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Could the Fortescue Metals Group Limited (ASX: FMG) share price be a buy with its 22% grossed-up dividend yield?

The iron ore mining giant has had a volatile time over the last six months. The share price was below $20 six months ago and again towards the end of March 2021. The Fortescue share price has been above $24 in May, February and January 2021.

In recent weeks the iron ore price and Fortescue shares have both been declining on concerns about increasing global supply of iron ore, particularly from Brazil. China also doesn’t want to pay too much for the iron ore that it’s buying, with demand possibly set to ease. 

How is Fortescue performing?

The mining giant continues to achieve high levels of shipments. In the FY21 third quarter, it saw iron ore shipments of 42.3 million tonnes, which was in line with record third quarter shipments last year. Year to date shipments of 132.9mt was 2% higher than the comparable period in FY20.

At the current iron ore price, it is generating a high profit margin. In the third quarter of FY21, the average revenue was US$143 per dry metric tonne. This compared to the C1 cost of US$14.90 per wet metric tonne (wmt).

It’s still producing a lot of resources at a high profit margin.

Balance sheet and dividend

At 31 March 2021, it finished the quarter period with net debt of US$1 billion after the US$3.5 billion payment of its interim dividend.

It has recently improved its capital structure with the issue of US$1.5 billion of senior unsecured notes to refinance debt, extend the debt maturity profile and lower the cost of capital.

Fortescue Future Industries (FFI)

The mining company has recently revised its target to achieve carbon neutrality by 2030, ten years earlier than the previous target.

FFI is an important part of that goal. It’s assessing renewable energy and green hydrogen opportunities globally, as well as green ammonia projects.

It’s developing a ship design powered by green ammonia and trialling that design in new ammonia engine technology at scale.

The business is testing large battery technology in Fortescue’s haulage trucks. It’s trialling hydrogen fuel cell power for Fortescue’s drill rigs. Fortescue is trialling technology on Fortescue’s locomotives to run on green ammonia.

Finally, it’s conducting trials to use renewable energy in the Pilbara region to convert iron ore to green iron at low temperatures, without coal.

A 22% dividend yield?

There are large expectations for the Fortescue dividend in FY21.

The broker Credit Suisse believes that Fortescue could pay a full year dividend of $3.46 per share, which would translate to a grossed-up dividend yield of 22%.

Some brokers that the dividend could be much bigger. One of the most optimistic is Ord Minnett’s FY21 dividend forecast of $4.44 per share – that would be a grossed-up dividend yield of 28.7% for the year.

However, the dividend is then expected to materially reduce in FY22.

Is the Fortescue share price a buy?

Credit Suisse currently rates Fortescue shares as a buy with a price target of $23.

Other price targets are less optimistic. The UBS price target is US$18, with an expectation that the price of iron ore is going to drop over the coming months and drop a bit more over the next couple of years as Chinese demand decreases but international supply increases. That’s why its rating is currently hold/neutral on the iron ore giant. 

Using UBS’ FY22 forecast, the Fortescue share price is valued at 8x FY22’s estimated earnings.

More reading

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• 4 ASX 200 resource shares poised to deliver: AMP Capital

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There are several brokers that all think the two ASX shares in this article are buys.

It might suggest there’s an opportunity for investors if many analysts believe that the same business is worth looking at. Of course, there’s a chance that they’re all simultaneously wrong.

At the moment, these two are highly rated:

Goodman Group (ASX: GMG)

Goodman is currently rated as a buy by at least six brokers. One of those that rates the global property business as a buy is Citi which has a price target on Goodman of $22.10.

Citi noted that things are getting better for Goodman as conditions recover quicker than expected.

In the third quarter of FY21, the business saw total assets under management (AUM) increase to $52.9 billion. Looking at the property portfolio that it owns, it achieved like for like net property income (NPI) growth of 3.3% and a high occupancy rate of 98% which reflects the strong demand for its properties.

Goodman explains that the demand is being driven by increased intensification of use, long-term supply chain requirements, tight supply in urban infill locations and the quality of its assets.

