Tag: Motley Fool

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

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

Do you want to retire rich, but don’t want to make doing so a complicated affair? The two goals seem mutually exclusive. That is to say, if you want to build a million-dollar nest egg on average earnings, it’s going to require a lot of complex investing strategies, and plenty of effort. That’s how the proverbial “big guys” do it, right? If it’s simple, it’s got to be subpar.

Except that’s not actually the case. When it comes to building a small fortune from just what’s left over after paying all your monthly bills, simpler probably is better in terms of producing top returns. And it doesn’t get any easier than just buying and holding the S&P 500 Index (SNPINDEX: ^GSPC), or an investable equivalent like the SPDR S&P 500 ETF Trust (NYSEMKT: SPY).

Start by playing the odds

The exact figure has never been verified because it’s impossible to track. But it’s been estimated by plenty of market insiders that at least 80% of day traders end up losing money, and quickly. The actual number might be even higher.

The thing is, it’s not as if the professionals are faring much better with their longer-term stock-picking tactics. In its most recent review of the data, Standard & Poor’s found that over the course of the past 20 years, roughly nine out of ten mutual funds focused on U.S. stocks underperformed the S&P 500 index.

International funds and small-cap funds fared slightly better, but only slightly. Granted, these folks aren’t losing money. They’re just not keeping pace with the market. You still would have been better served buying an international index or small-cap index fund, though.

And if you’re thinking you’ll just delegate your gains-making duties to hedge funds, think again. Despite the hype (often self-congratulatory) and occasional stroke of luck, as a whole they don’t do significantly better than traditional mutual funds. You’d have to pick the right one at the right time, and cash out at the right time, too. That isn’t easy.

Now embrace the bigger message: Picking stocks that consistently outperform the broad market is just hard to do.

Crunching the numbers

OK, so we’ve established that actively managed portfolios aren’t as good a bet as passively managed portfolios. The question remains, though: Can an index fund based on the S&P 500 make you a millionaire?

Coming up with answer requires making some assumptions, but none of our assumptions are out of line or out of the ordinary.

For our hypothetical scenario, let’s assume a 25-year-old investor intends to work for 40 years, retiring at 65. Let’s also assume this individual socks away $500 per month (ideally in a tax-deferred retirement account) every month in that 40-year career. Sure, this might be tough at first, but as this person ages, pay raises make this monthly contribution easier. Lastly, let’s assume the S&P 500 continues driving an average gain of around 10% per year, knowing that some years will be better than others. Given these parameters, even starting without any up-front capital, this individual should end this 40-year time span with around $2 million.

But you only want to work 30 years? Or you can only come up with $250 per month? That’s OK, too.

In the first of these two scenarios, using the same parameters as above except for the number of years that you contribute $500 a month, you’ll still end that 30-year span with nearly $600,000.

In the second scenario, you’ll wind up with roughly $1 million contributing $250 a month for 40 years.

Or, if you only wanted to work for 30 years and could only contribute $250 per month to the effort, you’d still end that three-decade stretch with around $300,000. Not too shabby. Most people will start their retirement with much, much less.

Doing the simple can be difficult

Some are surprised to learn they can become millionaires even with average incomes and small contributions, but they just need to clear the mental hurdle that prevents a lot of people from even trying in the first place. Perhaps even more surprising is that it can be done with the simplest and most accessible of investing instruments: S&P 500-based funds.

That said, don’t confuse simple with easy. It’s simple to regularly buy into an index fund or exchange-traded fund. It’s challenging, however, to do so faithfully when money gets tight or it feels like stocks might never recover from a bear market. That’s when discipline and consistency matter the most.

Oh, and even if you don’t take the index-fund route and opt to pick your own stocks to grow your wealth, that’s OK, too. Even if the 25-year-old discussed above only earns an average of 8% per year by trading individual stocks, that 40-year stretch will result in a nest egg worth about $1 million. Doing something is still better than nothing!

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

The post Is the S&P 500 all you need to retire a millionaire? appeared first on The Motley Fool Australia.

More reading

• Metcash (ASX:MTS) share price charges higher after reporting FY 2021 profit surge
• Why the Costa (ASX:CGC) share price is down 4% today
• 3 ASX shares ready to go off this year: experts
• ‘Cracking buy’: Experts pick 2 enticing ASX transport shares
• Why analysts rate these small cap ASX shares as buys

James Brumley 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 Bruce Jackson.

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

from The Motley Fool Australia https://ift.tt/2SuVmiO

The Metcash Limited (ASX: MTS) share price is on the move this morning following the release of its full year results.

At the time of writing, the wholesale distributor’s shares are up 3% to $3.77.

How did Metcash perform in FY 2021?

For the 12 months ended 30 April, Metcash reported a 9.9% increase in revenue to $14.3 billion. This was driven by a 3.1% increase in Food sales, a 19.2% jump in Liquor sales, and a 24.7% lift in Hardware sales.

Things were even better for its earnings thanks to margin expansion. This saw underlying group earnings before interest and tax (EBIT) increase 19.9% to $401.4 million and underlying profit after tax jump 27.1% to $252.7 million.

Also growing strongly was its operating cashflow, which came in at $475.5 million. This was more than quadruple the $117.5 million it reported a year earlier. This strong cashflow generation allowed the company to declare a full year fully franked 17.5 cents per share dividend, up 40% on the prior corresponding period.

