Tag: Motley Fool

Once again, a large number of broker notes hit the wires last week. Some of these notes were positive and some were bearish.

Three sell ratings that caught my eye are summarised below. Here’s why top brokers think investors ought to sell these shares next week:

Blackmores Limited (ASX: BKL)

According to a note out of Citi, its analysts have retained their sell rating and $55.00 price target on this health supplements company’s shares. The broker notes that Nestle has announced the acquisition of fellow vitamin maker Bountiful Company for US$5.75 billion. While it acknowledges that this could be an indication of broader interest in the vitamins sector, it feels that Blackmores’ shares are too expensive for it to be considered a takeover target. The Blackmores share price ended the week at $71.64.

Commonwealth Bank of Australia (ASX: CBA)

A note out of Morgan Stanley reveals that its analysts have retained their underweight rating but lifted the price target on this banking giant’s shares to $83.00. According to the note, the broker suspects that provision releases and more modest rises in underlying loss rates will be supportive of the earnings per share upgrade cycle continuing. This bodes well for dividend increases in the coming years. However, due to concerns over its valuation, the broker isn’t in a rush to change its rating on this banking giant’s shares. The Commonwealth Bank share price was fetching $89.04 at the close of play on Friday.

Regis Resources Limited (ASX: RRL)

Analysts at Goldman Sachs have retained their sell rating and cut their price target on this gold miner’s shares to $2.70. According to the note, the broker has downgraded its earnings estimates materially to reflect a soft quarterly update and a reduction in full year production estimates. And while it notes that its shares are now trading below its price target, it isn’t changing its rating. This is due to execution risks at McPhillamys, regulatory approval risks, its out-of-the-money hedge book, and relative valuation. The Regis Resources share price ended the week at $2.60.

More reading

• How the Commonwealth Bank (ASX:CBA) share price moved this week
• Why ASX bank shares may be facing a big sell-off in the next few weeks
• Why do ASX dividend shares underperform the market?
• Why Coles, Nickel Mines, Nitro, & Regis Resources are storming higher
• Why ASX gold miner Regis Resources (ASX:RRL) share price is moving higher

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Top brokers name 3 ASX shares to sell next week appeared first on The Motley Fool Australia.

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There are some really good exchange-traded funds (ETFs) that investors can buy on the ASX.

Some ETFs haven’t been able to generate much returns in recent times. But others have done very well and could continue to do well because of the underlying portfolio:

VanEck Vectors Morningstar Wide Moat ETF (ASX: MOAT)

This is an ETF that is all about giving investors exposure to businesses with sustainable competitive advantages. Or, in Warren Buffett’s words, it’s about finding businesses with wide economic moats. That means it’s hard for competitors to cross that ‘moat’ and challenge the business.

The Morningstar equity research team look for these quality US companies that can pass the equity research process.

Those shares also have to be trading at attractive prices, relative to Morningstar’s estimate of fair value, before the ETF would buy them.

It’s a reasonably cheap management cost of 0.49% per annum, which means a good chunk of the returns stay in the hands of the investor.

VanEck Vectors Morningstar Wide Moat ETF aims to have at least 40 holdings. At the moment it has 49. At the end of March 2021, some of its largest holdings included Wells Fargo, Intel, Altria, General Dynamics, Blackbaud, Boeing, Cheniere Energy and Biogen.

Over the last five years, the return of the ETF has been an average of 19.3% per annum. That is around 3.5% per annum better than the S&P 500, which is a fair benchmark considering all of this ETF’s holdings are US-listed. But plenty of those companies have global earnings.

VanEck Vectors Video Gaming and eSports ETF (ASX: ESPO)

This ETF idea is more concentrated on a single theme. That theme is video gaming and e-sports, if you didn’t catch that from the name of it.

The competitive video gaming audience is expected to reach 646 million people globally by 2023 according to the Newzoo Global Exports Market Report, partly because of the rising number of people using the internet.