The ASX share noted that location and quality remains critical in meeting clients’ requirements, providing faster lead times to consumers. This is driving consistent long-term cashflow growth to the group.

Goodman’s development workbook continues to grow – it reached $9.6 billion at 31 March 2021 and is expected to be higher by June 2021. The average duration of projects in its current work in progress (WIP) is now around 19 months, so its production rate is currently an annualised $6 billion.

Projects have increased in size and scale, given the concentration in urban locations around the world, with approximately 60% of current WIP now multi-storey.

In FY21, Goodman is expecting operating earnings per share (EPS) to grow by 12%.

TPG Telecom Ltd (ASX: TPG)

TPG is now one of the biggest telecommunication businesses in Australia after the merger with between TPG and Vodafone Australia.

The telco is rated as a buy by at least five analysts, including Ord Minnett which rates the ASX share as a buy with a price target of $6.45.

TPG’s share price has fallen by more than 30% over the last six months. The broker thinks that COVID-19 and leadership changes have been weighing on the stock. Both the TPG chief financial officer (CFO) Stephen Banfield and Chair David Teoh have resigned in recent months.

But, Ord Minnett thinks that TPG can generate growing profit as it achieve the synergies that were expected with the merger. In 2021 it’s targeting $70 million of cost synergies across the group, which excludes the contribution from fixed wireless services and revenue synergies from cross-selling.

In its latest result it said that in the first six months post-merger it generated $342 million of net cash flow and it declared a maiden dividend of 7.5 cents per share.

5G could be an important part of profit generation in future years, it’s now live in more than 350 suburbs in Sydney, Melbourne, Brisbane, Adelaide, Perth, Canberra, Gold Coast and Newcastle.

More reading

• Can the Telstra (ASX:TLS) share price keep climbing?
• Top brokers name 3 ASX shares to sell today
• Is the Goodman (ASX:GMG) share price overvalued?
• Why AnteoTech, Fortescue, Synlait, & TPG shares are tumbling lower
• ASX shares in this sector are pushing towards 52-week highs

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If you’re looking for growth shares to buy, then the tech sector could be a great place to search. At this side of the market there are a number of companies with the potential to grow materially over the next decade.

With that in mind, I have picked out two top tech options to consider. Here’s what you need to know about them:

Nitro Software Ltd (ASX: NTO)

The first tech share to look at is Nitro. It is a global document productivity company helping businesses of all sizes eliminate paper, accelerate business processes, and drive digital transformation.

This is achieved by providing PDF productivity and eSigning for all in a single, affordable solution.

At present, Nitro is helping more than 11,000 businesses globally drive  digital transformation. This includes 68% of the Fortune 500 and three of the Fortune 10.

Demand for its offering continues to grow and is underpinning strong recurring revenue growth. For example, Nitro’s guidance for FY 2021 is ARR in the range of $39 million to $42 million. This will mean year on year growth of 41% to 51.6%.

Morgan Stanley is bullish on the company. Its analysts currently have an overweight rating and $3.70 price target on the company’s shares.

Xero Limited (ASX: XRO)

Another ASX tech share to look at is Xero. Over the last few years it has evolved from an accounting platform provider into a full service cloud-based business and accounting solution to small and medium sized businesses globally.

This evolution has been a huge success and underpinned very strong customer and revenue growth. Positively, Xero still has a long runway for growth over the next decade, or decades, according to analysts at Goldman Sachs.

This is thanks to its international expansion, the shift to the cloud, and the monetisation of its app ecosystem. It is the latter that Goldman Sachs is most positive on. It believes Xero could have a multi-decade runway for strong growth if management can successfully monetise its app ecosystem. 

Goldman has a buy rating and $153.00 price target on its shares.

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• 2 exciting ASX growth shares analysts rate highly

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There are some small cap ASX shares that might be able to deliver solid returns if they can continue to execute on their growth plans.

Smaller businesses might have more growth potential because they’re earlier on with their journeys.

