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I think that investing in ASX shares is a great idea if you’re wondering where to start with $500.

You don’t need $50,000 to start investing in shares. You can start with $1,000, or even half that amount. It also costs very little to do a transaction. Buying (or selling) a property usually costs many thousands of dollars.

But which share should you buy? There are lots of different things you can invest in. These days one of the best ways to get started is with an exchange-traded fund (ETF) which allows you to invest in lots of different shares through a single investment.  

But the ASX share that I’m going to tell you about in this article is a listed investment company (LIC).

A LIC is somewhat similar to an ETF. Most LICs usually provide a diversified portfolio of shares, just like an ETF. However, LICs don’t just follow an index – the portfolios are constructed by managers. Some of those managers can outperform the index over the long-term (and plenty don’t).

Here’s my ideas for $500:

Future Generation Investment Company Ltd (ASX: FGX)

As I said, this is a LIC. But there are a few key differences.

The ASX share doesn’t charge any management fees or performance fees. Indeed, it hardly has any costs at all because of its philanthropic nature. It donates 1% of its net assets to youth charities each year. That’s where the ‘Future Generation’ part of the name comes in.

It doesn’t invest in individual businesses like a normal LIC does. Instead, Future Generation is invested in around 20 funds of different fund managers that invest in ASX share. The managers that it’s invested in include: Bennelong, Paradice, Regal, Eley Griffiths and Wilson Asset Management. The fund managers I mentioned represent almost half of Future Generation’s overall portfolio.

Each of those funds represent a portfolio shares, which could mean Future Generation may be invested in hundreds of different ASX shares. I think that’s great diversification. It probably provides better diversification than an ETF like BetaShares Australia 200 ETF (ASX: A200).

Performance

When you look at the latest performance update from 31 August 2020, Future Generation shows outperformance of the S&P/ASX All Ordinaries Accumulation Index over the past month, six months, year, three years, five years and since inception in September 2014.

Indeed, since inception the Future Generation gross portfolio return has beaten the index by an average of 2.6% per annum.

Good diversification and outperformance is a nice combination.

Dividend

LICs can choose to pay out a dividend from its investment performance. Future Generation aims to pay out a slightly higher dividend each year, if the profit reserve allows.

The ASX share currently has an annualised dividend of 5.2 cents per share. That amounts to a grossed-up dividend yield of 6.5% at the current Future Generation share price.

Is the ASX share a good buy today?

One of the most important things to know about LICs is that they can trade at discounts or premiums to their underlying asset value. In other words, sometimes you can buy $0.90 of assets for $1 of shares. Or sometimes you have to pay $1.10 for $1 of assets.

At the time of writing Future Generation has a share price of $1.14. This compares to pre-tax net tangible assets (NTA) of $1.2517 per share. That means it’s trading at a discount of 9% to August’s NTA. The NTA may have grown since then.

When you consider the diversification, the outperformance, the dividend yield and the NTA discount, I think Future Generation is a great ASX share investment for $500 right now.

More reading

• How to create a yearly income of $65,000 in dividends
• 3 LICs with high dividend yields of over 6.5%
• 3 star ASX income shares for 2021
• How to generate $1,000 a month in dividends

Motley Fool contributor Tristan Harrison owns shares of FUTURE GEN FPO. 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.

The post Where I’d invest my first $500 into ASX shares appeared first on Motley Fool Australia.

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Following a stellar performance in 2019, which saw the Image Resources NL (ASX: IMA) share price gain 108% in only 12 months, Image Resources’ share price has been far choppier in 2020.

Like most every company on the ASX, Image Resources share price was savaged by the COVID-19 panic selling earlier this year, falling 45% from 24 February through to 23 March. From there it gained 75% through to 18 September before again sliding lower.

Year-to-date the share price is down 30% despite today’s strong performance, which saw shares trading 9% higher in mid-afternoon before giving up some of those gains to be 6% higher at time of writing.

What does Image Resources do?

Image Resources is a mining company primarily focused on mineral sands. The company operates an open-cut mine and ore processing facility at its 100%-owned Boonanarring Project, one of the highest-grade zircon-rich mineral sands projects in Australia. Just 80 kilometres north of Perth, the mine is well serviced by existing infrastructure.

Image Resources achieved profitability in the first quarter of 2019 and was cash flow positive in the second quarter of 2019. It is now at steady state production.

Image Resources has a market cap of $162 million.

Why is the Image Resources share price soaring higher today?

After closing on Friday at 16 cents per share, Image Resource’s shares are trading at 18 cents this afternoon.