In addition to this, the company has lifted its target dividend payout ratio from 60% to 70% of underlying net profit after tax and announced a $175 million off-market share buy-back.

How does this compare to expectations?

Although this was undoubtedly a strong 12 months, Metcash appears to have delivered a profit result a touch short of the market’s expectations.

According to a note out of Goldman Sachs, its analysts were expecting the company to record an 8.2% increase in revenue to $14,088 million and an underlying EBIT of $432.3 million. The latter compares to its actual underlying EBIT of $401.4 million.

Nevertheless, judging by the Metcash share price reaction today, investors don’t appear to be concerned by this.

What were the drivers of its growth?

Metcash CEO, Jeff Adams, revealed that the record sales result was driven by strong performances across all pillars, supported by its MFuture growth initiative.

He commented: “The early success of our MFuture initiatives laid the foundations for a very successful year for Metcash and our independent retailers, with their improved competitiveness being a key factor in the retention of new and returning customers gained though COVID. This, together with the continuation of an increased preference for local neighbourhood shopping and the migration from cities to regional areas, has driven strong sales growth across our independent retail networks, significantly improving their overall health.”

“From an earnings perspective, strong growth was achieved in all Pillars, with Liquor and Hardware standouts delivering EBIT growth of ~22% and ~62% respectively, and contributing to an improvement in the Group’s operating leverage. Our Food pillar also performed well, delivering much higher underlying earnings while continuing to support its retail customers through a challenging environment,” he added.

Total Tools investment

Potentially giving the Metcash share price a lift today was news that it is increasing its investment in the Total Tools business.

The release explains that Metcash has increased its ownership in Total Tools from 70% to 85% for an acquisition cost of $59.4 million.

Management notes that Total Tools has a history of strong performance, which has continued since Metcash acquired its 70% stake in September last year. For the eight months ended 30 April, the business contributed EBIT of $24 million.

Outlook

Metcash revealed that it has continued to benefit from the shift in consumer behaviour with strong sales in the first eight weeks of FY 2022. Food sales are up 13.7% over the period, Liquor sales have increased 26%, and Hardware sales have jumped 29.1%.

However, it has warned that there continues to be some uncertainty over the potential impact of any future COVID-related trading restrictions or changes in consumer behaviour. As a result, no guidance has been provided for the year ahead.

The post Metcash (ASX:MTS) share price charges higher after reporting FY 2021 profit surge appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Brokers name 3 ASX shares to buy today
• Why this broker thinks the Metcash (ASX:MTS) share price is great value
• 5 things to watch on the ASX 200 on Tuesday
• Quarterly rebalance: Appen kicked out of ASX 100, Uniti added to ASX 200

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 Bruce Jackson.

from The Motley Fool Australia https://ift.tt/3qvOY7v

The Costa Group Holdings Ltd (ASX: CGC) share price has returned from its trading halt and is tumbling lower.

In early trade, the horticulture company’s shares are down 4% to $3.26.

Why is the Costa share price tumbling lower?

The catalyst for the weakness in the Costa share price this morning has been the completion of an institutional entitlement offer which was launched to raise funds for a major acquisition.

According to the release, the institutional entitlement offer was successfully completed, raising approximately $114 million. Management notes that it was strongly supported by eligible Costa institutional shareholders, who took up approximately 90% of their entitlements.

Furthermore, and institutional shortfall bookbuild was undertaken with a clearing price of $3.30 per new share, representing a $0.30 premium to the offer price of $3.00 per new share. The offer price was an 11.8% discount to its last close price.

Costa will now push on its with retail entitlement offer, which is aiming to bring the total funds raised to $190 million.

Why is Costa raising funds?

Costa is raising funds to acquire the business and assets of 2PH Farms for $200 million in cash.

Queensland-based 2PH Farms is the largest citrus grower in northern Australia. It has farming operations in Central Queensland, with a main growing location at Emerald and a smaller location at Dimbulah.

Management notes that 2PH is expected to generate ~$29 million in EBITDA-S in calendar year 2021 on a pro forma basis. This will make it around 10% earnings per share accretive on a pro forma basis in 2021, excluding future plantings and potential synergy benefits.

Costa’s CEO and Managing Director, Sean Hallahan, said: “The acquisition of 2PH provides Costa a larger and stronger citrus business with an attractive growth profile. 2PH will complement and enhance our production footprint, our variety offering and market opportunities, both export and domestic. We are delighted to take ownership of 2PH and look forward to supporting its continued success and its globally recognised brand and reputation for quality citrus varieties.”

The post Why the Costa (ASX:CGC) share price is down 4% today appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Top brokers name 3 ASX shares to buy next week
• Broker tips Costa (ASX:CGC) share price to shoot higher
• ASX 200 down, Woolworths falls, Costa acquires more farms
• ASX 200 down 0.5%: Costa’s acquisition, Afterpay & Zip charge higher

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 owns shares of and has recommended COSTA GRP FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/3A1gLB8

With the S&P/ASX 200 Index (ASX: XJO) at all-time highs, it can be a struggle to find bargains.

Sure, there are plenty of quality companies, but are they all fully priced for their potential?

According to four experts, there are still 3 stocks that look like they have plenty of upsides this year.

Nextdc Ltd (ASX: NXT)

The data centre provider’s share price has never really taken off consistently in the way its fans would like.

But with the COVID-19 pandemic pushing up demand for computing infrastructure, NextDC shares have gone up more than 23% in the past year. Nothing to sneeze at.

