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The Commonwealth Bank of Australia (ASX: CBA) share price is currently down approximately 1.5% after reporting its FY21 interim result and declaring a bigger dividend.

CBA’s half-year dividend

The CBA board of directors decided to declare an interim dividend of $1.50 per share, fully franked. That was a 25% decrease on the FY20 half-year dividend, but it was a 53% increase on the second half of FY20.

CBA’s dividend represented a dividend payout ratio of 67% of the cash profit, which was below the board’s target payout range.

FY21 half-year result

For the six months to 31 December 2020, the big bank generated $4.88 billion of statutory net profit after tax (NPAT). Cash NPAT was $3.89 billion, down 10.8% compared to the prior corresponding period.

The big four bank explained that NPAT was supported by strong business outcomes but impacted by the low interest rate environment and COVID-19. The statutory NPAT includes the gains on the sale of divestments, including the completion of BoComm Life.

CBA said that its loan impairment expense increased by $233 million compared to the prior corresponding period to $882 million. The provision coverage ratio to credit risk weighted assets was 1.81%. This was increased to reflect the uncertain economic outlook and emerging industry risks, in particular for the aviation and entertainment, leisure and tourism sectors.

In terms of consumer arrears, CBA said that arrears on home loans and consumer finance remain low, and are currently being insulated by COVID-19 support measures. APRA’s regulatory approach is that loans currently in deferral as part of COVID-19 support packages are not included in arrears. At 31 January 2021, approximately 25,000 home loans were in deferral (with a balance of $9 billion), down from 145,000 homes loans at 30 June 2020 which represented a balance of $51 billion.

The bank’s operating income was down slightly, though the net interest income was flat with strong volume growth across core banking businesses helping to offset the impact on the net interest margin (NIM) of lower interest rates and heightened competition. The NIM decreased by 10 basis points compared to the prior corresponding period, due to higher liquid assets and the impact of the low rate environment on deposit margins and earnings on capital.

Operating expenses increased by 2.3% excluding $241 million of remediation costs. There was a higher investment spend, with an increase of 34%, with continued investment across the business driven primarily by increased investment in digital areas.

Turning to the common equity tier 1 (CET1) capital ratio, it was 12.6%, up 100 basis points from 30 June 2020. This was above APRA’s ‘unquestionably strong’ benchmark of 10.5%. This increased from organic capital generation from profit generation as well as from the proceeds from the sales of businesses like BoCommLife and CommInsure Life.

CBA’s outlook

The big bank said that it remains committed to supporting customers and helping the economy recover.

CBA believes that Australia is relatively well positioned having started from a position of fiscal and economic strength. The bank pointed out that there is a solid pipeline of infrastructure projects, the outlook for mining and agriculture exports is strong and the community has benefited from the government’s significant income support measures.

Although the outlook is positive, there are a number of health and economic risks that could dampen the pace of the recovery, according to CBA. The big bank is prepared for a range of scenarios and has taken a careful approach to provisioning. It’s closely monitoring its portfolios for signs of stress.

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Motley Fool contributor Tristan Harrison 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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There are some top ASX dividend share ideas to thinking about as potential income options.

Here are three businesses to consider:

Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)

This business, which is also called Soul Patts, has grown its dividend every year since 2000, which is the longest dividend record on the ASX.

It has achieved this with a diversified investment portfolio with listed names like TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), New Hope Corporation Limited (ASX: NHC), Milton Corporation Limited (ASX: MLT) and Bki Investment Co Ltd (ASX: BKI).

The investment conglomerate also has a number of unlisted investments and businesses including resources, agriculture, financial services and swimming schools.

Soul Patts likes to invest with a contrarian approach into resilient businesses which are largely uncorrelated to each other. This allows the company to continue to pay its growing dividend – it funds its dividend from the investment cashflow it receives in the form of dividends from those businesses like TPG.

The ASX dividend share continues to diversify its portfolio. In recent times it tried to buy Regis Healthcare Ltd (ASX: REG) and one of its most recent acquisitions was an agriculture portfolio.

At the current Soul Patts share price, it has a grossed-up dividend yield of 3%.

Rural Funds Group (ASX: RFF)

This is a real estate investment trust (REIT) that owns agricultural properties. It owns a variety of different farm types including almonds, vineyards, cattle, macadamias and cropping (sugar and cotton).

