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The Brambles Limited (ASX: BXB) share price is surging higher today following the release of its quarterly update for FY21.

At the time of writing, shares in the supply-chain logistics company are up 6.2% to $10.15.

Let’s see what Brambles recorded for the three months.

Trading update

For the period ending September 30, Brambles reported a solid growth, underpinned by increased sales, particularly in the Americas market.

Revenue grew to US$1.18 billion, representing a 6% gain on the same FX rates over the prior corresponding period. This was underpinned by a 5% uplift in group sales which was driven by customer demand and ongoing price realisation.

Overall demand for pallets in grocery supply chains such as such as beverages, cleaning products and home DIY remained strong. Retailers have increased inventory levels in preparation of the holiday season and potential COVID-19 second-wave lockdown.

Further weighing down the positive results, its automotive and Kegstar businesses declined by 20% in revenue. As expected, the pandemic severely impacted the automotive industry and out-of-home consumption on beer.

Management commentary

Commenting on the update, Brambles CEO Graham Chipchase said:

Trading conditions in the first quarter were characterised by stronger than expected demand for consumer staples. Our teams continue to show resilience and dedication, overcoming challenges to successfully provide customers with uninterrupted supply of pallets, crates and containers.

Mr Chipchase said demand patterns were constantly changing, thus elevating business costs. In addition, labour shortages, lack of third-party transport and strong demand in the United States lumber market resulted in inflationary cost pressures.

However, he said the rising costs were offset by higher pricing and surcharges:

Our teams continue to focus on the delivery of strategic supply chain initiatives such as the US automation programme and further productivity improvements across our operations to offset higher operating costs in this environment with the clear aim of delivering operating leverage in this financial year.

What’s ahead for the Brambles share price?

Brambles updated its FY21 outlook to reflect the sales and cash flow performance achieved for the first quarter. The company narrowed its guidance within the upper end considering the ongoing economic, operating and COVID-19 developments.

For the remaining financial year, Brambles is forecasting sales revenue growth between 2% and 4% at constant FX rates.

Underlying profit is predicted to improve within 3% and 5%, and free cash flow is expected to fund business expenditure.

Brambles reported that its dividend pay-out ratio would be consistent with its policy of 45% to 60% for FY21.

In addition, the company will look to continue its share buy-back program subject to funding and liquidity requirements.

Brambles anticipates a U-shaped economic recovery, with headwinds to persist for the duration of FY21. Furthermore, the company is calculating a progressive turn-around in its automotive and Kegstar business over the next 12 to 18 months.

More reading

• 5 things to watch on the ASX 200 on Thursday
• 5 things to watch on the ASX 200 next week

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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Vortiv Ltd (ASX: VOR) share price is on the rise this morning after the company announced its quarterly update for September. At the time of writing, the Vortiv share price is trading 6.25% higher at 17 cents. Shares in Vortiv have enjoyed a positive year so far, however the financial services provider has been on a sharp downward trend in recent months.

What Vortiv does

Vortiv is a technology company involved in IT management services. Currently, it owns Cloudten Industries and Decipher Works which provide IT and cyber security services for many large firms in Australia. Although this situation looks set to change as discussed further below.

The company also holds a 24.89% interest in TSI India. This is a company that provides solutions in the payments, electronic surveillance and managed services spaces. TSI India owns and manages around 14,000 ATMs in India.

What’s moving the Vortiv share price?

Investors are today driving the Vortiv share price higher after the company announced it has achieved its targeted financial results for the quarter. In doing so, Vortiv achieved revenue of $3.2 million, which was up 45% compared to the prior corresponding period. This result was on the upper end of the company’s expectations.

Furthermore, Vortiv’s earnings before interest and tax (EBIT) came in at $0.43 million. This represented the seventh straight quarter that the company has been EBIT positive.

In terms of new business opportunities, Vortiv announced it had won approximately $2.9 million during the quarter. This included contracts with existing and new clients.

Sale of cybersecurity business

It was recently announced that Vortiv is planning to sell its cybersecurity businesses (Cloudten and Decipher) for a cash consideration of $25 million. The proposed transaction is subject to shareholder approval, but with the board’s backing, the transaction is expected to be completed in December.

In addition, the company is finalising the application for a proposed buyback to return approximately $20 million to shareholders. After the sale, Vortiv intends to remain an ASX listed company with interest in TSI India.