These two could be interesting ideas:

Over The Wire Holdings Ltd (ASX: OTW)

Over The Ware is a reasonably diversified business. It has a number of different segments including Digital Sense, which is a leading sovereign cloud provider in Australia. Over The Wire offers telecommunication services like voice. It also offers cloud infrastructure and data centres.

The business has a number of factors that can help assist its long-term growth strategy. It has a solid recurring revenue base with good margins. This can provide long-term stability.

It plans to keep investing further in its platform to achieve automation and improve its operating leverage.

The small cap ASX share is working on increasing its customer base. Its diversified operations means that it can offer customers a full package of IT and telecommunication services.

Indeed, Over The Wire says:

Over The Wire is a true integrated platform provider, improving our customers’ experience by simplifying technology to empower business. Over The Wire is uniquely positioned to provide sustained customer value through our core capabilities and intellectual property to deliver integrated solutions.

The business continues to grow at a double digit rate. In the FY21 half-year result, revenue rose 17%, the gross profit margin improved by five percentage points and earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 28%.

Doctor Care Anywhere Group PLC (ASX: DOC)

Doctor Care is a UK-based telehealth company that is trying to deliver a good patient experience and clinical care through a digitally enabled platform. It works with health insurers, healthcare providers and corporate customers to connect patients with a range of telehealth services.

The small cap ASX share is growing at a relatively quick rate.

In the first quarter of 2021, the small cap ASX share revealed that its underlying revenue grew 16.5% quarter on quarter to £4.4 million and the number of consultations increased 21.9% to 90,500. Over 34,000 consultations were delivered in March 2021, which was 32.3% above the highest month in the fourth 2020 quarter.

Doctor Care Anywhere is expecting to grow revenue by at least 100% above FY20. This growth is expected thanks to growth in the number of people eligible to use the company’s services, growth in activations and consultations.

The first quarter of 2021 saw a rise in profitability too. Quarter on quarter, the underlying gross profit rose 7.6% and the underlying contribution rose 2.9% to £0.9 million despite the high level of increased demand on its GPs.

Doctor Care Anywhere’s net operating cashflow improved by £1.1 million quarter on quarter to an outflow of £2.4 million in the first 2021 quarter.

Management are expecting that relaxing lockdown measures will accelerate growth thanks to secondary care services and diagnostic pathways. It’s expecting demand for its primary care consultations to remain high.

More reading

• 3 small cap ASX shares that could be destined for big things

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The two ASX dividend shares in this article offer relatively high income yields and are growing profit.

Businesses that are producing both profit growth and increasing dividends might be interesting to income-seeking investors.

Propel Funeral Partners Ltd (ASX: PFP)

In FY21, Propel is expected to pay a grossed-up dividend yield of almost 5% according to Commsec.

Propel is the second largest funeral provider in Australia and New Zealand. It has a sizeable market share of regional markets and it’s steadily growing in large cities largely through acquisitions.

There is a long-term tailwind behind Propel. According to the ABS, death volumes in Austrlaia are expected to increase by 2.7% per annum from 2019 to 2030 and then by 2% per annum from 2030 to 2050.

In the 2020 year, Propel had claimed a market share of around 7%. It continues to focus on its investment strategy on finding more assets and infrastructure with the death market. It’s also looking to explore other potential acquisitions.

Propel said that recent trading indicates that death volumes may be starting to revert to long-term trends with positive comparable funeral volume growth in the three months to mid-February 2021.

The HY21 result saw the ASX dividend share continue to grow. Revenue rose 3.5% to $59 million, operating earnings before interest, tax, depreciation and amortisation (EBITDA) grew 14.8% to $19 million, operating net profit after tax (NPAT) rose 7.6% to $8.4 million and operating earnings per share (EPS) grew 7% to 8.5 cents.

That profit growth funded a 50% increase of the interim dividend to 6 cents per share. That represented a payout ratio of 82% of distributable earnings, leaving some for re-investment. 

Adairs Ltd (ASX: ADH)

In FY21, Adairs is projected to pay a grossed-up dividend yield of 8% according to the forecast on Commsec.

The homewares and furnishings business has been rapidly growing its profit during these strange COVID-19 times.

