.

I think the Sonic Healthcare share price can continue to deliver good returns from here for a number of different reasons. Let’s dig deeper.

Strong organic growth

A key part of a company’s ability to achieve good returns is the level of organic growth that it’s able to achieve. In other words, is the core business growing well without needing acquisitions?

COVID-19 testing revenue helped Sonic Healthcare deliver strong revenue and earnings but was unlikely to last forever.

So, is the non-COVID revenue growing well? Yes. In the first six months of the FY23 half-year result, the company’s ‘base business’ revenue grew by 6% year over year. January 2023 base business revenue saw 14% growth year over year.

A portion of that good growth may be explained by ‘catch-up’ testing now that life has largely returned to normal after the pandemic. But, the organic growth is very positive.

I think it suggests that net profit after tax (NPAT) can keep growing at a good pace, particularly if it can keep achieving increasing scale benefits. And that’s good news for the Sonic Healthcare share price.

Increased profitability, partly thanks to acquisitions

The ASX healthcare share is now much more profitable in the aftermath of COVID-19 disruptions.

Compared to the pre-pandemic period of the first half of FY20, the HY23 total revenue was 22% higher, earnings before interest, tax, depreciation and amortisation (EBITDA) was up 33%, operating cash flow was 47% higher, and NPAT had increased 50%.

Sonic has used acquisitions to grow the business in Australia and around the world, which adds to the company’s organic (market share) growth. For example, it recently announced the €180 million acquisition of Medical Laboratories Dusseldorf in Germany, which is expected to generate around €50 million of revenue in FY24.

I’m also excited by the company’s involvement in artificial intelligence, which could be very useful for future pathology.

Good dividend growth

The ASX healthcare share has a “progressive dividend” policy as well. In other words, it aims to grow its dividend each result for shareholders.

In the HY23 result, the business grew the dividend payment for shareholders by 5% to 42 cents per share at the current Sonic Healthcare share price.

Using the last two dividends, Sonic Healthcare currently has a grossed-up dividend yield of 4.1%. That’s a solid yield, in my opinion.

The dividends can provide regular and growing cash returns for investors, while profit can hopefully grow.

Foolish takeaway

Using the estimates on Commsec, the Sonic Healthcare share price is valued at 23x FY23’s forecast profit. I think that adds up to a good price considering its very defensive characteristics.

The post 3 reasons why I think the Sonic Healthcare share price is a strong buy appeared first on The Motley Fool Australia.

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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 recommended Sonic Healthcare. 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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ASX investors have both loved and hated Telstra Group Ltd (ASX: TLS) shares over the years. Back in the early 2010s, when Telstra was a rock-solid, 7%-yielding blue-chip share, there wasn’t a lot to hate.

But between 2016 and 2018, when the telco slashed its cherished dividend and lost half of its value, there wasn’t a lot to love.

So how should investors treat this ASX 200 telco in 2023? Is it hate, love, or something in between?

For one ASX expert, it’s decidedly love. Investors Mutual Limited (IML) is an ASX fund manager, with funds covering most corners of the market.

Last week, IML portfolio manager Lucas Goode penned an article discussing IML’s thoughts on the telco. And rather than ’10 things I hate about Telstra’, it could be summed up as ‘5 things we love about Telstra’.

Why this ASX fund manager loves Telstra shares right now

“Telstra shares are good value”

Goode points to the cessation of the pricing wars that Telstra was bogged down with between 2016 and 2019 as driving the value it sees in the telco today. The competitive dynamics in the telecommunications space have changed dramatically since then, with former rivals TPG Telecom Ltd (ASX: TPG) and Vodafone merging, as well as Optus abandoning aggressive pricing cuts.

As such, Goode concludes that “since 2021 the main parties have acted more rationally, increasing their pricing to pursue greater profit and returns for shareholders”, thus “we think Telstra shares are reasonable value right now”.

The telco’s domination

The article points to Telstra’s long-standing and continuing place at the top of the pole when it comes to Australia’s telecommunications sector. Goode highlights that the telco has “a strong brand [and] the best network coverage in Australia”. As such, it can afford to “charge a premium over its competitors, and therefore has the best margins in the industry”.

The article points out that as all telco providers increase prices for their mobile services, Telstra’s position as the market leader will allow it to bank “the lion’s share” of the spoils.

A growing dividend

We’ve already discussed the dark days of Telstra’s dividend cuts in 2016 and 2017. But those days are thankfully far behind the company today. In a boon to shareholders, Telstra was able to hold its dividends steady through the COVID-ravaged years of 2020 and 2021. And last year, it gave investors their first dividend pay rise in eight years.

Goode notes this situation as extremely positive for shareholders, which is hard to disagree with.

Telstra shares are inflation resistant

It’s no secret that, after decades of obscurity, inflation has burst back onto the investing scene as one of investors’ biggest worries in 2023. But this doesn’t trouble IML, which sees Telstra shares as inherently resistant to the corrosive effects of inflation. Goode highlights the fact that telecommunications are highly defensive, as phone or internet access is right down the bottom of the household budget hit list.

Goode also argues that Telstra has relatively low staffing costs, which limits the company’s exposure to wage inflation. The company’s T25 cost-cutting plans can also help to allay inflationary pressures as well.

An “excellent” CEO

For years, Telstra was helmed by Andy Penn. But last year, Penn was succeeded by Vicki Brady. Goode sees Brady as yet another reason to invest in Telstra. Here’s what he finished with:

In a high-inflation environment, there aren’t many businesses where you would be confident about their ability to improve margins in future years. With Telstra’s innate advantages and strong management team, led by the excellent Vicky Brady, we think it’s well positioned to do just that.

Foolish takeaway

So there you have it, five reasons why IML loves Telstra shares right now. The telco has had a corking year to be sure, up 9.6% year to date in 2023, hitting several new 52-week highs along the way. But let’s see what the rest of the year has in store for this ASX 200 blue-chip share.

At the last Telstra share price, the company was trading at a market capitalisation of $50.03 billion, with a 3.93% dividend yield.

The post 5 reasons to love Telstra shares right now appeared first on The Motley Fool Australia.

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More reading

• Morgans names the best ASX 200 blue chip shares to buy in May
• Should I buy this week’s slump on Telstra shares?
• My 5-step plan to achieving $500 in monthly passive income
• 5 things to watch on the ASX 200 on Wednesday
• Here are the 3 most heavily traded ASX 200 shares on Monday

Motley Fool contributor Sebastian Bowen has positions in Telstra Group. 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 Australia has recommended Tpg Telecom. 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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