E-sports revenue growth has increased an average of 28% per annum since 2015. Video gaming has seen 12% average annual growth since 2015.

VanEck explains that the ETF has a number of different exposures including video game and related hardware and software developers, streaming services, companies involved in e-sports events and so on.

To be included in the ETF, at least 50% of the revenue must be from video gaming or e-sports.

There are 25 holdings in total, including Nvidia, Tencent, Advanced Micro Devices, Sea, Nintendo, Activision Blizzard, Netease, Take Two Interative Software, Nexon and Electronic Arts.

This ETF is more diversified than the first one I mentioned, geographically speaking. The countries with more than a 5% weighting include: the US (38.5%), Japan (21.1%), China (18.4%), Singapore (6.6%) and South Korea (5.3%).

VanEck Vectors Video Gaming and eSports ETF’s management fee is a little more expensive at 0.55% per annum. But the returns of the benchmark index have been really good – 30.9% per annum over the last three years.

More reading

• Top ASX shares to buy in May 2021
• 2 quality ETFs for ASX investors in May
• 2 great ASX growth shares to buy
• Is this new ASX eSports ETF a winner?
• 2 exciting ETFs ASX investors need to know about

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia has recommended VanEck Vectors ETF Trust – VanEck Vectors Video Gaming and eSports ETF and VanEck Vectors Morningstar Wide Moat ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The S&P/ASX 200 Index (ASX: XJO) has just completed its best month of the year. Over the 30 days, the benchmark index rose an impressive 3.5% to finish it at 7,025.8 points.

Unfortunately, not all shares were able to follow its lead. Here’s why these were the worst performers on the ASX 200 in April:

Whitehaven Coal Ltd (ASX: WHC)

The Whitehaven Coal share price was the worst performer on the ASX 200 in April with a 27.5% decline. The coal miner’s shares came under significant pressure following the release of a production and guidance update. That update reveals that the company’s production has been impacted by poor weather conditions and geological challenges. As a result, management has downgraded its FY 2021 managed ROM production guidance at the Narrabri mine. Rather than its previous guidance of 5.3Mt to 5.5Mt, the company now expects production of 4.5Mt to 4.9Mt.

Beach Energy Ltd (ASX: BPT)

The Beach Energy share price wasn’t far behind with a disappointing 25.7% decline in April. Almost all of this decline came on the final day of the month following the release of its quarterly update. That update fell short of expectations due largely to issues at the Western Flank oil and gas operation. The issues aren’t going away any time soon, which has led to Beach downgrading its FY 2021 production guidance and withdrawing its five-year outlook.

Challenger Ltd (ASX: CGF)

The Challenger share price was out of form in April and sank 20.2% over the 30 days. Investors were selling the annuities company’s shares after the release of a disappointing third quarter update. Although Challenger reported solid growth in its assets under management, it surprised the market with commentary around its margins. Challenger advised that they have been impacted by a sharp decline in credit spreads over the year. This means it only expects to hit the low end of its earnings guidance range. And while management plans to lift prices significantly to combat this, there are concerns that this will weigh on sales.

Nuix Ltd (ASX: NXL)

The Nuix share price was a poor performer and tumbled 19.8% lower last month. The catalyst for this was the investigative analytics and intelligence software provider downgrading its FY 2021 guidance just six weeks since reaffirming it. Nuix advised that during April, a significant and larger than expected number of customers elected to transition from module-based subscription licenses to consumption and Software-as-a-Service (SaaS) license models. This has resulted in a shift in both revenue and Annualised Contract Value (ACV) profiles.

More reading

• These were the best performing ASX 200 shares in April
• These were the best performing ASX 200 shares last week
• These were the worst performing ASX 200 shares last week
• ASX 200 drops 0.8%, Pointsbet jumps, Beach sinks
• How the Commonwealth Bank (ASX:CBA) share price moved this week

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

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It certainly was a great month for the S&P/ASX 200 Index (ASX: XJO). The benchmark index had its best month of the year, rising 3.5% over the period to 7,025.8 points.