Aside from a potential lift from the broader rise of the All Ordinaries Index (ASX: XAO), up 2.1% in intraday trading, Image Resources’ share price looks to have gained a boost from the company’s share buy back announcement to the ASX this morning.

The shares in question, just over 495,000 of them, had been issued to employees as part of the company’s Employee Share Plan (ESP). Image Resources noted that:

Some of those employees have ceased employment with the company and the loans made to the employees to fund the issue of the shares became repayable on the cessation of employment. In accordance with the terms of the ESP, the board has determined that the company will buy back and cancel the relevant shares, with the proceeds applied to offset the loans.

The company is offering 26.7 cents per share, considerably higher than the current share price of 18 cents.

More reading

• Why the Droneshield (ASX:DRO) share price has rocketed higher
• Starpharma (ASX:SPL) share price tumbles on oversubscribed placement
• Why the Paradigm (ASX:PAR) share price has rocketed 8% higher today
• ASX 200 Weekly Wrap: Bank shares push ASX 200 higher
• Village (ASX:VRL) share price edges lower after BGH takeover update

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. 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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ASX bank stocks are on fire today! And a prediction by JPMorgan that their profit margins could improve will give investors an extra reason to get excited.

Growing optimism on news of US President Donald Trump’s improving COVID-19 condition is lifting sentiment.

The S&P/ASX 200 Index (Index:^AXJO) rallied 2.4% in after lunch trade but ASX banks are outperforming.

ASX big banks outperforming

The National Australia Bank Ltd. (ASX: NAB) share price, Westpac Banking Corp (ASX: WBC) share price and Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price are up around 3.7% each.

The Commonwealth Bank of Australia (ASX: CBA) share price is lagging its peers but its 2.7% jump still puts it ahead of the broader market.

ASX bank stocks’ margin outlook improving

JPMorgan delivered extra good news for the big four’s net interest margin (NIM) outlook. Investors have been keenly watching this key profitability measure as bank margins have been under pressure from falling interest rates.

It doesn’t help that the Reserve Bank of Australia is tipped to cut the cash rate again in November to a record low of just 0.1%.

NIM is the difference between the interest banks have to pay for its funds and the interest it can charge borrowers.

One of the biggest profit levers

But at least for September, funding costs have eased for the banks and JPMorgan believes this remains one of the best profit levers for the sector.

“Over the last six months, spreads on savings products and TDs [term deposits] have improved by 38ps and 53bps, respectively,” said the broker.

“We estimate this should provide a meaningful tailwind of 3-6bps [basis points] to major bank 1H21 NIMs.”

Low expectations are a saving grace

This equates to around a 3% increase for the big four. This may not sound like much, but any NIM expansion will be warmly welcomed by investors.

This is because expectations are set low for banks, which have been underperforming the market. The fallout from COVID-19 on jobs and the property market have hammered sentiment towards our biggest mortgage lenders.

Even with today’s big bounce, there’s little good news priced into the sector. Also, I believe banks stocks are underheld by fund managers.

Any excuse to turn positive on banks will trigger a big rally.

Big banks have an upper hand

But banks aren’t out of the woods just yet. JPMorgan believes competition for borrowers is heating up with second-tier lenders cutting rates to win business.

On the other hand, the big banks are better placed to win any war of attrition. The big boys have a distinct advantage over their smaller rivals in securing cheaper funding.

More reading

• Why today’s NAB (ASX:NAB) share price gains could be just the beginning
• Ignore the noise and focus on these ASX shares instead
• ASX 200 up 2.3%: Big four banks charge higher, Qantas soars, energy shares jump
• Why Costa, Qantas, Santos, & Westpac shares are storming higher today
• Could industrial REITs be the best ASX shares to buy for dividends?

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

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 best performer on the S&P/ASX 200 Index (ASX: XJO) on Monday has been the Mesoblast limited (ASX: MSB) share price.

In afternoon trade the biotechnology company’s shares are up a sizeable 11% to $3.54.

At one stage the Mesoblast share price was up as much as 14.5% to $3.65.

Why is the Mesoblast share price surging higher?

Investors appear to have been buying Mesoblast’s shares on Monday on the belief that they were oversold on Friday following the release of a disappointing announcement.

That announcement revealed that the U.S. FDA has not approved its remestemcel-L (RYONCIL) treatment for paediatric patients with steroid-refractory acute graft versus host disease (SR-aGVHD).