It has plenty of large, listed tenants such as Treasury Wine Estates Ltd (ASX: TWE), Australian Agricultural Company Ltd (ASX: AAC), Select Harvests Limited (ASX: SHV), Olam and JBS. These tenants are signed on with long leases. Rural Funds currently had a weighted average lease expiry (WALE) of 10.9 years at 30 June 2020.

Rural Funds has structured rental growth with its contracts, with fixed and CPI-linked increases, as well as market rent review mechanisms.

The ASX dividend share has a development pipeline for both productivity improvements and conversion to higher and better use. This is expected to generate earnings growth in future years.

It’s the combination of contracted rental growth and investing that allows management to target an annual distribution increase of 4% per annum.

The FY21 annual distribution is expected to be 11.28 cents per unit, which would equate to a forward distribution yield of 4.6% at the current Rural Funds share price.

Charter Hall Long WALE REIT (ASX: CLW)

This is another REIT, it owns a diverse portfolio of different properties including long WALE retail, industrial and logistics, office, telco exchanges and agri logistics.

This ASX dividend share is liked by some investment brokers, including Citi.

Charter Hall Long WALE REIT has a number of major tenants that account for a high percentage of the rental income including Telstra Corporation Ltd (ASX: TLS), Australian government entities such as the NSW government, BP, Woolworths Group Ltd (ASX: WOW), Inghams Group Ltd (ASX: ING), Coles Group Ltd (ASX: COL), David Jones, Metcash Limited (ASX: MTS), Arnott’s Group, Westpac Banking Corp (ASX: WBC), Bunnings Warehouse, Suez, Linfox and Electrolux.

The WALE of this REIT is even longer than Rural Funds. At 31 December 2020, it had a WALE of 14.1 years, which was a slight increase from 14 years at 30 June 2020.

With an occupancy rate of 97.5% across 459 properties. All sectors except ‘office’ had an occupancy rate of 100%, with the office occupancy rate being 89.9%.

In the FY21 half-year it achieved operating earnings per share (EPS) and distribution growth of 3.6% to 14.5 cents. It also achieved net tangible asset (NTA) per security growth of 5.1% to $4.70.

At the current Charter Hall Long WALE REIT share price it has a FY21 distribution yield of at least 6% according to management.

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Motley Fool contributor Tristan Harrison owns shares of RURALFUNDS STAPLED and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Brickworks, RURALFUNDS STAPLED, Telstra Limited, Treasury Wine Estates Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of COLESGROUP DEF SET and Woolworths 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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Are you interested in adding some more ASX shares to your portfolio?

Five ASX shares that could be worth considering this month are listed below. Here’s what you need to know about them:

Altium Limited (ASX: ALU)

Altium is an award-winning printed circuit board (PCB) design software provider. It could be worth considering due to its leading position in a market exposed to the Internet of Things and artificial intelligence booms. The proliferation of electronic devices is expected to lead to increasing demand for its software over the next decade. Credit Suisse currently has an outperform rating and $35.00 price target on its shares.

Appen Ltd (ASX: APX)

Appen and its million-plus team of crowd sourced experts prepare the data that goes into artificial intelligence and machine learning models. It does this for some of the biggest tech companies in the world such as Google and Facebook. With this market expected to grow materially in the future, Appen looks well-placed to benefit. Macquarie is a fan and has an outperform rating and $27.00 price target on Appen’s shares.

Cochlear Limited (ASX: COH)

Cochlear is one of the world’s leading hearing solutions companies and has a long track record of delivering earnings growth. While the pandemic is weighing on its performance right now, it looks well-placed for growth over the long term. This is thanks to the ageing populations tailwind and its industry leading products. Earlier this week Macquarie put an outperform rating and $241.00 price target on its shares.

IDP Education Ltd (ASX: IEL)

IDP Education is a provider of international student placement services and English language testing services. It was also hit hard by the pandemic. However, the company has been tipped to win market share and resume its rapid growth once the crisis passes and trading conditions return to normal.

Kogan.com Ltd (ASX: KGN)

Kogan is a rapidly growing ecommerce company which has been benefitting greatly from the shift to online shopping. Pleasingly, this trend is expected to continue over the long term, which should be supportive of its growth. The company has also bolstered its growth through value accretive acquisitions. This includes the acquisition of online retailer Mighty Ape for $122 million. Credit Suisse has outperform rating and $21.08 price target on its shares.