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

Megaport Ltd (ASX: MP1)

The Megaport share price was the best performer on the ASX 200 in April with a sizeable 29.7% gain. This was driven by the release of the elastic interconnection services provider’s third quarter update. For the three months ended 31 March, Megaport reported monthly recurring revenue (MRR) of $6.8 million. This was a lift of $0.5 million or 8% quarter-on-quarter and was driven by an increase in its footprint, ports, and customer numbers.

Cleanaway Waste Management Ltd (ASX: CWY)

The Cleanaway share price wasn’t far behind with a gain of 29.6% over the 30 days. Investors were buying the waste management company’s shares after it announced plans to make a major acquisition. Initially Cleanaway was intending to acquire Suez R&R Australia for $2.52 billion. And while that fell through due to Suez’s merger with fellow waste management giant Veolia, all was not lost. The company now has an agreement to acquire Suez’s Sydney assets for $500 million.

Mineral Resources Limited (ASX: MIN)

The Mineral Resources share price was on form in April and recorded a 25.6% gain. This appears to have been driven partly by a very bullish broker note out of Macquarie. According to the note, the broker likes Mineral Resources due to its exposure to two of the hottest commodities in the resources sector – iron ore and lithium. Its analysts put an outperform rating and $61.00 price target on its shares.

Champion Iron Ltd (ASX: CIA)

The Champion Iron share price was a strong performer, jumping a sizeable 24.3% in April. Investors were buying the iron ore producer’s shares after the price of the steel-making ingredient surged to record highs. The spot iron ore price is now threatening to surpass the US$200 a tonne mark for the first time. This is being driven largely by insatiable demand for the metal in China thanks to strong steel margins.

More reading

• These were the best performing ASX 200 shares last week
• These were the worst performing ASX 200 shares last week
• Top ASX shares to buy in May 2021
• ASX 200 drops 0.8%, Pointsbet jumps, Beach sinks
• 3 stellar ASX growth shares for investors in May

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 recommends MEGAPORT FPO. The Motley Fool Australia has recommended MEGAPORT FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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I’ve written regularly, and recently, about the power of growth.

We are — whether you like it or not — in a world that continues to speed up.

As Motley Fool co-founder David Gardner likes to say, a couple of hundred years ago, you could tell not only what your kids would do, but what their kids would do.

If you were born a farmer, you’d stay a farmer… and so would your kids and grandkids.

These days, jobs seem to have a half-life that continues to shorten.

That’s different from rising unemployment, by the way, because new jobs are also being created.

And at a faster rate, too. As of the most recent employment stats, there have never been more Australians in work!

Still, the jobs themselves change.

So do the businesses that offer those jobs.

Whole new companies — new industries — are being created at an unprecedented pace.

And they’re getting big, quicker than ever, too.

Consider the top 4 or 5 US-listed businesses: Apple, Microsoft, Amazon, Google, Facebook.

Apple and Microsoft are the granddaddies of that list — at barely 40 years old.

And realistically, their current key businesses — iPhones and cloud computing and storage — are barely a decade old.

That top 5 — somewhere around $10 trillion Australian dollars of market cap — didn’t exist at all, 50 years ago, and were a tiny fraction of their current size a decade ago.

Meanwhile, the old ‘Top 5’ are dead, dying, or desperately trying to keep up.

My message? Simple: Times are changing, and it’s never been more important to look forward, rather than backward.

Which doesn’t mean old businesses have no choice, or no options.

But it does mean, more than ever, that change is life, and calcification is corporate death.

That much was rammed home this week when Woolworths released its quarterly sales report.

We talked about it on this week’s episode of Motley Fool Money, which dropped yesterday. Why not check it out?

Woolies performance was a COVID-impacted comparison, of course — last year’s numbers were boosted by panic buying and toilet paper stockpiles that could be seen from the moon.

But it wasn’t the raw numbers themselves that caught my attention.