This came as a big surprise to the market because in August the Oncologic Drugs Advisory Committee (ODAC) of the FDA voted 9:1 in favour that the available data support the efficacy of remestemcel-L in pediatric patients with SR-aGVHD.

It isn’t often that the FDA goes against the ODAC’s vote, but this is what happened last week.

However, it isn’t the end of the road. The regulatory body has recommended that Mesoblast conduct at least one additional randomised, controlled study in adults or children to provide further evidence of the effectiveness of remestemcel-L for SR-aGVHD.

In addition to this, as there are currently no approved treatments for the life-threatening condition in children under 12, Mesoblast is urgently requesting a Type A meeting with the FDA. This meeting is expected within 30 days and will discuss a potential accelerated approval with a post-approval condition for an additional study.

Judging by the Mesoblast share price performance today, some investors appear optimistic the company will be able to convince the FDA to approve the treatment at this meeting.

Should you buy the dip?

Mesoblast is an exciting company, but I would suggest investors keep their powder dry until a final decision is known.

Until then, I believe there are too many risks and not a sufficient reward for investors.

As a result, I think investors would be better off buying biotech giant CSL Limited (ASX: CSL) at this point.

More reading

• These were the worst performing shares on the ASX 200 last week
• ASX 200 drops, Trump has COVID-19, Mesoblast (ASX:MSB) share price sinks
• Why Beach, Fortescue, Mesoblast, & SeaLink shares are tumbling lower
• ASX 200 down 0.95%: Mesoblast crashes lower on FDA update, Afterpay surges higher
• Mesoblast (ASX:MSB) share price tumbles 32% lower on update

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 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.

The post Why the Mesoblast (ASX:MSB) share price jumped 14% higher today appeared first on Motley Fool Australia.

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I think there are some ASX dividend shares which pay out huge amounts of cash could be good picks. 

It’s hard to make any money from a bank account at the moment because Australia’s official interest rate is now just 0.25% and could go even lower.

Here are some ways to boost income:

WAM Leaders Ltd (ASX: WLE)

WAM Leaders is a listed investment company (LIC) which is run by the highly-capable team at Wilson Asset management. It targets ASX blue chip shares.

The benefit of the LIC structure is that it can invest in any shares/assets that it sees as an opportunity. Investment gains can be generated by both capital growth and dividends received. That combined investment return can then be used to pay a solid dividend to investors. LICs can be very good ASX dividend shares with this setup.

In the latest WAM Leaders update, it was able to point to strong investment performance in the short-term and the long-term.

Over the past year, WAM Leaders’ gross portfolio return (before fees, expenses and taxes) has been 5.6% – outperforming the S&P/ASX 200 Accumulation Index by 10.7%. Since inception in May 2016, WAM Leaders’ portfolio return has been 10.6% per annum, outperforming the index by 3.5%.

WAM Leaders has been able to use this strong performance to pay a growing dividend each year since FY17.

Including the guidance of an interim FY21 dividend of 3.5 cents per share, WAM Leaders offers a grossed-up dividend yield of 7.8%.

Pacific Current Group Ltd (ASX: PAC)

Pacific Current is an asset management company which has strategic stakes in other asset managers and tries to help them grow.

The ASX dividend share is on an upwards trend with a few key investments doing really well, with GQG growing its funds under management (FUM) increased from US$25.1 billion to US$44.6 billion in FY20.

Excluding boutiques sold and acquired during the year, Pacific’s FUM rose 52% despite COVID-19. It ended with FUM of A$93.3 billion in FY20.

The strong level of growth helped the ASX dividend share’s underlying earnings per share (EPS) rose by 18% to $0.44 per share. This earnings growth help support a 40% increase of total dividends to $0.35 per share.

At the current Pacific Group share price it offers a trailing grossed-up dividend yield of 8.3%.

The company thinks it will secure new commitments in FY21. It could have a grossed-up dividend yield of 9.5% for FY21 if it grows its underlying earnings nicely again.

NAOS Small Cap Opportunities Company Ltd (ASX: NSC)

This is another LIC, but it targets much smaller businesses than the ones that WAM Leaders looks at.

The ASX dividend share’s hunting ground is ASX shares with market capitalisations between $100 million and $1 billion. Smaller businesses have more return potential, partly due to their size and partly because mainstream investors haven’t discovered the business yet.

NAOS Small Cap Opportunities Company has a high conviction portfolio of around 10 names. Some of those picks include: Eureka Group Holdings Ltd (ASX: EGH), Consolidated Operations Group Ltd (ASX: COG), MNF Group Ltd (ASX: MNF), BSA Limited (ASX: BSA) and Over The Wire Holdings Ltd (ASX: OTW). I think that’s a solid group of businesses.