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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 Appen Ltd, Cochlear Ltd., Idp Education Pty Ltd, and Kogan.com 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 Cochlear Ltd. and Kogan.com 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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The MGC Pharmaceuticals Ltd (ASX: MXC) share price has been smoking the market on Wednesday.

In afternoon trade the medicinal cannabis company’s shares are up 8% to 3.9 cents.

This latest gain means the MGC Pharma share price is now up almost 63% since the start of 2021.

Why is the MGC Pharma share price smoking the market today?

Investors have been buying MGC Pharma’s shares today following an update on its listing in the United Kingdom.

According to the release, the company’s shares were admitted to the standard sector of the London Stock Exchange (LSE) on Tuesday.

This admission follows the completion of a successful capital raise of 6.5 million pounds through an oversubscribed placement to UK based institutional funds, high net worth family offices, and professional investors.

This made MGC Pharma the first cannabis-sector company to IPO on the main market of the LSE in the United Kingdom.

Management advised that the net proceeds of the capital raise will be used to meet the costs associated with its priority clinical trials including ArtemiC and CannEpil. It will also be used to increase the distribution of its product range, general working capital, and the completion of its manufacturing facilities in Malta.

“Significant moment”

MGC Pharma’s Chief Executive and Managing Director, Roby Zomer, believes this is a significant moment for the company.

He said: “The LSE listing is a hugely significant moment for MGC Pharma, our admission to LSE follows the successful capital raising of £6.5 million which will be used to immediately commence the priority clinical research trials of our leading products, expand our distribution network into key sales markets, as well as advance the construction of our manufacturing facilities in Malta.”

“We are proud to make history as the first medical cannabis company on this historic Exchange. I would like to thank the MGC Pharma team and the advisors for all their hard work to make this happen. We look forward to updating our new and existing shareholders as we progress this programme,” he added.

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• Why the Megaport (ASX:MP1) share price is surging 7% higher 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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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.

Coca-Cola Co (NYSE: KO) just launched drink bottles made out of 100% recycled plastic for North American markets. The soft drink giant’s all-recycled bottles will hit store shelves later this month in a handful of markets as a first step in a larger plan.

What’s new?

First, drinks under the Coca-Cola trademark brand will hit the market in 20oz 100% recycled PET bottles in California, Texas, and New York. Next month, the same three states will see Dasani-branded bottled water products in fully recycled 20oz bottles, followed by environmentally friendly 20oz bottles for Smartwater products in New York and California this July.

Sprite is also launching recycled bottles this month, starting with a smaller 13.2oz bottle in a slightly different set of target markets, hitting Florida but not Texas. Sprite’s trademark green plastic bottles will move to clear plastic, which the company says is easier to recycle, by the end of 2022.

The labels on these bottles will carry a new twist on the familiar recycling message. Consumers will be asked to “Recycle Me Again.”

“Our packaging is our biggest, most visible billboard,” said Alpa Sutaria, vice president of sustainability for Coca-Cola’s North America operating unit. “We’re using the power of our brands, leading with Coca-Cola, to educate, inspire and advance our sustainability priorities.”

Making a difference

According to Coke’s press materials, these launches of recycled bottles in a handful of large markets will reduce Coca-Cola’s greenhouse gas emissions by 10,000 metric tons per year. The company will bring the annual use of new plastic 20% below its plastic production in 2018.

Coca-Cola’s stated goal is to use at least 50% recycled materials in its global packaging by 2030. The domestic market was not the first geographical target for these new bottles — Coca-Cola has already introduced similar bottles in 18 other markets, starting in 2018. Recycled materials already account for 94% of the company’s North American packaging.

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

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

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Many of Australia’s top brokers have been busy adjusting their financial models again, leading to the release of a large number of broker notes this week.

Three broker buy ratings that have caught my eye are summarised below. Here’s why brokers think these ASX shares are in the buy zone:

CSL Limited (ASX: CSL)

According to a note out of UBS, its analysts have retained their buy rating but trimmed their price target on this biotherapeutics company’s shares to $339.00 ahead of its half year results release. The broker is expecting a solid half year update from CSL due partly to strong demand for seasonal flu vaccines. Looking to the full year, UBS believes CSL is on course to achieve it guidance in FY 2021. The CSL share price is trading at $276.16 this afternoon.