It was the proportion of Woolies food and grocery sales that were delivered online.

That number?

7.9%.

Roughly $1 in every $12 of food that Woolies sells is now done via eCommerce.

Not CDs.

Not televisions.

Not movies or music.

Food.

There was a time when groceries were considered the last bastion of physical retail.

That is now under threat.

In fact, it’s not just under threat, but the walls are crumbling.

And, to fearlessly mix my metaphors, that is emblematic of the changes that are already shaking the foundations of retail.

How many retail stores do you reckon JB HiFi will eventually need?

How many supermarkets can the big guys sustain as they leak ever more business online?

What does this do to the landlords of these stores?

And the shops either side, who depend on the foot traffic?

What happens to the market share of the retailers who lead the charge online?

And to those who are lagging behind?

What does it mean for the retailers who can’t get their websites right?

Their pricing?

Their delivery and service?

I’ll give you a hint.

I jumped online to order a couple of cases of beer the other day.

I live in a regional area, but it’s a pretty big one. We have our own Dan Murphy’s.

I went to the Dan’s website.

The products were easy to find.

The prices were good.

The delivery?

7 – 21 business days.

Needless to say, they didn’t get my order.

How long do you reckon it’ll be until I find another online option?

And how long do you think it’ll take until that retailer becomes my grog retailer of choice?

Not long.

And Dan’s will lose a customer.

Now, I’m not hating on Dan Murphy’s.

That’s just a single isolated example.

But it’s a good example of what can happen if you don’t get your online offering right.

Because, as its grocery stablemate knows, the shift is on.

It’s unstoppable.

Retailers will probably live or die on their ability to adjust.

And — importantly for us as investors — so could our portfolios.

As I said at the top, change it’s happening.

It’s happening faster than most people expect… or understand.

Not everything will change, of course.

And the incumbents have an advantage.

But that advantage is being eroded, literally 24 hours a day, by disruptors who are cheaper, quicker, and better.

The good news for Woolies shareholders, is that the company seems to be adapting very quickly.

Hopefully, for them, it wins the race.

But here’s the thing about online commerce — the winner can make a fortune.

The problem is that it’s often ‘daylight’ second, third and fourth.

You really, really don’t want to be left behind.

Geography no longer matters.

Brand matters, but so does your Google ranking and your digital advertising.

And scale is king.

These are the things that investors need to be thinking about.

The world is changing.

Is your portfolio ready?

More reading

• Brokers name 3 ASX shares to buy now
• Disney says it’s using Amazon’s infrastructure for its worldwide Disney+ expansion
• Why Facebook and Apple couldn’t lift the Nasdaq Thursday
• Is the Woolworths (ASX:WOW) share price a buy after its Q3 update?
• 7 ASX 200 shares with emission reduction strategies

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Scott Phillips owns shares of Alphabet (C shares) and Amazon. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Facebook, and Microsoft and recommends the following options: long January 2022 $1920 calls on Amazon, short March 2023 $130 calls on Apple, short January 2022 $1940 calls on Amazon, and long March 2023 $120 calls on Apple. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Apple, and Facebook. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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You’re not alone if you’re fed up with the low interest rates on offer with savings accounts and term deposits.

But don’t worry, because the Australian share market is here to save the day with its countless dividend options.

Two ASX dividend shares that can help you smash low rates are listed below:

BHP Group Ltd (ASX: BHP)

The first ASX dividend share to look at is this mining giant.

The Big Australian has been in fine form this year thanks to its explosive to a number of key commodities experiencing very strong prices.

Chief among them is iron ore, which is threatening to break through the US$200 a tonne level. This is significantly higher than its production cost, leading to bumper free cash flows.

Pleasingly, due to its strong balance sheet and generous dividend policy, the majority of this free cash flow is likely to end up in shareholders’ pockets.

One bullish broker is Macquarie. It currently has an outperform rating and $57.00 price target on its shares. This compares to the latest BHP share price of $47.70.