More reading

• How to prepare your portfolio for economic recovery
• 3 100% franked ASX dividend shares going ex-dividend in November
• Better buy: Zoom Video Communications vs. Alphabet
• Bigtincan (ASX:BTH) share price on watch after new contract win
• Why the Webjet (ASX:WEB) share price tumbled 12% lower in October

Motley Fool contributor Daniel Ewing has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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So we’re in the midst of a COVID-19 recession.

Millions have lost their jobs and interest rates are virtually at zero. Many others only have employment because of unprecedented government support.

This is a stark contrast to the 10-year run of good times investors had between the global financial crisis and the coronavirus.

But eventually the economy will recover. Bad times don’t last forever, just as good times don’t.

“We are only months into the start of a new economic cycle and it indicates a period of opportunity to get positioned for years of economic growth ahead,” said Citi Australia chief investment strategist Simson Sanaphay.

“However, it did not start with a typical euphoric end to a boom/bust cycle. This time round, we started with a pandemic and unprecedented government and central bank stimulus. We are not in ordinary times.”

So how do investors prepare their portfolios to take advantage of the recovery?

A recession like no other

The current economic downturn is strange in that share markets have still gone gangbusters, thanks to the strength of growth stocks.

For example, the Nasdaq Composite Index (NASDAQ: .IXIC) is up almost 60% since the March trough, despite some corrections in the past few weeks.

Despite this, Citi has a mid-2021 target of 6,200 points for the S&P/ASX 200 Index (ASX: XJO), which is currently 6,019.6 points.

And Simson is expecting this climb to be driven by other shares, rather than already overvalued tech companies.

“We expect sector rotation from COVID-19 beneficiaries such as the tech and health sector to the cyclical sectors that includes resources and industrials, especially if there is firmer footing in a broad economic recovery.”

Even though value shares have lost a running battle against growth shares for more than a decade, Simson believes this is where the investment opportunity lies.

“We remind investors to remain open minded to adding cyclical and value-driven stocks to their portfolio, particularly if they are under-allocated to equities after selling down their portfolios in response to the chaos caused by the virus.”

Betashares senior investment specialist Cameron Gleeson shared that sentiment in an interview with The Motley Fool earlier this year.

“If the global economy shifts to a reflationary environment it is broadly expected that value will outperform and growth will lag.”

While interest rate increases might be on ice for the next couple of years, from a base of zero or negative there is only one direction they can go in the long term.

“Expectations of increasing inflation and re-opening of economies may be triggered by the announcement of an effective COVID-19 vaccine, for example,” Gleeson said.

More reading

• 5 things to watch on the ASX 200 on Tuesday
• What is the best US election outcome for ASX shares?
• Westpac (ASX:WBC) reports FY20 result, ASX 200 up 0.4% today
• Why the CSR (ASX:CSR) share price is climbing today
• Top brokers just upgraded the ResMed (ASX:RMD) share price and this other ASX stock

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Every month, there are shares going ex-dividend which are worth reviewing and thinking about. In November, 3 companies are going ex-dividend with reasonable yields for this one payout alone. Not only that, but the 3 ASX dividend shares are all 100% franked. Meaning the tax on them has already been paid. Let’s take a look.

ASX dividends in mining

Rand Mining Ltd (ASX: RND) is a multi operation gold mining company in Western Australia. The company specialises in gold exploration and development. Nonetheless, it also owns 12.25% of the East Kanowna Joint Venture with other ASX shares Northern Star Resources Ltd (ASX: NST) and Tribune Resources Ltd (ASX: TBR). During the first quarter FY21, Rand received 4,687 oz of gold as part of this deal.

The company is paying an ASX dividend of 10 cents, which at today’s price is a dividend yield of 4.22% for this payment alone. Rand goes ex-dividend on 11 November. Grossed up, including the tax already paid, this ASX dividend would be 13 cents, or a yield of 5.4%.

Investment company

WAM Capital Limited (ASX: WAM) is an investment company paying a final ASX dividend of 7.8 cents. On today’s price that is a yield of 3.43% for this payment only. At the time of writing, the company has a trailing 12 month dividend yield of 6.86%. WAM is currently involved in two hostile takeovers on the ASX. The first involves the Concentrated Leaders Fund Ltd (ASX: CLF) of which WAM now holds 24.63%. The second is the Contango Income Generator Ltd (ASX: CIE), of which WAM now owns 38.22%. 