Fortescue Metals Group Limited (ASX: FMG)

A note out of Macquarie reveals that its analysts have retained their outperform rating and $26.50 price target on this mining giant’s shares. According to the note, the broker expects Fortescue to deliver a bumper half year profit next week thanks to the sky high iron ore price. Macquarie expects this to lead to Fortescue declaring a fully franked interim dividend of $1.37 per share. This dividend alone represents a yield of 5.8%. The Fortescue share price is fetching $23.77 on Wednesday.

Macquarie Group Ltd (ASX: MQG)

Analysts at Morgan Stanley have retained their overweight rating and lifted their price target on this investment bank’s shares to $160.00 following the release of its third quarter update. According to the release, the broker was pleased with Macquarie’s update and notes that it has numerous growth opportunities. Looking longer term, it believes the company is well-placed to benefit from a number of mega trends such as decarbonisation. The Macquarie share price is trading at $148.01 on Wednesday afternoon.

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• Why Douugh, Macquarie, Starpharma, & Suncorp shares are storming higher
• Here’s why the Macquarie (ASX:MQG) share price is surging 7% higher

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 CSL Ltd. 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.

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The Blackearth Minerals NL (ASX: BEM) share price is off to the races, up 150% at 23 cents in afternoon trading.

Shares are soaring after BlackEarth announced a significant marketing agreement with a world-leading graphite supply group.

What agreement did BlackEarth Minerals make?

In an ASX release this morning, BlackEarth Minerals revealed it had signed an agreement with German-based Luxcarbon GmbH for the procurement, supply and marketing of graphite concentrate and downstream graphite products.

Luxcarbon is among Germany’s top suppliers of graphite and carbon products, counting Volkswagen, Mercedes, Ford and major chemical corporations among its clients.

Following its memorandum of understanding (MOU) with Urbix Inc, BlackEarth will use this agreement to secure the supply of up to 25,000 tonnes of high-grade product to help Urbix complete its plant development.

The company reported this would remain in place as it fast-tracks its work on its own graphite assets in Madagascar. It plans to use these provide a regular supply for its future downstream graphite operations.

Part of the agreement enables BlackEarth to sell up to 25,000 mtpa of downstream products to the European market. The company points to a growing demand for its products from the growth of the electric vehicle battery market.

Commenting on the agreement, BlackEarth managing director Tom Revy said:

This agreement provides a number of great outcomes for BlackEarth. Firstly, it enables us to secure a supply of world class graphite concentrate that can be supplied to Urbix’s operations in the USA and also our own downstream processing facility whilst we complete the development of our plants in Australia and Madagascar.

Secondly, Luxcarbon are leaders in the supply and understanding of downstream graphite products and this will assist us greatly.

The terms of the agreement run for 3 years. Luxcarbon and BlackEarth have the ability to extend the duration if they both consent.

BlackEarth share price snapshot

BlackEarth shares began trading on the ASX in January 2018. From there it was a choppy ride mostly downhill for shareholders until things took a big turnaround in December. On 22 December, the stock was trading for 2 cents per share. The current share price represents a 488% gain since then.

Year-to-date the BlackEarth share price is up 370%. By comparison, the All Ordinaries Index (ASX: XAO) is up 2.6% so far in 2021.

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Motley Fool contributor Bernd Struben 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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The Lendlease Group (ASX: LLC) share price has lifted slightly in early afternoon trade after a rollercoaster ride this morning in the wake of a leadership announcement.

At the time of writing, shares in the international property and infrastructure company have regained lost ground to trade at $12.12, up 0.17%.

CEO succession

Lendlease today advised that its Group CEO and managing director Steve McCann will retire in May. This marks the end of a 16-year tenure with more than 12 years as head of the company.

To ensure a smooth transition, the board has appointed the company’s Asia CEO, Tony Lombardo, to the reins. This succession will take place on 31 May 2021 when Mr McCann retires from the company.

Lendlease said Mr Lombardo had gained a wealth of experience through his 25-year career. He has worked across real estate development, investment management, finance, mergers and acquisitions (M&A) and strategy in Australia and internationally.

Mr Lombardo joined the company in 2007 and took up the role of group head of strategy and M&A. This entailed a refocus on Lendlease’s overall business strategy, which saw several initiatives being implemented.

More recently, Mr Lombardo was appointed CEO of Asia, where he drove Lendlease’s growth strategy. This included completion of Singapore’s S$3.7 billion Paya Lebar Quarter mixed-use development, and the establishment of a US$1 billion data centres joint venture. In addition, Mr Lombardo was involved in listing a S$1 billion global commercial REIT on the Singapore Exchange.