And they’ve gained 240% in the past 5 years, which is pretty handsome growth.

Morgans head of Asian desk, Raymond Chan, is betting that the coming quarter might see another spike up.

“It’s all eyes on… how many of the optional [client] contracts are exercised in the next 3 months,” he told SwitzerTV Investing.

“Because those contracts are issued to a number of big players, like Alphabet Inc (NASDAQ: GOOGL), Salesforce.com Inc (NYSE: CRM).”

Chan said June is usually the time when client renewals are announced, but he suspects that’s delayed this year due to the pandemic.

“That [delay] may impact the share price, but if we see some contract wins that will be a catalyst for NextDC to move to the next level.”

United Malt Group Ltd (ASX: UMG)

One decidedly low-tech stock compared to NextDC is United Malt, which produces malt for alcoholic drink producers.

Wilson Asset Management portfolio managers Matthew Haupt, Catriona Burns and Oscar Oberg reckon this is a major post-COVID recovery play.

“We remain positive on agricultural stocks and have transitioned more into those set to benefit from tailwinds in the re-opening trade,” they wrote in a memo to clients.

“[United] is the world’s fourth-largest commercial maltster, operating as a network of companies spanning North America, the UK and Australia. It also operates an international distribution business, providing a full-service offering for craft brewers and distillers.”

The business’ big markets of North America and Britain had been hit hard by drinkers not going out to the pub in the past 18 months.

“Now, the company stands to benefit from increased patronage in restaurants and pubs, as the US and UK economies recover and reopen,” the memo read.

“United Malt Group also has a series of initiatives to support growth, including an upgrade and expansion of its malting capacity in the UK and investment in a bespoke craft warehouse and distribution centre in Victoria.”

United shares are up almost 9% this year, trading at $4.51 on Friday afternoon.

Wilson funds WAM Capital Limited (ASX: WAM), WAM Research Limited (ASX: WAX) and WAM Leaders Ltd (ASX: WLE) currently hold United Malt.

Computershare Ltd (ASX: CPU)

The Motley Fool reported last week how the share registry provider was perfectly placed to profit from rising interest rates.

It works like this: Computershare temporarily holds dividends and acquisition proceeds that are headed to shareholders. This pool of funds earns short-term interest.

This money-spinner has been struggling the past 18 months with near-zero rates in Australia.

Chan agreed that this situation would turn around soon.

“I would see Computershare as an interesting stock as an inflation hedge,” he said.

“Computershare is one of the few that can leverage on the upside of rising interest rates… You can imagine in the future if the interest rates continue to go back up because of inflation, it will earn more money.”

Many investors have already locked into Computershare stocks, with the price going up almost 19% this year and nearly 33% in the past 12 months.

But Chan reckons the porridge is still just right.

“The PE [ratio] is not too low, but certainly not too high — around 22 times at the moment.”

The post 3 ASX shares ready to go off this year: experts appeared first on The Motley Fool Australia.

More reading

• ASX 200 Weekly Wrap: Share market breaks 5 week winning streak
• 5 things to watch on the ASX 200 on Monday
• These were the best-performing ASX 200 shares last week
• These were the worst-performing ASX 200 shares last week
• ASX 200 rises, Charter Hall up, Boral jumps

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Motley Fool contributor Tony Yoo owns shares of Alphabet (A shares). The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Alphabet (A shares), Alphabet (C shares), and Salesforce.com. The Motley Fool Australia has recommended Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/2UJmcod

A fresh wave of COVID-19 has seen Australia’s two largest cities shut down over the last few weeks.

So it’s still an uncertain time to be in the transport business.

However, does this mean the industry only has upside from here as the world emerges from its pandemic slumber?

Three stock experts recently weighed in, picking out 2 quality ASX shares they believe investors could consider.

Sydney Airport Holdings Pty Ltd (ASX: SYD)

The monopoly airport in Sydney has caught the eye of multiple fund managers.

TMS Capital portfolio manager Ben Clark said this ASX transport share is “a cracking buy”.

“Whether it’s 2022 or 2023, it will recover, and I think actually travel will overshoot on the upside to where the passenger numbers would have been if not for COVID,” he told Livewire.

“And then the other thing I think is that we’re all probably going to need to spend a bit more time in airports as travel ramps back up. There’s probably some new revenue streams — maybe doing testing before we get on flights, etc.”

Sydney Airport shares were up 1.38% on Friday to finish the day on $5.86. The stock is down 8.58% this year.

Wavestone Capital portfolio manager Catherine Allfrey agreed that it was inevitable the airport would come roaring back.

“We’re prepared to wait that out with a company like Sydney Airport, which we see as a monopoly asset here in Sydney,” she told Livewire.

“It’s an iconic asset and those tourists will come back and again, that company will thrive. So that’s one company that we think in terms of a long-term trend will be a beneficiary.”

Clark said the unknown of precisely when travel would truly be back was causing “a great price opportunity”.

“So you need to buy it while the uncertainty reigns.”

Atlas Arteria Group (ASX: ALX)

Another company spun out of Macquarie Group Ltd (ASX: MQG), Atlas Arteria owns and runs toll roads in the US and Europe.

Watermark Funds Management chief investment officer Justin Braitling rates it a “strong buy”.

“These European infrastructure assets have recovered nicely. Traffic flyers will normalise,” he told Livewire.