It has been focused on ensuring a strong gross profit margin in this period of high demand for home improvement. In the first six months of FY21, Adairs’ group gross profit margin improved 545 basis points to 66.1%. The Mocka margin rose 230 basis points to 53.4% and the Adairs gross margin improved 690 basis points to 67.8%. It benefited from co-ordinated sourcing and retail pricing initiatives, as well as reduced depth of markdowns and 29 fewer storewide promotion days.

Adairs is also benefiting from operating leverage. The half-year result saw the cost of doing business ratio decline 791 basis points to 35.8% thanks to disciplined cost control.

The ASX dividend share is focused on an omni retail strategy. That means it wants to serve the customer in whatever sales channel they want, not just retail stores. It’s working. Online sales made up more than a third of total sales and the last 12 months to December 2020 showed online sales of $180.2 million. The Linen Lover Membership now exceeds more than 900,000.

Whilst the profitability is growing across the entire business, the online contribution margin is particularly strong at 44.6%, compared to 36.1% for stores. There’s a higher gross profit margin with online. There is a lower absolute cost to fulfil each online order due to process and productivity improvements, as well as lower delivery costs. Online has a higher return on investment (ROI) on marketing despite increasing spending. Management believe there is continued benefits of economies of scale in this channel.

In the first seven weeks of the second half of FY21, Adairs saw group sales growth of 25%.

More reading

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• Got money to invest? Here are 2 ASX shares to buy

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If you’re looking for an easy way to invest in international shares for diversification, then exchange traded funds (ETFs) could be the answer.

But which ETFs should you look at? Here are two popular ETFs that could be worth getting better acquainted with:

BetaShares Asia Technology Tigers ETF (ASX: ASIA)

The first ETF to look at is the BetsShares Asia Technology Tigers ETF. It gives investors exposure to 50 of the largest technology and ecommerce companies that have their main area of business in Asia.

Among the 50 companies you’ll be owning a slice of are tech giants such as Alibaba, Baidu, Infosys, JD.com, Samsung, and Tencent Holdings. It also includes lesser known but high quality tech companies such as Kuaishou Technology, Meituan Dianping, and Pinduoduo.

Kuaishou Technology is the company behind the eponymous Kuaishou app. It is the world’s second largest short video platform with an average of 275.9 million daily active users. It generates revenue from live-streaming, ads, and ecommerce.

Whereas Pinduoduo is an e-commerce platform that offers a wide range of products from daily groceries to home appliances. The Pinduoduo platform connects distributors with consumers directly through an interactive shopping experience. This allows shoppers to team up to buy items in bulk at lower prices. In March, the company revealed that it had 788 million annual active customers, overtaking Alibaba.

BetaShares Global Cybersecurity ETF (ASX: HACK)

Another ASX ETF to look at is the BetaShares Global Cybersecurity ETF. This popular ETF gives investors exposure to the leading companies in the global cybersecurity sector. 

The cybersecurity sector has been growing rapidly in recent years. And due to increasing demand for cybersecurity services because of the growing threat of cyber attacks and the shift to the cloud, it has been tipped to continue doing so in the years to come. 

Included in the fund are both global cybersecurity giants and emerging players from a range of global locations. Among the companies you’ll be buying a piece of are Accenture, Cisco, Cloudflare, Crowdstrike, Okta, and Splunk.

Through its Falcon platform, CrowdStrike delivers incident response and forensic analysis services that are designed to help businesses understand whether or not a breach has occurred. It then allows the user to respond and recover from a breach with speed and precision to remediate the threat.

Whereas Okta provides businesses with workforce identity solutions. This ensures that access to information is given only to those that are meant to have it. It recently released its first quarter results and provided long term guidance for the first time. Okta is targeting US$4 billion in annual revenue by FY 2026, which implies compound annual growth of at least 35% over the next five years.

More reading

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• Why this ASX ETF is trouncing the index today

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If you’re looking to boost your income with some dividend shares, then you might want to consider the ones listed below.