These two issues are still playing out. However, the company indisputably has a majority controlling interest in the Contago Income Generator at least. WAM Capital goes ex-dividend on 27 November. Grossed up, this ASX dividend would be worth 10.1 cents, or 4.47%.

ASX manufacturing

Joyce Corporation Ltd (ASX: JYC) recently increased its dividend from 2.7 cents to 5 cents per share, increased on 30 October. This has been attributed to the success of cash management initiatives. The company increased its annual revenues by 4% and partner sales by 10.1%. This has led to an increase in earnings per share (EPS) of 35%. In fact, the company closed the year out with 52.6% more cash.

The house furnishings company owns brands like Bedshed and Kitchen Connection. Through FY20, the company has focused on increasing efficiency. Specifically through portfolio rationalisation, process improvement, and systems improvement.

Joyce is paying a dividend of 5 cents per share, which is a yield on this payment alone of 3.23%. Grossed up, this ASX dividend would be worth 4.19%. 

More reading

• Takeovers will continue to rock ASX shares
• Virtual AGMs rob retail investors: fundie
• New WAM Alternative Assets LIC appoints portfolio manager

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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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.

Zoom Video Communications‘ (NASDAQ: ZM) stock soared about 660% this year as the COVID-19 crisis brought millions of new users to its video conferencing platform. Just as Google became a verb for online searches, Zoom became synonymous with video calls.

Meanwhile, shares of Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), the parent company of Google, rose just over 10% this year as companies purchased fewer ads during the coronavirus pandemic.

Zoom had a great run, but will it continue to outperform Alphabet over the coming year? Let’s dig deeper into both companies to find out.

Zoom: Breakneck growth with a cloudy future

Zoom operates a “freemium” business model, in which free users can upgrade to paid tiers to remove time limits, host more people per meeting, gain cloud storage tools, and unlock other perks.

Zoom’s revenue rose by 88% in fiscal 2020, which ended in January, and its adjusted earnings per share (EPS) soared 483%. But in the first half of fiscal 2021, its revenue jumped 270% year-over-year as more people used Zoom for remote work, online education, and staying in touch with friends and family members.

That triple-digit revenue growth easily outpaced its operating expenses, and its adjusted EPS grew tenfold. Zoom expects its full-year revenue to rise 281%-284% as its adjusted earnings rise sevenfold. After that growth spurt, analysts expect Zoom’s revenue and earnings to rise 31% and 15%, respectively, next year.

Those growth rates are impressive, but Zoom faces three main challenges. First, a growing number of competitors – including Cisco‘s Webex, Google Meet, and Facebook‘s Messenger Rooms – could pull users away from Zoom. These larger competitors can all afford to undercut Zoom’s prices, or even offer the same services for free.

Second, Zoom struggled with several security and privacy debacles over the past year. It’s resolved most of those issues, but future blunders could tarnish its brand and benefit its competitors.

Lastly, it’s unclear if Zoom’s usage rates will remain stable after the pandemic passes, or if they’ll fall off a cliff after people return to work and school. This makes it difficult to tell if Zoom’s frothy forward price-to-earnings (P/E) ratio of 159 is sustainable.

Alphabet: A temporary slump with a clearer future

Alphabet’s revenue rose 18% last year as its earnings grew 12%. But in the first half of 2020, its revenue only rose 6% year-over-year and its earnings declined 16%.

That slowdown was caused by Google’s sluggish ad sales, which grew less than 1% year-over-year in the first half of the year but still accounted for 80% of Alphabet’s overall revenue. The loss of that higher-margin revenue, along with the growth of lower-margin segments like YouTube and Google Cloud, reduced Alphabet’s margins and profits.

Analysts expect Alphabet’s revenue to rise 7% this year, but for that margin pressure to reduce its earnings by 9%. But looking further ahead, they expect its revenue and earnings to grow 21% and 27% respectively, as the pandemic passes and ad purchases accelerate again.

That outlook seems clearer than Zoom’s, but Alphabet also faces three main challenges. First, it faces several antitrust probes across the world, which could result in hefty fines and throttle its ability to expand its search, advertising, and mobile ecosystems.