“It’s on a 6% yield and, unlike a lot of other infrastructure plays, the dividend should increase nicely in the years ahead.”

Clark observed that road traffic in France has been “resilient”, currently running at 75% of pre-pandemic levels.

“The major asset these guys own is the highway that connects Paris to Lyon,” he said.

“France is opening up. Tourism is really starting to kick off again in Europe, albeit in fits and spurts.”

Like Sydney Airport, Clark said that the Atlas Arteria share price is selling for “a big discount to where it was”. 

“Also a lot of the debt is now fixed, whereas the tolls are linked to inflation. So this is probably one of those players that actually could do okay in an inflationary environment.”

The post ‘Cracking buy’: Experts pick 2 enticing ASX transport shares appeared first on The Motley Fool Australia.

More reading

• ASX 200 Weekly Wrap: Share market breaks 5 week winning streak
• Why ANZ (ASX:ANZ) and this dividend share could be in the buy zone
• Sydney Airport (ASX:SYD) share price is slipping amid COVID border chaos
• 2 ASX dividend shares with attractive yields
• ASX 200 Weekly Wrap: ASX makes it 5 out of 5

Motley Fool contributor Tony Yoo owns shares of Macquarie Group Limited and Sydney Airport Holdings Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/2U8qHbH

While small cap ASX share carry more risk than their larger rivals, the potential returns on offer makes it worth considering including one or two in a balanced portfolio if your risk profile allows.

But which small cap shares should you be looking at? Two that could be worth getting better acquainted with are listed below. Here’s why:

Avita Medical Ltd (ASX: AVH)

The first small cap to look at is Avita Medical. It is a global regenerative medicine company best known for its Recell system. This is a spray-on skin treatment used for burns victims.

However, Avita isn’t settling for this and is seeking to expand the use of the Recell system. It is aiming to treat vitiligo and is working on a project with Houston Methodist Research Institute on reversing cellular ageing.

While demand for the Recell system softened during the pandemic due to lower burn incidents, the reopening of the US economy has let to demand picking up. So much so, the company recently upgraded its FY 2021 guidance.

This went down well with analysts at Bell Potter. Last week the broker retained its speculative buy rating and $9.80 price target on its shares. This compares to the latest Avita Medical share price of $5.80.

Booktopia Group Ltd (ASX: BKG)

Another small cap to look at is Booktopia. It is the largest Australian-owned online book retailer by market share. At the last count, the company was selling one item every 4.7 seconds, shipping a total of 6.5 million items during FY 2020.

Pleasingly, the company has built on this materially in FY 2021 thanks to the shift to online shopping and its new distribution centre. For example, in the first half, the company shipped a total of 4.2 million units during the six months. This was up 40% on the prior corresponding period and underpinned a 51.1% increase in revenue to $112.6 million and a 502.3% jump in underlying EBITDA to $8 million.

One broker that is tipping further strong growth in the future is Morgans. Its analysts believe Booktopia is well-placed to win market share and realise further scale benefits.

The broker has an add rating and $3.54 price target on the company’s shares. This compares favourably to the current Booktopia share price of $2.57.

The post Why analysts rate these small cap ASX shares as buys appeared first on The Motley Fool Australia.

More reading

• 3 small cap ASX shares worth watching closely
• 4 exciting small cap ASX shares to watch
• ASX 200 rises again, Avita jumps, Shaver Shop sinks
• Why AVITA, Cettire, Lifestyle Communities, & SEEK are storming higher
• Why the AVITA (ASX:AVH) share price is jumping 8% 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. owns shares of and has recommended Avita Medical Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Booktopia Group Limited. The Motley Fool Australia has recommended Avita Medical Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/3y1hMHM

New Zealand-based tech company Ikegps Group Ltd (ASX: IKE) might still be flying under the radar for many investors. But with this ASX tech share shooting up by more than 65% in the past year, the company may now be starting to attract some attention.

At Friday’s close, Ikegps shares were trading at $1.095, not far off the 52-week high of $1.24 they briefly hit last November.

Company background

Ikegps is a niche company specialising in software and hardware measurement tools. It uses laser technology to capture geospatial data, including an object’s height, width and distance. At first glance, this might seem like too specialised a product offering to be profitable, but this sort of technology is crucial to the design and implementation of large infrastructure and utility projects.

In fact, Ikegps already has contracts with a number of US telecommunications giants, including AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ). The company’s measurement technology helps these customers build and maintain their networks.

Recent financials

Ikegps released its FY21 report earlier this month (covering the 12 months ending 31 March 2021). Business headwinds stemming from the COVID-19 pandemic meant that revenues declined slightly year on year – from NZ$9.8 million in FY20 to NZ$9.3 million in FY21. Gross margin also declined, from NZ$6.9 million in FY20 to NZ$5.9 million in FY21, and the company blew out its net operating loss after tax from NZ$6.1 million to NZ$7.4 million.

Despite the subdued financial performance, Ikegps claimed it has laid a solid foundation for growth, citing a strong sales pipeline, healthy balance sheet, and a wide-ranging product suite. And there were some silver linings buried in the financial results. Ikegps closed a record number of new contracts in the fourth quarter of FY21, and that momentum seems to have carried over into the first few months of FY22.

Ikegps closed contracts worth a total of NZ$5.4 million in the last quarter of FY21, with most of that revenue expected to be recognised during FY22. In the first eight weeks of FY22, Ikegps closed contracts worth a further NZ$3.4 million, meaning it is almost on track to deliver back-to-back record quarters.