Here’s what you need to need to know about them:

Rural Funds Group (ASX: RFF)

The first ASX dividend share to look at is Rural Funds. It is an Australian agricultural property company with a portfolio of high quality assets. These properties are leased to some of the biggest players in the agricultural sector on long term agreements.

The great thing about these leases is the rental increases built into them. This means the company is well-positioned to grow its rental income a consistently solid rate over the next decade. This in turn means Rural Funds is well-placed to deliver on its distribution growth target of 4% per annum.

In FY 2022, Rural Funds intends to reward its shareholders with a distribution of 11.73 cents per share. This will be up 4% on FY 2021’s distribution. Based on the current Rural Funds share price of $2.47, this will mean a yield of 4.75%.

Transurban Group (ASX: TCL)

Another ASX dividend share to look at is Transurban. It is one of the world’s leading toll road operators, with a number of important roads across Australia and North America.

Although the pandemic has impacted traffic volumes, particularly on roads connecting to airports, there has been a notable improvement in 2021 as vaccines roll out. This is likely to continue improving as people become more mobile and airports become busy again.

Ord Minnett is positive on the company and is expecting its distribution to rebound strongly in FY 2022. It is forecasting dividends of 37 cents per share in FY 2021 and then 58 cents per share in FY 2022. Based on the latest Transurban share price of $13.90, this will mean forward yields of 2.7% and 4.2%, respectively.

The broker has a buy rating and $16.00 price target on the company’s shares.

More reading

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• 2 ASX dividend shares for income investors

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Vanguard MSCI Index International Shares ETF (ASX: VGS) could be an interesting exchange-traded fund (ETF) to consider as a long-term investment.

What does Vanguard do?

Vanguard is one of the world’s largest asset managers. It provides various index funds and ETFs for a very low cost. The investors are actually the owners of Vanguard, so it shares the profit with the investors through lower management fees.

What’s Vanguard MSCI Index International Shares ETF?

The ETF seeks to track the return of the MSCI World ex-Australia. It boils down to giving exposure to many of the world’s largest companies listed in major developed countries. It offers low-cost access to a broadly diversified group of shares that allows investors to participate in the long-term growth potential of international economies outside Australia.

Low fees

This ETF has an annual fee of 0.18%, which is pretty low low. It’s lower than what many fees than active managers charge in Australia.

It’s not the cheapest ETF on the ASX. Vanguard itself has a cheaper ETF on the ASX called Vanguard US Total Market Shares Index ETF (ASX: VTS).  

Diversification

Vanguard MSCI Index International Shares ETF has over 1,500 holdings, which is good diversification. At the end of April 2021 it had 1,529 positions.

Those businesses are spread across a number of different countries. The US makes up a significant portion of the portfolio, but these locations make up at least 1% of the portfolio: Japan (7.2%), the UK (4.3%), France (3.4%), Canada (3.3%), Germany (2.9%), Switzerland (2.8%), Netherlands (1.5%), Sweden (1.1%) and Hong Kong (1%).

Sector wise, IT gets the biggest allocation. There’s a slant to US tech at the top of the portfolio holdings: Apple, Microsoft, Amazon.com, Alphabet, Facebook, Tesla, JPMorgan and Chase, Johnson & Johnson, Visa and UnitedHealth.

It might be able to give an investor a lot of the diversification they need. 

Returns

The Vanguard MSCI Index International Shares ETF has produced double digit returns since inception in November 2014. The net return has been an average return per annum of 13%. Over the last five years the return has been an average return per annum of 13.9%.

However, past performance is not a guarantee or indicator of future performance.

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The S&P/ASX 200 Index (ASX: XJO) was on form last week and stormed notably higher. The benchmark index rose 149.2 points or 2.1% to end the week at 7,179.5 points.

While a good number of shares climbed higher with the market, some recorded particularly strong gains. Here’s why these were the best performers on the ASX 200 last week:

HUB24 Ltd (ASX: HUB)

The HUB24 share price was the best performer on the ASX 200 last week with an impressive 18.5% gain. This was despite there being no news out of the investment platform provider during the period. The buying was so strong that the company’s shares hit a record high of $28.00 on Friday. This gain appears to have been driven by improving investor sentiment in the tech sector after bond yields softened.