Second, Google still faces intense competition in the advertising market from Facebook, which leads the social media market, and Amazon.com, which is turning its e-commerce marketplaces into advertising platforms. Google has repeatedly failed to crack both the social media and e-commerce markets.

Lastly, Google controlled just 6% of the cloud infrastructure market in the second quarter of 2020, according to Canalys, putting it in a distant third place behind Amazon Web Services (AWS) and Microsoft‘s Azure. To remain competitive, Google will likely need to ramp up its cloud spending – which could dent its margins.

Alphabet’s stock trades at a reasonable 27 times forward earnings, but it’s easy to see why the bulls didn’t love this stock as much as Zoom.

The verdict

Alphabet is still a sound long-term investment, but I believe Zoom will generate bigger gains over the following year for one simple reason: The COVID-19 pandemic is far from over, and a second wave of infections could shut down businesses and send people home again.

Therefore, Wall Street’s estimates could be too low for Zoom and too high for Alphabet, which will suffer slower ad growth if the pandemic worsens. Zoom’s premium valuation would be justified in this scenario, while Alphabet would deserve to trade at a much lower multiple.

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

More reading

• Apple develops its own search tools as Google defends against antitrust probe
• Tesla (NASDAQ:TSLA), Fastly (NYSE:FSLY) among most popular US shares last week
• A look into Mike Cannon-Brookes’ share portfolio
• 3 FAANG stocks to buy right now
• 3 things Alphabet (NASDAQ:GOOGL) investors should watch ahead of its earnings report

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. Leo Sun owns shares of Amazon, Cisco Systems, and Facebook. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, Microsoft, and Zoom Video Communications and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Zoom Video Communications. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Bigtincan Holdings Ltd (ASX: BTH) share price will be one to watch this morning after the release of a positive announcement.

What did Bigtincan announce?

This morning the AI-powered sales enablement automation platform provider revealed that it has won a new multi-year contract.

According to the release, the company has been awarded a three-year contract worth a minimum of ~$1 million with leading US based global financial services company, John Hancock.

Management believes the new contract demonstrates Bigtincan’s continued success in securing large enterprise customer deployments. It notes that John Hancock is a company that supports approximately 10 million Americans with a broad range of financial products.

The release explains that John Hancock will use Bigtincan’s financial services cloud solution to empower customer facing teams to be better prepared to engage with customers that are more educated and informed, in remote and other engagements, that are being driven by the impact of the COVID-19 pandemic.

It notes that the contract aligns with its strategy of partnering with enterprise customers to meet their requirements for a platform that can be extended and expanded through the use of Content, Learning, Add-ons and other features.

How is Bigtincan performing?

Bigtincan was a strong performer in FY 2020 despite the pandemic and continued its impressive growth.

For the 12 months ended 30 June 2020, the company delivered revenue growth of 56% to $31 million. This was driven by organic growth of 38%, which was further boosted by the acquisition of the Veelo, Asdeq Labs, and XINN businesses.

Last month the company released its first quarter update and advised that it remains on track to meet the market guidance it provided with its FY 2020 results.

This is for annualised recurring revenue of $49 million to $53 million and revenue of $41 million to $44 million with stable retention.

More reading

• Why Bigtincan, Bubs, Carsales, & Western Areas are dropping lower
• Why the Bigtincan (ASX:BTH) share price is sinking 7% lower today
• 5 ASX tech shares that could be the next WAAAX stocks
• Looking for the next big thing? Check out these exciting ASX tech shares
• Bigtincan (ASX:BTH) share price edges higher following acquisition

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 BIGTINCAN FPO. The Motley Fool Australia has recommended BIGTINCAN FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Webjet Limited (ASX: WEB) share price was out of form in October and tumbled notably lower.

The online travel agent’s shares lost 11.7% of their value over the month. This compares to a 1.9% gain by the S&P/ASX 200 Index (ASX: XJO).

Why did the Webjet share price underperform in October?

Investors were selling Webjet and other travel shares, such as Flight Centre Travel Group Ltd (ASX: FLT), last month amid rising COVID-19 cases globally.

With many countries experiencing second and third waves and recording record high infections, the prospect of global travel markets reopening fully before the successful development of a vaccine became very unlikely.