The ASX dividend share has settled into paying a 1 cent per share dividend every quarter. At the current NAOS Small Cap Opportunities Company share price it has a grossed-up dividend yield of around 10%.

It’s also trading at a 18.3% discount to its August 2020 pre-tax net tangible assets (NTA) per share. That’s a pretty big discount.

Foolish takeaway

Each of these ASX dividend shares offer a big dividend and seem to be at least maintaining their payments to shareholders. WAM Leaders and Pacific are growing the dividends. At the current prices I think Pacific could be the best buy because of its medium-term growth prospects. However, both of the LICs could offer attractive diversified income for your portfolio.

More reading

• 3 ASX shares that I’d invest $1,000 into EVERY month
• 3 small cap ASX shares I’d buy with $3,000 right now
• How to create a yearly income of $65,000 in dividends
• 3 LICs with high dividend yields of over 6.5%
• 3 ASX shares now trading at crazy cheap prices

Tristan Harrison owns shares of NAO SMLCAP FPO. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Over The Wire Holdings Ltd. The Motley Fool Australia owns shares of and has recommended MNF Group Limited. The Motley Fool Australia has recommended Over The Wire Holdings Ltd. 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 ASX is littered with lots of companies that show potential to become the next market darling. While I mostly invest in the mid-to-large cap space, I do look for small cap ASX shares that could deliver strong returns.

Every company has a story to sell. The trick is to identify value and opportunities. Researching your chosen business is a great start, but it also pays off to look at its rivals and the macro-environment.

Here are my top 2 small cap ASX shares that I think will perform in 2021.

Botanix Pharmaceuticals Ltd (ASX: BOT)

Botanix is a synthetic cannabinoid pharmaceutical company that focuses on dermatology and antimicrobial products.

Pipeline products include the BTX 1801 gel which prevents surgical site infections by killing bacteria during surgery incisions. Currently in a phase 2a study, Botanix aims to combat the growing global antibiotic resistance that affects millions each year.

In April, Botanix received a major boost from the United States Food and Drug Administration (FDA). The company’s flagship BTX 1801 received a Qualified Infectious Disease Product status. The incentivised status grants an additional five-year regulatory exclusivity, meaning generic products cannot enter the market. Furthermore, Botanix is eligible for a priority FDA review, cutting the standard review period to 6 months from the original 12 months. Furthermore, fast-track designation enables Botanix to have more frequent communication with the FDA during the drug development and review process.

At the time of writing, the Botanix share price is trading at 10 cents, up 7.5% for the day. With a market capitalisation of $97 million, if the company can perform to market expectations, its share price will soar.

Botanix could be a game-changer for infection preventative diseases. I would keep an eye on the medical company as a speculative buy.

Osteopore Ltd (ASX: OSX)

A medical technology company based in Australian and Singapore, Osteopore specialises in the production of 3D printed bioresorbable implants. The in-house manufactured product is used in conjunction with surgical procedures to assist with the natural stages of bone healing.

Osteopore recently secured an initial US distribution agreement with Bioplate Inc. that looks to penetrate the world’s largest healthcare market in the second half of 2020. The company also gained approval from the Therapeutics Goods Administration (TGA) for market entry in Australia. Osteopore’s new geographical presence should see incoming revenue streams as it expands manufacturing capabilities.

Allied Market Research estimates the market opportunities for bone graft substitutes will be US$3.9 billion by 2025. Osteopore’s current sales come from the cranial/maxillofacial (CMF) area which represents 20% of the entire market. Other market segments like dental and cosmetic (nasal) are comparable to size with CMF, which Osteopore is now starting to penetrate.

Most significantly, 40% of the bone graft substitute market derives from orthopaedic and spine. This untapped opportunity could be huge from Osteopore should it succeed in its clinical trials.

The Osteopore share price has moved 0.9% higher today to 53 cents at the time of writing. The med tech company is valued at $62 million and has no debt. In light of this, I think the Osteopore share price might surge much higher if it can develop new distribution networks.

I believe this relatively new ASX-listed company (floated in September 2019) could be destined for big things. I would consider snapping up Osteopore as a small cap ASX share in the buy zone today.