Macquarie is forecasting dividend per share of ~$3.49 and ~$2.96 over the next two years. This equates to fully franked yields of 7.3% and 6.2%, respectively.

Charter Hall Social Infrastructure REIT (ASX: CQE)

A second ASX dividend share to consider is the Charter Hall Social Infrastructure REIT.

This real estate investment trust owns a portfolio  of properties with specialist use, limited competition, and low substitution risk.

Among its portfolio you will find bus depots, police and justice services facilities, and childcare centres.

In respect to the latter, the Charter Hall Social Infrastructure REIT is the country’s largest owner of early learning centres. It actively partners with 35 high quality childcare operators.

During the first half of FY 2021,  the company was also in fine form. It reported a 14.1% increase in operating earnings to $29.1 million. Another couple of positives were it weighted average lease expiry (WALE) increasing to 14 years and its occupancy rate of 99.7%.

This strong form allowed management to upgrade its FY 2021 distribution guidance to 15.7 cents per unit. Based on the current Charter Hall Social Infrastructure share price, this represents a 4.8% yield.

One broker that is a fan is Goldman Sachs. It currently has a conviction buy rating and $3.45 price target on its shares.

More reading

• Why supply and demand is the enemy of ASX resources shares
• Not too late to buy these small ASX mining shares for the commodities boom
• Why the Envirosuite (ASX: EVS) share price is climbing
• Is it dangerous investing in ASX resources shares at record highs?
• Why the Sandfire (ASX:SFR) share price jumped to a 2-year high today

Motley Fool contributor James Mickleboro 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.

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May 2021 could be a good month to find ASX shares that are growing and could deliver good returns.

But the valuations have to make sense too. No business is a buy at any price.

These options may be good long-term ideas:

Reject Shop Ltd (ASX: TRS)

This is one of the largest discount retailers in Australia.

The ASX retail share is well liked by brokers that cover it. For example, Morgan Stanley rates it as a buy with a price target of $10. That implies a potential return of over 60% during the next 12 months. But there’s no guarantee of that. 

It’s currently going through a cost-cutting program to ensure that the business has the right cost base to be efficient and profitable. Part of the ASX share’s strategy is to make sure its stores aren’t paying too much rent. It’s willing to close stores where it can’t get lower rental costs.

Once the right cost base has been established, Reject Shop will start opening more stores. It’s also working on an online offering which is important in this post-COVID world.

In the FY21 half-year result, Reject Shop reported that its underlying profit jumped 46.5% to $16.3 million.

According to Morgan Stanley, Reject Shop is priced at 16x FY22’s estimated earnings.

Pushpay Holdings Ltd (ASX: PPH)

Pushpay is an ASX share that has benefited from the COVID-19 environment where digital payments and technology have seen strong adoption.

This business an electronic donation business that facilitates payments to not-for-profit organisations. The key client base is large and medium US churches.

Over the last year the Pushpay share price has gone up by 73%. Profit has gone up a lot too. In the FY21 half-year result it reported that profit doubled.

The business is looking to increase its addressable market by targeting smaller churches in the US and it’s also looking for geographic diversification such as potentially growing into South America.

Margins are also increasing at a fast pace. Remember that HY21 result saw profit double, despite revenue ‘only’ rising by around 50%.

According to Commsec, the Pushpay share price is valued at 31x FY22’s estimated earnings.

Pacific Current Group Ltd (ASX: PAC)

Pacific is an ASX share that partners with global investment managers to help them grow. Some of its investments include GQG, Victory Park, ROC and Astarte Capital Partners.

Management fees can generate a reliable source of annual income at quite high margins. Pacific is currently rated as a buy by Ord Minnett, with a price target of $6.70.

The broker expects Pacific’s management profitability to keep growing as it keeps a lid on expenses.

In the quarter ending 31 March 2021, Pacific reported strong inflows across the portfolio including GQG, ROC, Carlisle, Proterra and Victory Park. The investment into Astarte could be astute if it delivers on its medium-to-long-term potential. The quarter saw organic funds under management (FUM) rise another 8.9%. FUM growth doesn’t match profit growth though, due to Pacific’s different investments and economic terms with each manager.