This could be bad news for travel companies, who may have to contend with lower booking volumes for even longer than expected.

Speaking of which, last month Webjet provided the market with an update on how its businesses are performing in FY 2021.

What did Webjet reveal?

Webjet’s update revealed that bookings are still down significantly from their pre-pandemic levels.

According to the release, the company’s Webjet OTA business recorded monthly bookings of 18,700 during September. This is down from its pre-COVID average of 131,300 per month.

However, it is worth noting that this recovery is stronger than the market average, which implies market share gains. Management advised that Webjet OTA’s bookings are 14.2% of pre-COVID levels, which compares favourably to a 7.1% recovery by the rest of the market. This side of the business will reach break-even when levels hit 23% of 2019’s levels.

The company also revealed that its key WebBeds business is improving but remains a long way from becoming breakeven. As of 7 October, its average total transaction value (TTV) stood at 12% of calendar year 2019 levels. Management advised that it needs to surpass 45% of 2019’s levels to become profitable.

One positive, though, was that Webjet’s cash burn has been better than expected thanks to its focus on managing costs. So far in FY 2021, its cash burn is $9 million a month. This compares to $10.5 million a month in FY 2020.

Based on this, current trading conditions, and its strong balance sheet, management believes it has sufficient capital to see it through to 2022.

More reading

• These are the 10 most shorted shares on the ASX
• Are ASX retail investors ‘dumb money’?
• Leading brokers name 3 ASX shares to buy today
• These are the 10 most shorted shares on the ASX
• ASX 200 Weekly Wrap: ASX snaps winning streak… just

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Webjet Ltd. The Motley Fool Australia has recommended Flight Centre Travel Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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A top fund manager has declared the best days of Australian bank shares are behind them.

The big four local banks – Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) – have been traditionally very reliable sources of excellent dividend yield while maintaining stable share prices.

But this year has seen them slash their dividends due to the COVID-19 recession. 

Plus they have seen their business margins squeezed dry with the Reserve Bank of Australia (RBA) cutting the cash rate to almost zero. 

Nucleus Wealth head of investments Damien Klassen said that, unfortunately, what big banks have experienced overseas is now creeping into the local market.

“Last 5 or 6 years, European bank shares are down 50% while the rest of the market was up 50%… They’re stuck in this unprofitable [trap] because of how low the interest rates are,” he said in a Nucleus Wealth webinar.

“Unless we do actually get that stimulus that gets inflation going… then Australia’s banks are headed in the same direction.”

The hole they are in is rather deep

The only way out is for inflation to pick up and for the Reserve Bank to then lift rates. 

But with the economy in the doldrums after the pandemic, the RBA has admitted this is not a likely prospect for a long time.

Even the current government financial support – like JobKeeper and JobSeeker – is due to taper off over the next few months, adding to the economic pressures.

This adds up to a scene where “the risks look pretty high” for Australian bank shares, according to Klassen.

“A lot of Australians have treated banks as [having] stable dividends and capital growth as well. What more could I want? I’ll just throw everything into it,” he said.

“We don’t think that’s going to be the case for a little while.”

Commonwealth Bank shares are down about 14% in value so far this year. NAB has lost 23%, ANZ has sunk 22% and Westpac is down 26%.

More reading

• What to expect from the NAB (ASX:NAB) FY 2020 result
• 5 things to watch on the ASX 200 on Tuesday
• Westpac (ASX:WBC) reports FY20 result, ASX 200 up 0.4% today
• 3 ASX 200 shares that received broker upgrades last week
• RBA taps bank partners for crypto Australian dollar project

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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With almost-zero interest rates and the COVID-19 recession, investing for yield is a difficult game at the moment.

Many investors, especially older ones who don’t wish to expose themselves to excessive risk, rely on yield for their day-to-day living.

But the low interest environment doesn’t seem like it’s disappearing anytime soon. Meanwhile growth shares have taken off, even after the coronavirus crash in March.

Some experts have therefore suggested growth shares might have become the new way to nab regular income.

Nucleus Wealth head of investments Damien Klassen is one of them, saying income investors will be “needing more growth assets” than they are used to.

But the higher risk of growth shares will mean closer daily scrutiny of the portfolio.

“We think you’re going to need higher levels of portfolio management,” he said in a Nucleus Wealth webinar.