More reading

• 2 outstanding ASX tech shares to buy for the long term
• Why I would buy Wesfarmers (ASX:WES) and this ASX share for a retirement portfolio
• Why the Viva Energy (ASX:VEA) share price crashed 14% lower today
• Why today’s NAB (ASX:NAB) share price gains could be just the beginning
• Ignore the noise and focus on these ASX shares instead

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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Despite its recent wobbles, the tech sector has once again been one of the best places to invest your money in 2020.

Since its launch in February, the S&P/ASX All Technology Index (ASX: XTX) has gained approximately 20%. As a comparison, over the same period, the S&P/ASX 200 Index (ASX: XJO) has lost 15% of its value.

The good news is that due to the quality on offer in the sector, I believe a certain level of outperformance can continue for many years to come.

In light of this, I feel it could be worth considering a buy and hold investment in the sector today. But which ASX tech shares should you buy? Two I would recommend you consider buying are as follows:

Altium Limited (ASX: ALU)

The first ASX tech share to consider buying is Altium. It is the printed circuit board (PCB) design software provider behind the popular Altium Designer platform. This award-winning platform is used by almost 50,000 users to connect with every facet of the PCB design process.

Although FY 2020 was a difficult year because of the disruption caused by the pandemic, I believe it is well worth looking beyond this and focusing on the future. This is because Altium’s future looks increasingly positive due to its exposure to favourable industry tailwinds such as artificial intelligence, 5G internet, and the Internet of Things. These markets are supporting the rise of connected devices globally, which should underpin strong demand for electronic design software over the next decade.

Xero Limited (ASX: XRO)

Another outstanding ASX tech share to consider buying is Xero. It is a cloud-based accounting software company which has been growing its customer base at a rapid rate over the last few years. At the end of FY 2020, Xero’s total subscriber numbers were up 26% on the prior year to 2.285 million subscribers. Combined with an increase in average revenue per user, the company reported a 30% increase in operating revenue to NZ$718.2 million.

Pleasingly, due to the company’s sizeable market opportunity and the ongoing shift to the cloud, I believe it still has a very long runway for growth. In light of this, I think it could be a great buy and hold option for investors.

More reading

• 5 things to watch on the ASX 200 on Monday
• 2 of the best ASX 200 shares to buy in October
• 3 ASX shares I’d buy if the share market crashes again
• ASX 200 down 0.95%: Mesoblast crashes lower on FDA update, Afterpay surges higher
• Why WAAAX shares like Afterpay (ASX:APT) and Xero (ASX:XRO) are surging

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 Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. 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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If you’re building a retirement portfolio, then you might want to take a look at the ASX shares named below.

I believe they are great options for investors looking for a combination of growth and income over the next decade. Here’s why I like them:

Collins Foods Ltd (ASX: CKF)

Collins Foods is a growing quick service restaurant operator with a massive 240 KFC stores in Australia and 40 KFC stores in Europe. It also operates 12 Taco Bells across Queensland and Victoria. I think it would be a great option for a retirement portfolio due to its strong business model and positive long term growth outlook.

Although it clearly has a very large KFC footprint in the ANZ market, management still sees plenty of room for growth in the future. The same can certainly be said for Europe, where the brand has yet to fully penetrate the market. In addition to this, the Taco Bell brand appears to be doing well and could be another driver of growth in the future. Combined, I believe Collins Foods is capable of delivering solid earnings and dividend growth for a long time to come.

Wesfarmers Ltd (ASX: WES)

Another ASX share that I think would be good for a retirement portfolio is Wesfarmers. I believe the conglomerate is one of the highest quality companies on the Australian share market and well-positioned to deliver solid earnings and dividend growth over the next decade.

This is thanks to its collection of leading retail brands such as Bunnings, Catch, and Kmart, as well as the numerous industrial businesses it has in its portfolio. In addition to this, the company has a very strong balance sheet and plenty of firepower to make earnings accretive acquisitions. It has been a bit quiet on the deal-making front of late, but I suspect it could have a number of targets in its sights at present.

More reading

• ASX 200 drops, Trump has COVID-19, Mesoblast (ASX:MSB) share price sinks
• Collins Foods (ASX:CKF) share price edges higher on Sizzler update
• Where should you invest your Wesfarmers (ASX:WES) dividends?
• 2 strong ASX shares I’d buy today for growth and income
• 5 things to watch on the ASX 200 on Thursday

Motley Fool contributor James Mickleboro owns shares of Collins Foods Limited. The Motley Fool Australia owns shares of Wesfarmers Limited. The Motley Fool Australia has recommended Collins Foods 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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The worst performer on the S&P/ASX 200 Index (ASX: XJO) on Monday by some distance has been the Viva Energy Group Ltd (ASX: VEA) share price.