Other news

Last Wednesday, the company announced another set of material contract wins. Ikegps extended an agreement with an engineering company involved in the development of telecommunications infrastructure, and also signed a new contract supporting a separate network project in the US. Ikegps will be hoping that the recent contract wins are the first signs of a sustained increase in demand from North America as their economy emerges from the pandemic.

Ikegps share price snapshot

As well as its impressive gains over the past 12 months, the Ikegps share price has also rallied by more than 19% over the past month. Based on its current valuation, this ASX tech share has a market capitalisation of around $146 million.

The post This under-the-radar ASX tech share has gained 65% in the last 12 months appeared first on The Motley Fool Australia.

More reading

• 5 outperforming ASX dividend shares unmasked
• ASX 200 Weekly Wrap: Share market breaks 5 week winning streak
• 3 ASX shares with BIG dividend yields
• Why the Austal (ASX:ASB) share price will be on watch today
• Zip (ASX:Z1P) and this ASX share could have huge growth runways

Motley Fool contributor Rhys Brock has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended ikeGPS Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Verizon Communications. The Motley Fool Australia has recommended ikeGPS Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/3y4ITSh

Ask a Fund Manager

The Motley Fool chats with fund managers so you can get an insight into how the professionals think. In this edition we pick the brains of Michael Maughan and Malcolm Whitten – portfolio managers at Tyndall AM for the Nikko AM Australian Share Income Fund – for their insights into ASX dividend shares.

(Note, the Nikko AM Australian Share Income fund was acquired by Yarra Capital Management in April 2021. It will be rebranded as Tyndall AM in due course.)

Can you give us an idea of the Nikko Australia Share Income fund’s investment philosophy and background?

Malcolm: The fund was launched in November 2008 to meet investor needs for regular income and long-term capital growth. The fund provides exposure to equities which are expected to grow and thereby address longevity.

Our primary objective is to exceed the grossed-up dividend yield of the S&P/ASX 200 by 2% per year over a rolling
5-year period. We’re proud to have met that objective over the life of the fund.

The current market expectation for the grossed-up yield is approximately 4.0% which means we’re aiming to generate a 6.0% yield. I should stress that the objective may not be met every year. However, in the 12 months to May 2021 the grossed-up yield was 6.1% despite the challenges of COVID-19. 

What boxes does a share need to tick before you’ll consider investing in it?

Michael: We’re an income fund. So, the ideal stock has a good sustainable yield and valuation upside according to our intrinsic value process.

In reality, portfolios are living things. We look at our stock ranking, ranking them from cheapest to most expensive. And we look to how things move within that live ranking. That might be the share price driving those moves or it might be a reassessment of value on our behalf.

When stocks that we own move down that ranking we look to recycle that capital into stocks that are towards the top of that ranking. Keeping in mind that we’re always looking to enhance the overall risk-return of the portfolio.

Malcolm: We’re an active portfolio service. Mike mentioned the recycling of positions. There’s a constant review of value and of where the positions of the portfolio sit on that rank. We watch that every day, and as the positions shift, the relative value gap closes, that’s an opportunity to sell one and buy into something else.

Broadly speaking, our position sizes are a function of that perceived valuation gap. It’s not binary, buy-sell all the time.

Are you happy to invest on the smaller end of the market as well as large-cap shares?

Michael: We don’t deliberately target the market cap segment. Our research universe starts at (ASX) 200. Cap-wise the distribution of our market bias is towards the bigger end. But we’ve found historically a sweet spot (of) opportunity exists in the mid-cap space. So in the (ASX) 50 and (ASX) 100.

As an income fund, how do rank a share’s dividend yield?

Michael: Dividends are the fund’s primary objective. But there are various building blocks of yield for the fund.

The keystone is for franked dividends. But there are other forms of yield. That might be a return of distribution, a return of capital or a circumstance where a company sells a division and returns that surplus capital. That could be by a buyback, it could be by paying down debt. And that increases the future return to shareholders.

What’s your outlook for ASX dividend shares?

Malcolm: We think we’re in a sweet spot for dividends at the moment. There are really 3 tailwinds there.

The first is the dearth in alternative income sources, with bonds sitting at that 1-2% band. [Aussie] equities continue to deliver in the 4-5% band. Those dividends should be growing because we’ve got the recovery in earnings and the normalisation in payout ratios. And then thirdly, markets are at all-time highs. We expect that dividends are going to make up a bigger part of total returns into 2022.

What types of risk management do you employ?

Michael: We don’t necessarily have stop losses in place. What we use is our fundamental valuation process to assess what could go wrong with a company. And that gives us a margin of comfort in the positions that we own.

Malcolm: We look at 3 layers of risk. We have a team of 11 people doing bottom-up analysis and then interrogating that analysis. That’s the first line of defence in terms of risk. Knowing the risks of the individual stocks, the risks to the earnings.

Secondly, we go through analysis of the aggregate risks in the portfolio. We use numerous tools to understand what owning that portfolio of stocks adds up to in terms of total risk.

The last one is we put limits on ourselves in terms of stocks and sectors. That makes sure we get a diversified portfolio, which is really important. Especially in an income fund, which are prone to falling into the trap of concentration risk, with everyone gravitating towards (classic) yield type stocks.

The ASX 200 banks are historically strong income shares. Are there any that look particularly strong to you?

Michael: We have been served well by our investments in the banks over the last year.