Pacific is expecting capital raising success in 2021 and 2022.

According to Ord Minnett, Pacific has a grossed-up dividend yield of around 9% and it’s trading at 11x FY21’s estimated earnings.

More reading

• 3 reasons why the Pushpay (ASX:PPH) share price is a great buy
• 2 top ASX dividend shares to buy
• 2 exciting ASX tech shares that are highly rated by analysts
• 2 stellar ASX shares growing rapidly
• 2 fantastic ASX shares that brokers rate as buys

Tristan Harrison owns shares of PACCURRENT FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of PUSHPAY FPO NZX. The Motley Fool Australia has recommended PUSHPAY FPO NZX. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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Due to recent pullbacks in the share prices of a number of growth shares, now could be an opportune time to consider making some new additions to your portfolio.

But which ASX growth shares should you buy? Here are two which could be in the buy zone:

Altium Limited (ASX: ALU)

Altium is an electronic design software provider best known for its Altium Designer and Altium 365 platforms. It also has the Octopart electronic parts search engine business and the NEXUS design collaboration platform supporting the core business.

Thanks to industry tailwinds that are underpinning growth in electronic devices globally, these businesses look well-positioned to benefit from increasing demand.

And while COVID-19 has softened demand in the short term and could lead to Altium falling short of expectations in FY 2021, analysts at Citi believe investors should stick with the company.

It has recently retained its buy rating and $33.50 price target on the company’s shares. It feels Altium is nearing its COVID related downgrade cycle.

Temple & Webster Group Ltd (ASX: TPW)

Another ASX growth share that has been tipped as a buy is Temple & Webster. It is one of Australia’s leading online retailers with a focus on furniture and homewares.

It recently released its third quarter update and revealed further strong top line growth. And while management’s decision to focus on winning market share at the expense of profit margins spooked some investors, analysts support this plan.

Morgan Stanley is one of them. Following its third quarter update, it retained its overweight rating and lifted its price target to $15.00. This compares to the current Temple & Webster share price of $10.70.

The broker expects the strategy to widen its moat and allow the company to take advantage of the shift to online shopping.

More reading

• 2 quality ASX 200 tech shares to buy for May
• Top brokers name 3 ASX shares to buy today
• 2 highly rated ASX tech shares
• 3 reasons why the Temple & Webster (ASX:TPW) share price could be a buy
• Could the Resmed (ASX:RMD) share price face a similar selloff to Kogan?

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 Temple & Webster Group Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Altium. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended 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.

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I’m sure most of the ASX investors out there would be familiar with the concept of a dividend. Dividends are a feature of most ASX blue-chip shares. They constitute a periodic (usually twice a year) cash payment to the shareholders of a company as a reward of sorts for holding a share.

Many retirees use dividend payments to help fund their retirements, but all investors appreciate the passive income that dividend shares can provide. These days, it doesn’t have to be a cash payment though. Many ASX dividend-paying companies offer investors the choice of receiving their dividend as a cash payment, or else reinvesting the dividend back into additional shares of the company. Such a scheme is known as a dividend reinvestment plan (DRIP or DRP for short).

What is a dividend reinvestment plan?

 Investors who choose to enrol in a DRIP will automatically have all of their dividend payments ploughed back into additional shares of the company that pays the dividend, usually without brokerage costs and the like. That way, the next time divine time comes around, they receive even more cash from the extra shares, which can then be reinvested all over again. Compound interest at its finest.

Sounds great right?

Well, there is indeed a lot to like about a DRIP plan. It ‘automates’ the investing process for free, which is almost always a good thing for the average investor. It removes the temptation to blow the dividend cheque on a night out, a fresh pair of kicks, or a new TV. And it compounds wealth rather efficiently if left to its own devices for a good length of time. Providing the dividend share isn’t a lemon and keeps paying dividends, of course.