Words from the management team

Lendlease chair Michael Ullmer, touched on Mr McCann’s retirement, saying:

Steve has played an instrumental role in spearheading Lendlease’s transformation, focusing on our integrated business model in targeted global gateway cities.

Under Steve’s leadership, the group’s global development pipeline has grown to more than $110 billion including twenty-two major urbanisation projects across ten of the world’s most iconic cities.

Regarding Mr Lombardo’s appointment to the role, Mr Ullmer said:

Tony will commence in his new role as the group pursues its revised strategy focusing on leveraging its competitive edge in the development and delivery of large-scale, mixed-use urbanisation projects and growing the investments platform.

Tony’s time as CEO Asia, as well as prior roles including Group CFO, make him eminently qualified to lead Lendlease into the future.

About the Lendlease share price

The Lendlease share price has fallen more than 32% in the last 12 months. Its shares dropped to a multi-year low of $9.34 in March, before moving sideways for much of the remaining period.

Lendlease has a market capitalisation of around $8.2 billion based on the current share price.

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Motley Fool contributor Aaron Teboneras 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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After a slow start to the day, the Megaport Ltd (ASX: MP1) share price is surging higher this afternoon.

At the time of writing, the shares of the global leading provider of elastic interconnection services are up 7% to $14.20.

Why is the Megaport share price surging higher?

Investors have been fighting to get hold of Megaport shares today following the release of its half year update.

According to the release, for the six months ended 31 December, Megaport reported revenue of $36 million. This was an increase of $10.1 million or 39% from the prior corresponding period.

Furthermore, at the end of the period, the company’s Monthly Recurring Revenue (MRR) stood at $6.3 million. This was up $1.7 million or 37% year on year and annualises to revenue of $75.6 million.

This top line growth would have been even stronger had the Australian dollar not strengthened so materially during the period.

Management notes that while North American MRR in US dollars increased by 26% from June to December, the reported growth in Australian dollars was just 15%.

In respect to earnings, Megaport delivered a profit after direct network costs of $18.2 million for the half. This was up $5.1 million or 38% over the prior corresponding period.

Finally, on the very bottom line, the company recorded a net loss of $38.4 million. This left it with a cash balance of $144.8 million.

What were the drivers of this growth?

A combination of customer and ports growth and an expanding footprint helped drive Megaport’s first half growth.

At the end of December, the company had 2,043 customers (up 11%) across 716 Enabled Data Centres (up 7%) in 130 cities. Of these data centres, 390 were located in North America, 202 in EMEA, and 124 in Asia Pacific.

Management commentary

Megaport’s Chief Executive Officer, Vincent English, was pleased with the half and remains very positive on its outlook. This is particularly the case in the massive North American market.

He said: “As we continued to expand our footprint to new locations, adding 23 new cloud onramps representing access to 11 new cloud regions, Megaport has continued our strong revenue performance during the first half of Fiscal Year 2021. Our path to profitability remains firmly in focus, with all three regions now EBITDA positive.”

“As a high-growth region, North America has always represented a significant market opportunity for Megaport and our investments there continue to pay off. North America was EBITDA positive on a regional basis in 2QFY21, notwithstanding some unfavourable FX movements. With all regions now EBITDA positive, we are on track to achieve EBITDA breakeven for the Group on a run rate basis this Fiscal Year as we continue to optimise our footprint to maximise margins and move to profitability,” he added.

Outlook

As mentioned above, Mr English expects Megaport to achieve its goal of being EBITDA break even on a run rate basis within FY 2021.

Supporting this will be the impending launch of its Megaport Virtual Edge (MVE) product on 31 March.

He explained: “On March 31, we will launch Megaport Virtual Edge, having currently deployed MVE infrastructure to eleven metros globally. An additional ten metros will be enabled by the end of this fiscal year.”

“Our industry-first integration between Cisco and MVE to support Viptela SD-WAN services is well on track and customer field trials are underway. Additionally, our Technology Partner pipeline for MVE integration covers about 50% of SD-WAN market share globally. This positions us to greatly expand our addressable market and drive more uptake of Megaport services through channel programmes with leading technology companies while providing more choices to our customers in how they engineer their IT solutions,” Mr English concluded.

Following today’s gain, the Megaport share price is now up 27% over the last 12 months.

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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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The phrase “interest rates are at record lows” has become ingrained in our expectations over the past year or 2. The Reserve Bank of Australia (RBA) has been whittling interest rates ever lower for so long now that its hard to remember a time when the Bank was doing anything else.