Kogan.com Ltd (ASX: KGN)

The Kogan share price wasn’t far behind with a very strong gain of 17.1%. Investors appear to have been taking advantage of a sharp pullback by the ecommerce company’s shares following a very disappointing trading update earlier this month. Also of note, last week Canaccord Genuity retained its buy rating but cut its price target on the company’s shares to $14.00. The Kogan share price ended the week at $10.19.

Domain Holdings Australia Ltd (ASX: DHG)

The Domain share price was on form and charged 14.8% higher over the five days. Late last week the property listings company confirmed that it has teamed up with private equity firm KKR to make a takeover offer for the PEXA stake owned by Link Administration Holdings Ltd (ASX: LNK). KKR has tabled an offer that values PEXA at $3 billion on a 100% basis. Link owns approximately 44.2% of the property settlement business.

Pilbara Minerals Ltd (ASX: PLS)

The Pilbara Minerals share price was a positive performer and jumped 13.4% last week. This strong gain appears to have been driven by a rally in resources shares and a broker note out of Canaccord Genuity. In respect to the latter, the broker retained its buy rating and lifted it price target on the lithium miner’s shares to $1.45. The Pilbara Minerals share price finished the week at $1.23.

More reading

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Bapcor Ltd (ASX: BAP) is an interesting ASX share and there could be a few reasons why the Bapcor share price might be worth a spot in an investor’s portfolio.

This business is the largest auto parts operator in the Australasia region. It has a number of different brands under its different segments.

It has four divisions – trade, specialist wholesale, retail and service. The trade businesses include Burson Auto Parts, Precision Automotive Equipment and BNT. Bapcor says it has amongst the widest range of car parts in the world for thousands of vehicle makes and models.

Retail businesses include Autobarn, Autopro and Sprint Auto Parts. The service businesses include Midas, ABS, Shock Shop and Battery Town.

Here are three of the reasons why the Bapcor share price could be interesting to think about:

Defensive

Bapcor can be a defensive business, even in a recession. Car owners may decide to buy a car part rather than replace a car entirely in a downturn. That’s particularly the case in this environment where demand for second hand cars is high and new car sales is limited.

Several months ago, Bapcor said:

The automotive aftermarket is a resilient industry and historically has performed strongly in difficult economic circumstances. Recent trading is another example of its resilience assisted by the increase in sales of second hand cars.

The FY21 half-year result showed revenue was up 25.8% to $883.6 million.

Growing margins

Whilst revenue is growing at a solid double digit rate, the margins are also improving at each level.

When looking at the financials at the business, each profit level grew faster than the last. Half-year proforma earnings before interest, tax, depreciation and amortisation (EBITDA) grew 36.5% to $145.6 million, proforma earnings before interest and tax (EBIT) rose 45% to $106.8 million and proforma net profit went up 54% to $70.2 million.  

The company is achieving scale benefits, without impacting customer-facing element of its businesses.

It’s investing in key systems, technology and processes. In procurement, Bapcor is trying to utilise its scale to improve pricing and terms. Bapcor is leveraging its logistics capability (including building a new distribution centre) to lower logistics costs. It’s trying to be effective about its marketing spending. It also wants to utilise its group company store networks to reach customers and increase its addressable market.

Long-term plans

Bapcor says that it has a number of avenues to drive the performance of the business including further network growth, realising operational efficiencies and expansion of its own brand product range.

It has acquired a 25% stake of Tye Soon, which is a big distributor of auto parts in South East and North East Asia.

Bapcor has targets to expand its networks to become much larger. For its trade network, it’s targeting 240 stores, with it sitting at just over 190. For Autobarn, it’s targeting 200 stores and it has just over 130.

Asia in-particular is a large market with a big goal of over 80 stores, when it currently has just six in Thailand.

What’s the valuation?

The Bapcor share price is valued at 21x FY21’s estimated earnings according to Commsec.

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