DRIP pros and cons

But there are also downsides to a DRIP.

The first is opportunity cost. Every dollar that we spend buying ASX shares is a lost opportunity. If you pick up $1,000 worth of Telstra Corporation Ltd (ASX: TLS) shares, that’s $1,000 that you can’t buy Super Retail Group Ltd (ASX: SUL) shares with. The same goes for cash reinvested under a DRIP.

Perhaps you have a DRIP going with Telstra. Thus, every six months, you are effectively buying new Telstra shares. That’s fine, as long as Telstra is your best idea at the time. But if it’s not, a DRIP locks you into buying Telstra anyway. However, if you had been receiving the raw cash dividends instead, you would have an amount that you could invest in your other, perhaps better, ideas instead.

Thus, a DRIP can rob you of autonomy and the ability to reinvest your cash into your best ideas at the time. Perhaps it might be better to receive the cash and buy Telstra if it appeals to you at the time. Or buy something else, a Super Retail perhaps, if it is a better deal in your eyes.

With investing, everything has an opportunity cost. And making sure you’re always getting the best bang for your buck is an important step in being a successful investor. DRIPs have the potential to rob you of that power, so keep that in mind when you next get a DRIP form in the mail.

More reading

• What happened to the Telstra (ASX:TLS) share price in April?
• 7 ASX 200 shares with emission reduction strategies
• 4 ASX shares to boom when inflation goes up: fundie
• Here’s an ASX telco share tipped to rise 40%
• These ASX dividend shares have attractive fully franked yields

Motley Fool contributor Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia owns shares of and has recommended Super Retail Group Limited and Telstra Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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The S&P/ASX 200 Index (ASX: XJO) had a disappointing end to the month and dropped lower last week. The benchmark index fell 0.5% over the five days to end the period at 7,025.8 points.

The good news is that not all shares tumbled lower with the market. Here’s why these were the best performers on the ASX 200 last week:

NIB Holdings Limited (ASX: NHF)

The NIB share price was the best performer on the ASX 200 last week with a 14.7% gain. Investors were buying the private health insurer’s shares following the release of a trading update. That update revealed that NIB has been performing better than expected during the second half. As a result, it expects to post an underlying operating profit of $200 million to $225 million in FY 2021. This will be a big lift from the first half, when it reported an underlying operating profit of $86.9 million.

Cleanaway Waste Management Ltd (ASX: CWY)

The Cleanaway share price was the next best performer with a gain of 9.6% over the five days. Investors responded positively to confirmation that the waste management company will no longer be acquiring the Australian recycling and recovery business from Suez Groupe. Instead, Cleanaway is purchasing a portfolio of strategic post‐collection assets in Sydney from the same company for a total of $501 million. It also hinted that it would be using debt rather than a capital raising to fund the purchase.

CIMIC Group Ltd (ASX: CIM)

The CIMIC share price wasn’t far behind with an 8.9% gain. This follows the announcement of contract wins and its first quarter results. In respect to the former, its Leighton Asia business secured $100 million in project wins, extending its market presence in Singapore and Western Australia. As for its results, CIMIC reported first quarter comparable group revenue that was flat on the prior corresponding period at $3.4 billion. Management also maintained its FY 2021 net profit after tax guidance of $400 million to $430 million.

Viva Energy Group Ltd (ASX: VEA)

The Viva Energy share price was on form and charged 8.6% higher last week. This appears to have been driven by a first quarter update that was in line with expectations. This update went down well with analysts at UBS, who have retained their buy rating and $2.00 price target on the fuel retailer’s shares.

More reading

• These were the worst performing ASX 200 shares last week
• ASX 200 drops 0.8%, Pointsbet jumps, Beach sinks
• How the Commonwealth Bank (ASX:CBA) share price moved this week
• The Cleanaway Waste (ASX:CWY) share price is at a new 52-week high
• ASX copper shares are sliding…buy the dip?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended NIB Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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