At the commencement of COVID, when it broadened from just being a China issue to affecting the rest of the world and perhaps broader equity damage and financial risk to the economy, we went underweight. And then in the early stage of optimism on vaccines we started to close that underweight on the perception that eventually there would be a cure, either through herd immunity or a vaccine. Today we’re overweight in the sector.

We still see good value in the banks. And indeed ANZ [Australia and New Zealand Banking Group Ltd (ASX: ANZ)] and CBA [Commonwealth Bank of Australia (ASX: CBA)] stand out particularly because they have capital surplus to their needs.

Like many funds, your portfolio took a big hit during the viral meltdown in early 2020, and it’s enjoyed a big lift since. What went wrong in early 2020 and what then went right to deliver the past year’s run of big gains?

Michael: The markets went crazy in terms of the impact of the sudden stop and the isolation measures that were put in place. That was an unanticipated risk. The distinction between stay-at-home and out-and-about sectors hurt the fund badly.

Part of our narrative is to be patient and not panic. So, in those months of February and March (2020) the fund was actually relatively quiet in terms of activity. Because the risk was that you act rashly, without looking at the longer-term valuation.

That really is key. We’re an active portfolio service with a valuation process that’s looking at a 3-year horizon. The turnaround in the fund since then is the benefit of riding out that storm.

What were your best-performing investments over the past 12 months?

Michael: The contributors to our outperformance have included our position in ANZ. It’s one of the banks that we still see as an attractive opportunity with higher prospects for return on capital.

Then there’s Oz Minerals [Oz Minerals Ltd (ASX: OZL)]. Despite the shutdown more broadly in the economy, they carried on with commissioning their new copper mine in South Australia. They even hosted a virtual site tour. They adapted readily to the confines of social distancing and managed to deliver on the commissioning of their mine. With the running copper price and the delivery of what they had promised, Oz Minerals have been very good to the fund.

Riding Virgin Money UK, [Virgin Money UK PLC (ASX: VUK)] out of the depths of what was arguably one of the worst COVID-hit economies also served us well.

And Downer [Downer EDI Ltd (ASX: DOW)]. It really had its own missteps prior to COVID. Their engineering division had cost overruns. That business has recovered, and the rest of their portfolio has improved in the reopening trade.

Iluka [Iluka Resources Ltd (ASX: ILU)], a mineral sands producer, is tied to the fortune of the housing markets in China. It’s performed very well also.

Malcolm: Iluka is one of those stocks where the demand for its product is late cycle. Supply is constrained. And we see that contributing for us.

You have a fairly significant position in the resource sector then.

Michael: Indeed, we do. We have a consideration of who is generating strong free cash flow. The iron ore price has exceeded our expectations at about US$200. And with very low gearing they’re well placed to distribute their higher-than-expected earnings to shareholders.

Malcolm: This is where we differentiate ourselves from some other income funds. We are a diversified portfolio across all parts of the market. We’ve got the broad research team covering all parts of the market. A team that includes former geologists and engineers being able to take a view and invest beyond the typical income sectors.

Is there a particular sector you think will offer good ASX income opportunities?

Michael: To varying extents we’ve found good value in insurance names. They’ve been burnt by exposure to business interruptions globally and locally. They’ve raised new capital. That’s spread across IAG [Insurance Australia Group Ltd (ASX: IAG)], QBE [QBE Insurance Group Ltd (ASX: QBE)], and Suncorp [Suncorp Group Ltd (ASX: SUN)].

Income for today and capital growth for tomorrow — that’s our mantra; it’s how we think of our job.

The post 5 outperforming ASX dividend shares unmasked appeared first on The Motley Fool Australia.

More reading

• ASX 200 Weekly Wrap: Share market breaks 5 week winning streak
• 2 blue chip ASX dividend shares with big yields
• Top brokers name 3 ASX shares to sell next week
• What moved CBA (ASX:CBA) shares this week?
• Suncorp (ASX:SUN) share price higher despite High Court ruling

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/3jpQ17H

Last week, we discussed how the S&P/ASX 200 Index (ASX: XJO) had just capped off its fifth week in a row of week-to-week gains. Well, that venerable streak ended last week on the Australian share market. The ASX 200 ended up in the red by Friday afternoon after a dramatic week.

In a move perhaps obvious in hindsight, some shares that have come to be perceived as ‘lockdown winners’ rallied hard on Friday as it became clear Sydney would be facing another lockdown, its first (outside the Northern Beaches) in over a year.

Shares like Kogan.com Ltd (ASX: KGN), Afterpay Ltd (ASX: APT) and Temple & Webster Group Ltd (ASX: TPW) saw a big uptick in valuation by the end of the week and ended up being among the ASX 200’s best performers over the whole week (more on that later).

ASX resources shares also had a great week. The big miners like BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) had strong performances. BHP shares were up close to 3% last week, with Rio rallying a more modest 1.4%. A big infrastructure deal that President Joe Biden announced last week may have been a catalyst here.

A week to forget…

But this strength in one niche of the market wasn’t enough to prevent a loss overall for the ASX 200. ASX banks led the selloff (as we know, it’s hard for the ASX 200 to rise if the banks are in the red). Commonwealth Bank of Australia (ASX: CBA) shares led these losses, with the CBA share down a nasty 4.3% to back under $100 over last week. But Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group Ltd (ASX: ANZ) were down 3.7%, 2.6% and 2.4% respectively.