In afternoon trade the fuel retailer’s shares are down a sizeable 11.5% to $1.39.

At one stage today they were down as much as 14.5% to $1.34.

Why is the Viva Energy share price crashing lower today?

The good news for shareholders is that today’s decline has nothing to do with a disappointing update or a broker downgrade.

Instead, this decline is completely attributable to Viva Energy’s shares trading ex-dividend and without the rights to an upcoming capital return on Monday.

In respect to its dividend, Viva Energy will be paying a 5.9 cents per share unfranked dividend to eligible shareholders on 13 October.

It is then rewarding shareholders handsomely with a massive 21.46 cents per share capital return on the same day.

Combined, Viva Energy is paying shareholders a total of 27.36 per share. Based on its last close price, this works out to be a sizeable 17.4% yield.

As you might have noticed, this yield is actually greater than the Viva Energy share price decline today. Which means its shares would be trading 6% higher if you took this out of the equation.

Why is Viva Energy returning capital to shareholders?

Viva Energy decided to return this surplus capital to shareholders after selling its entire 35.5% holding in service station property company Waypoint REIT (ASX: WPR).

The company received $734.3 million for its divestment, generating net proceeds of $680 million. Of this, a total of approximately $415.1 million will be returned to shareholders this month.  

Management explained its decision to return these funds despite the tough economic environment.

It explained: “The Company has had the opportunity to understand the scope of impacts, and the existing and potential impacts on the business. Whilst particular divisions of the Company have been impacted, the Company retains a strong balance sheet, and the proceeds from the divestment remain surplus to normal ongoing capital requirements of the business.”

“Accordingly, the Company has determined that distributing proceeds to shareholders remains in their best interest, and the most efficient mechanism is through a capital reduction and special dividend, in conjunction with the existing on-market buy-back,” it added.

More reading

• ASX 200 up 2.3%: Big four banks charge higher, Qantas soars, energy shares jump
• Why Advance NanoTek, Macquarie Telecom, Nick Scali, & Viva Energy shares are dropping lower
• 5 things to watch on the ASX 200 next week
• Meet the ASX sector that is cum-consensus upgrade for FY21
• Viva share price firm despite worrying trade update

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. 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 National Australia Bank Ltd. (ASX: NAB) share price is gaining strongly today. At the time of writing, the NAB share price is up 4.08% in early afternoon trading.

That will come as welcome news to shareholders, who witnessed the sharpest selloff in NAB shares ever following the outbreak of the global pandemic.

From 21 February through to 23 March, the NAB share price cratered by 49%. Although it’s since gained 30% from that low, the National Australia Bank share price is still down nearly 34% from the 21 February high water mark and down around 26% year to date.

Even following on those losses, NAB is still a dominant player in Australia’s banking sector. With a market capitalisation of $57.5 billion, it’s solidly within the S&P/ASX 200 Index (ASX: XJO).

For comparison, the ASX 200, also gaining today, is down 11.44% in 2020.

What does NAB do?

The National Australia Bank is a multinational financial services group that provides an integrated range of banking and financial services. Founded in 1982, NAB is one of the ‘big four’ Australian banks, not only in terms of market cap but also its earnings and customer base.

The majority of NAB’s financial service businesses operate in Australia and New Zealand. The bank’s other businesses are located in Asia, the United Kingdom and the United States.

What next for the NAB share price?

After a rough year, things are looking brighter for the NAB share price.

The first good news arrived on 25 September, when Treasurer Josh Frydenberg announced the government’s plans to abolish the responsible lending rules, which were put into place following the global financial crisis. This should enable NAB to issue more loans at a faster pace.

But more good news for the NAB share price likely lies ahead tomorrow. That’s when the government will officially unveil the full details of its new budget.

The JobKeeper and JobSeeker programs are likely to be extended, putting more money in household and business pockets. That should help reduce the number of non-performing loans and increase the number of people taking out new loans. Though NAB just announced it is hiring 500 new banking support staff to assist businesses during these difficult times.

All eyes will also be on the government’s HomeBuilder program and the first home loan deposit policy. Any extensions or increases here should also offer a solid tailwind for the NAB share price.

More reading

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• Banks rejoice: Mortgages back to pre-COVID levels
• The ASX big bank stock that’s most at risk of a dividend cut
• BrainChip (ASX:BRN) and Novonix (NVX) were among the most traded shares on the ASX last week
• ASX 200 Weekly Wrap: Bank shares push ASX 200 higher

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. 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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