Indeed, we have to go all the way back to November 2010 for the last time the RBA actually raised rates, more than a decade now. Back then, the RBA had just hiked the cash rate by 0.25% to 4.75% – a level that feels immeasurably high by today’s standard. Even over the past year, we have seen a dramatic revision in the cash rate. This time last year, the cash rate was 0.75%. That’s a very long way from the current rate of 0.1% when you think about it.

But we better get used to it.

RBA is keeping rates lower for longer

Last week, the RBA held its monthly meeting and (surprise, surprise) decided to keep the cash rate steady at 0.1%. But the RBA went a little further. It also named the conditions under which it would consider raising rates again. That boiled down to the following:

The board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The board does not expect these conditions to be met until 2024 at the earliest.

That’s a lot of hurdles for the economy to jump over – hence the 2024 indication.

So rates are pretty much guaranteed to remain at record lows for the next few years, if the RBA is to be believed. This is both a blessing and a curse.

A zero rate world: blessings and curses

It’s a blessing for the economy and investors. Cheap credit that is permitted under such a low rate is normally good for economic growth. It means businesses that want to borrow to expand, or investors who want to borrow to leverage their assets can do so at the cheapest rates in history. That should be at least partly accommodating to higher economic growth. Further, low rates boost the valuations of growth assets like ASX shares and property. Since most investors ascertain the future value of a share by comparing it to a risk-free rate of return they can get from a government bond, the lower this risk-free rate, the more valuable the shares. And government bond yields are directly tied to interest rates.

But it’s also a curse in many other ways. As retirees would know, safe cash investments like savings accounts and term deposits have never been more unproductive. Indeed, it’s nigh impossible to get a real, inflation-beating rate of return from a term deposit (or a savings account) these days. That has the rather unpleasant side-effect of pushing investors who don’t really want to be in the sharemarket, into the share market. These investors might be desperate for a real return, but concurrently terrified of losing their capital. Such skittishness is not a good thing to have in the markets.

Is cash trash?

Further, there have been many warnings about the near-zero interest rates causing bubbles of financial speculation. No one can deny we have seen some evidence of this in recent months. Events like the soaring share prices of companies like Afterpay Ltd (ASX: APT), Tesla Inc (NASDAQ: TSLA), and Nio Inc (NYSE: NIO) don’t exactly have a conservative feel right now. The whole GameStop Corp (NYSE: GME) saga recently have only amplified these concerns.

So how does one treat cash under this new paradigm?

Well, I think a good start is jettisoning the notion that any cash-based investment is still an investment. A term deposit earning 1% per annum will not protect your principle from eroding under inflation. Recent data from the Australian Bureau of Statistics (ABS) tells us that the consumer price index (CPI), a standard measure of inflation, was running at 0.9% for the 12 months to the quarter ending 31 December 2020. That basically means if your cash wasn’t earning at least 0.9% in interest, your purchasing power fell over those 12 months. Even if you managed to find a term deposit still paying 1% per annum, getting a real rate of return of 0.1% is not going to make anyone wealthy.

Thus, cash should be treated as a tool, rather than an investment in this Brave New World.

Safety vs. returns

So, for starters, make sure you keep enough on hand for your goals and needs. If you’re saving up for a house, keep the faith and keep saving (even though you’re getting no help from the bank). If you’re building an emergency fund of 3-6 months worth of living expenses for a rainy day, stay the course.

But if you have tens of thousands of dollars sitting in cash that you could not conceivable find a use for in the next few years, it might be time to think about putting it to work in investments that actually give you a real rate of return. For example, a simple exchange-traded fund (ETF) that tracks the S&P/ASX 200 Index (ASX: XJO) has returned an average of around 10.03% per annum over the past 5 years. Even the current dividend yield of the index is currently at 1.94%. That’s all looking pretty good against a term deposit right now.

One of the world’s top investors – Ray Dalio – told us that ‘cash is trash’ a few months ago. Most assets, whether that be gold, property or ASX shares, have always outperformed cash as an investment over long periods of time, bubbles included. So have a think about how much cash you actually need to be safe in your needs and wants. If there’s any left on top of that, it might be time to invest. Investing is never risk-free. But the biggest risk of all might be getting a guaranteed return of zero.

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Sebastian Bowen owns shares of Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Tesla. The Motley Fool Australia owns shares of AFTERPAY T 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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