“If you just took a ‘set and forget’ [approach] and just went ‘Yep, I’m just going to dump my money into a 60-40 portfolio and see you in 20 years’ time’, we think your returns are going to be relatively poor.”

Evergreen Consultants founder Angela Ashton agreed.

“It’s definitely nowhere near as easy as it used to be… Capital gains, in an attack sense, is a better place to be.”

But she warned that growth is not as reliable and consistent as traditional sources of yield.

“The fact that you can’t count on it, year after year, to be a set level is obviously an issue. Whereas yield [investing] had that characteristic.”

Capital gains tax discount vs franking credits

The big psychological tug for yield investors is the preservation of investment capital. If they switch over to growth stocks, they will have to sell down regularly to attain income.

Klassen pointed out an obscure benefit that could help them get over the mental hurdle.

“For a lot of people, capital gains will end up being taxed lower than income,” he said.

“So if it’s a matter of saying I’m picking up a little bit of extra capital gains but then I’m selling a few assets every year in order to meet my living standards, then there might actually be tax advantages rather than disadvantages.”

He said the reluctance to sell down is “a mindset” that has to change for income investors in the brand new world.

Ashton said a lot of retirees hate depleting their capital.

“But the reality is, a lot of people have to… People should expect to eat into their capital to maintain their standard of living usually.”

No choice but to go growth

Before the global financial crisis in the late 2000s, defensive investments both protected capital and generated yield, according to Ashton. 

But those days are now gone.

“I’m not sure if you remember, but during the GFC you could still get a 5-year term deposit yielding 7%,” she said.

“The defensive part of your portfolio — now you really have to think about whether you want it to be defensive or generate income. If it’s to generate income, it’s probably not all that defensive.”

So with this dilemma, yield investors were forced onto dividend shares. But even dividends have been slashed after COVID-19.

“Australian equities have been the highest dividend yielders in the world for over 100 years. That’s not so much the case anymore.”

More reading

• What to expect from the NAB (ASX:NAB) FY 2020 result
• Here’s what the US election means for investors
• Here’s why the Blackmores (ASX:BKL) share price jumped 11% higher in October
• What to expect from the Woolworths (ASX:WOW) Q1 update this week
• 2 ASX dividend shares with 4% yields

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Hot on the heels of the release of a full year result by Westpac Banking Corp (ASX: WBC) on Monday, later this week National Australia Bank Ltd (ASX: NAB) will be releasing its own.

Ahead of the release on Thursday, I thought I would take a look to see what is expected of the banking giant in FY 2020.

What to look for with the NAB result?

According to a note out of Goldman Sachs, it is expecting the banking giant to post cash earnings before one-offs of $3,988 million in FY 2020. This will be a 31.9% decline on the prior corresponding period.

The broker has also forecast a fully franked final dividend of 30 cents per share. This will bring its full year dividend to 60 cents.

And following its recent remediation update, it now expects its second half CET1 ratio to come in at 11.75%. This will mean 13.4% for the full year.

What else should you expect?

Goldman Sachs is going to be looking for signs of a turnaround in home loans in recent months following a slowdown late in the financial year.

It commented: “NAB’s housing momentum continued to slow in Aug-20, while its business trends have stabilized. Across the group, we currently forecast flat housing and non-housing loans growth and so will be looking out for signs of a turnaround in the momentum of the franchise, which might come off the back of the recent Federal Budget and the federal government’s evolving stance on responsible lending.”

Another thing to keep your eye on is the bank’s underlying cost performance and any commentary on its post-COVID expectations.

Goldman explained: “Our FY20E expense (ex notables) forecast of A$8,242 mn implies cost growth of 1.1%. NAB acknowledged its ‘broadly flat’ expenses target for FY20E (ex- notable items) will become increasingly challenging in part reflecting the cost required to support customers in response to Covid.”

“As such we will be particularly interested to hear management commentary around its future outlook and see whether they extend their three-year cumulative cost savings target of >A$1 bn (A$934 mn to date),” it added.

Goldman Sachs has a conviction buy rating and $20.89 price target on NAB’s shares.

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• 3 reasons the Afterpay (ASX:APT) share price smashed the market in October
• 6 major events for ASX shares this week

Motley Fool contributor James Mickleboro owns shares of Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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