But perhaps the biggest story on the ASX last week was the long-awaited demerger of the Woolworths Group Ltd (ASX: WOW) Endeavour business. This is now officially an independently listed company – Endeavour Group Ltd (ASX: EDV) – on the ASX. It’s also now a straight-in member of the top 50 ASX companies.

Woolworths shareholders were issued one Endeavour Group share for every one Woolworths share owned. And so far, it’s been a mixed story. Woolies shares opened 13.6% lower on Thursday morning at $36.71 per share when the split became official. And investors may not have ended up ahead by the end of Endeavour’s first week of independence.  After listing at $6.50 on Thursday morning, the Endeavour share price fell to $6.07 by the end of trading and closed up for the day on Friday at $6.10.

How did the markets end the week?

Not too well. The ASX 200 started the week out at 7,369.9 points and finished up at 7,308 points – a fall of 0.84%. Monday gave us the worst day of the week, with a hefty fall of 1.81%. Tuesday reversed some of these losses with a healthy gain of 1.48%. But back-to-back losses of 0.6% and 0.32% on Wednesday and Thursday really set things in stone. Friday’s 0.45% rally wasn’t enough to pull the ASX back into the green, with the index finishing down for the whole week.

Meanwhile, the All Ordinaries Index (ASX: XAO) also had a rather lousy week. The All Ords started out at 7,624.3 points and finished up at 7,578.6 points – a fall of 0.6%.

Which ASX 200 shares were the biggest winners and losers?

Time now for our most salacious segment, where we look at the ASX 200’s best winners and poorest losers. So get the chins a-wagging as we, as always, start with the losers:

Worst ASX 200 losers	% loss for the week
Woolworths Group Ltd (ASX: WOW)	(13.8%)
Codan Limited (ASX: CDA)	(8.8%)
Nuix Ltd (ASX: NXL)	(8.6%)
Mesoblast Limited (ASX: MSB)	(6.9%)

Woolies ended up being the worst-performing ASX 200 share last week, with its Endeavour demerger clinching the wooden spoon for the grocer. But, as we discussed above, shareholders can’t complain too much, having voted for the demerger in the first place and receiving Endeavour shares in the process. And a demerger is one of the best reasons to have a share price fall (along with shares going ex-dividend).

Apart from Woolies, Codan was the ASX 200’s worst-performing share last week, losing a hefty 8.8%. It’s not exactly obvious why Codan shares fell last week. But, as my Fool colleague James Mickeboro pointed out during the week, a weak gold price and some share sales from the company’s CEO may not have helped.

ASX tech share Nuix wasn’t swept up in the ‘lockdown rally’ that some other tech shares saw. It finished the week down close to 9% as well. News that a search warrant was reportedly executed by the Australian Federal Police at Nuix’s office might have been the reason investors were hitting the sell button (again) with this company, pushing it to new all-time lows.

Finally, Mesoblast was also on investors’ hit lists, despite no major news coming out of the medical company.

Now with the losers out of the way, let’s now take a look at last week’s winners:

Best ASX 200 gainers	% gain for the week
Afterpay Ltd (ASX: APT)	12.8%
Kogan.com Ltd (ASX: KGN)	11.1%
Boral Limited (ASX: BLD)	8.3%
Adbri Ltd (ASX: ABC)	6.8%

Buy now, pay later (BNPL) pioneer Afterpay was indeed the best-performing ASX 200 share on the markets last week. A new development with the company’s ‘not a credit card’ seemed to be the driving force here.

‘Lockdown winner’ Kogan was another strong performer, putting on an additional 11.1%. There was no major news or announcements out of Kogan, so perhaps it’s all lockdown sentiment here.

Construction materials company Boral was also on fire last week. A couple of things were going on here. Firstly, Seven Group Holdings Ltd (ASX: SVW) upped its takeover offer for Boral to $7.40 per share, albeit “under certain circumstances”. Secondly, Boral announced the sale of its North American building products business to the US company Westlake Chemical Corporation. Both of these announcements seemed to have been welcomed by investors.

And finally, fellow construction company Adbri was also a beneficiary of positive investing sentiment last week. There was no news or announcements out of Adbri. So perhaps some goodwill from the Boral developments spilled over into the Adbri share price.

A wrap of the ASX 200 blue-chip shares

Before we go, here is a look at the major ASX 200 blue-chip shares as we commence yet another week on the ASX boards:

ASX 200 company	Trailing P/E ratio	Last share price	52-week high	52-week low
CSL Limited (ASX: CSL)	36.9	$285.13	$320.42	$242
Commonwealth Bank of Australia (ASX: CBA)	22.08	$99.26	$106.57	$62.64
Westpac Banking Corp (ASX: WBC)	22.16	$25.89	$27.12	$16
Australia and New Zealand Banking Group Ltd (ASX: ANZ)	17.13	$28.28	$29.64	$16.40
National Australia Bank Ltd (ASX: NAB)	20.09	$26.18	$27.84	$16.56
Fortescue Metals Group Limited (ASX: FMG)	8.4	$22.92	$26.40	$13.60
Telstra Corporation Ltd (ASX: TLS)	24.09	$3.59	$3.63	$2.66
Woolworths Group Ltd (ASX: WOW)	32.83	$36.78	$44.06	$35.66
Wesfarmers Ltd (ASX: WES)	34.81	$57.72	$58.87	$43.06
BHP Group Ltd (ASX: BHP)	26.33	$47.90	$51.82	$33.73
Rio Tinto Limited (ASX: RIO)	15.77	$125.22	$132.94	$90.04
Coles Group Ltd (ASX: COL)	21.4	$16.83	$19.26	$15.28
Transurban Group (ASX: TCL)	–	$14.54	$15.64	$12.36
Sydney Airport Holdings Pty Ltd (ASX: SYD)	–	$5.86	$7.49	$4.99
Newcrest Mining Ltd (ASX: NCM)	16.48	$26.14	$38.15	$23.08
Woodside Petroleum Limited (ASX: WPL)	–	$22.54	$27.60	$16.80
Macquarie Group Ltd (ASX: MQG)	18.79	$154.93	$162.06	$114.50
Afterpay Ltd (ASX: APT)	–	$129	$160.05	$55.30

And finally, here is the lay of the land for some leading market indicators:

• S&P/ASX 200 Index (XJO) at 7,308 points.
• All Ordinaries Index (XAO) at 7,578.6 points.
• Dow Jones Industrial Average Index (DJX: .DJI) at 34,434 points after rising 0.69% on Friday night (our time).
• Bitcoin (CRYPTO: BTC) going for US$33,103 per coin.
• Gold (spot) swapping hands for US$1,781 per troy ounce.
• Iron ore asking US$211.58 per tonne.
• Crude oil (Brent) trading at US$76.18 per barrel.
• Australian dollar buying 75.88 US cents.
• 10-year Australian Government bonds yielding 1.56% per annum.

That’s all folks. See you next week!

The post ASX 200 Weekly Wrap: Share market breaks 5 week winning streak appeared first on The Motley Fool Australia.

More reading

• 2 blue chip ASX dividend shares with big yields
• How one ASX investor turned $156k into $12 million
• 5 things to watch on the ASX 200 on Monday
• 2 top ASX dividend shares for income investors next week
• Top brokers name 3 ASX shares to buy next week

Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited, Bitcoin, Newcrest Mining Limited, and Telstra Corporation Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended AFTERPAY T FPO, Bitcoin, CSL Ltd., Kogan.com ltd, and Temple & Webster Group Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Nuix Pty Ltd. The Motley Fool Australia owns shares of and has recommended AFTERPAY T FPO, COLESGROUP DEF SET, Kogan.com ltd, Macquarie Group Limited, Telstra Corporation Limited, and Wesfarmers Limited. The Motley Fool Australia has recommended Nuix Pty Ltd and Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

from The Motley Fool Australia https://ift.tt/3qwuyvd

The three ASX shares in this article have larger-than-average dividend yields.

Dividends are not guaranteed, they are decided by boards of businesses and funded by profits.

These three ASX shares have high dividend yields as a result of a lower price/earnings ratio valuation and/or a higher dividend payout ratio:

Pengana Capital Group Ltd (ASX: PCG)

Pengana is a funds management business that operates a variety of strategies for investors including Australian shares, global shares, private equity and property.

In the six months to 31 December 2020, Pengana’s funds under management (FUM) increased by 15% to $3.586 billion. In the latest monthly update to 31 May 2021, FUM had increased further to $3.790 billion.

Pengana said that the FY21 half-year result saw “strong investment performance, with all strategies outperforming respective benchmarks for the period” and “significant improvement in net flows”.

The ASX share’s board decided to increase the interim dividend by 25% to 5 cents per share. That brought the trailing dividend to 9 cents per share.

At the current Pengana share price of $1.59, that means the trailing grossed-up dividend yield is 8.1%.

Nick Scali Limited (ASX: NCK)

Nick Scali is a large ASX-listed furniture business with showrooms across the country.

It says that its business model generates a leading retail industry operating cashflow margin, achieving average earnings before interest, tax, depreciation and amortisation (EBITDA) to cashflow conversion of over 100% in the past five years.

Nick Scali explains that its cashflow profile allows the company to maintain a high dividend payout ratio which has averaged 80% through time.

The ASX share expecting to grow its net profit after tax in FY21 by between 85% to 90%.

In the FY21 half-year result it grew its interim dividend by 60% to $0.40 per share. That brought the trailing 12-month grossed-up dividend yield to 8.3%.

360 Capital REIT (ASX: TOT)

This is a real estate investment trust (REIT) that looks to invest across an array of different property investment opportunities. Investments this financial year include PMG Funds, Peet Limited (ASX: PPC) and Irongate Group (ASX: IAP).

The business said its longer-term objective is owning direct assets and value-add opportunities on its balance sheet.

The 50% investment into PMG Group, a New Zealand diversified commercial real estate funds management business, is to provide the ASX share with an investment in a growing funds management platform with a long track record and diversification through exposure to the New Zealand real estate market. It provides earnings from fee income from funds management and underwriting activities.

The ASX share forecast a FY21 distribution of 6 cents per security, which currently translates into a distribution yield of 6.1%.

The post 3 ASX shares with BIG dividend yields appeared first on The Motley Fool Australia.

More reading

• 8 ASX shares that supercharged us out of COVID-19: analyst
• 4 ASX shares in the retail sector with juicy dividend yields
• 2 ASX dividend shares with large yields that have paid consistent payouts
• 3 small ASX shares with big dividend yields
• 2 ASX coronavirus shares that could be buys

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 Bruce Jackson.

from The Motley Fool Australia https://ift.tt/3jgdKah