Tag: Motley Fool

On Monday the S&P/ASX 200 Index (ASX: XJO) started the week in a positive fashion and pushed higher. The benchmark index rose 0.3% to 6,129.6 points.

Will the market be able to build on this on Tuesday? Here are five things to watch:

ASX 200 expected to rise again.

It looks set to be another positive day for the ASX 200 after Wall Street started the week very strongly. According to the latest SPI futures, the benchmark index is poised to open the day 41 points or 0.7% higher this morning. In the United States, the Dow Jones jumped 1.35%, the S&P 500 climbed 1%, and the Nasdaq index pushed 0.6% higher. News that the Trump administration is considering fast tracking an experimental coronavirus vaccine developed in the UK lifted markets.

Oil prices rebound.

It could be a decent day for energy producers such as Beach Energy Ltd (ASX: BPT) and Woodside Petroleum Limited (ASX: WPL) after oil prices rebounded. According to Bloomberg, the WTI crude oil price is up 0.15% to US$42.40 a barrel and the Brent crude oil price has jumped 1.5% to US$45.01 a barrel.

Gold price sinks lower.

The improving investor sentiment could weigh on gold miners such as Evolution Mining Ltd (ASX: EVN) and Newcrest Mining Limited (ASX: NCM) on Tuesday. According to CNBC, the spot gold price dropped 0.65% to US$1,934.90 an ounce amid optimism over the potential coronavirus treatment. This led to softening demand for safe haven assets.

Blackmores results.

The Blackmores Limited (ASX: BKL) share price will be on watch on Tuesday when it releases its full year results. The health supplements company is believed to have had a mixed time during the pandemic. Although demand for vitamins has been strong, supply issues appear to have prevented it from fully capitalising on the trend. According to CommSec, the market expects a net profit after tax of $17.77 million.

Ansell full year result.

One company that is expected to have done exceptionally well during the pandemic is safety products company Ansell Limited (ASX: ANN). It hands in its report card today and is expected to post a net profit after tax of US$153 million, according to CommSec. Strong demand for personal protective equipment (PPE) is expected to be the driver of the strong result.

More reading

• ASX 200 rises 0.3%, Afterpay up on European plans
• Why reporting season isn’t the bloodbath we expected
• Meet the group reaping the biggest profit from the gold bull run
• ASX 200 up 0.2%: Afterpay expansion, Fortescue’s monster dividend, NIB disappoints
• 2 ASX 200 bargains to buy this week

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Blackmores Limited. The Motley Fool Australia has recommended Ansell 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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Stock splits have been all the rage for investors in the last month or so.

It all started when Apple Inc. (NASDAQ: AAPL) — the world’s largest public company — announced a 4-for-1 stock split late last month. Not to be outdone, electric car and battery manufacturer Tesla Inc. (NASDAQ: TSLA) announced a 5-for-1 stock split soon after.

The reaction from investors has been one of delirious exhilaration. Since the announcement of Apple’s stock split, Apple shares are up nearly 30%. Again not to be outdone, since Tesla announced its own split on 11 August, its shares are up nearly 50%. Investors are loving these moves, despite there being no real benefit to shareholders from a stock split.

Now we don’t normally see the kinds of lofty share prices that our American friends are used to here on the ASX. A range of large US companies have share prices of more than US$1,000, including Tesla, Alphabet Inc. (NASDAQ: GOOG)(NASDAQ: GOOGL) and Amazon.com Inc. (NASDAQ: AMZN). Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B) has famously never split its Class A shares, partially explaining why one single BRK.A share costs around US$311,000 today.

So today, I thought we’d have a look at the 3 ASX shares that I think are most likely to split their shares in the near future.

3 ASX stock split candidates:

1) CSL Limited (ASX: CSL)

CSL is one of the most expensive shares on the ASX right now, which goes well with the company’s title of the most valuable ASX company today. At the time of writing, CSL shares are trading for $295.12 each. Earlier this year, CSL shares reached a new all-time high of $342.75. As such, I think CSL shares are one of the most likely ASX companies to split its shares. It last did so in 2007 with a 3-for-1 split, so the company is no stranger to this process either.

2) Commonwealth Bank of Australia (ASX: CBA)

There was a time (back in 2015) when CSL and CBA were in a two-horse race to hit the $100 a share mark first. Of course, CSL convincingly won that race, whilst Commonwealth Bank is languishing back at $68.95 today. But I think this banking giant could conceivably split its stock in the coming years.

Back in February, CBA was pushing over $90 a share once again. Perhaps coincidentally, the other 3 big ASX banks – National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) all have share prices in a similar range today (between $17–18). Maybe CommBank just likes to be different, but a 2-for-1 or 3-for-1 split would put this bank back in the same ballpark as the other 3 majors.

3) Afterpay Ltd (ASX: APT)

Our final possibility is the buy now, pay later pioneer Afterpay. This one is a long shot, but considering what the Afterpay share price has done in 2020 so far, we can’t rule it out in my view. Afterpay shares today hit yet another record high of $83, making it a ’10-bagger’ from the lows we saw in March. If this share price moves into the triple-digits in the coming months (not entirely inconceivable), we could well see a stock split for the company, in my opinion.

More reading

• Here’s why I would buy CSL and this ASX blue chip share
• What are dividend shares and how do you find them?
• ASX 200 rises 0.3%, Afterpay up on European plans
• Is this ASX 200 market too greedy right now?
• On a day when the ASX 200 is going nowhere, these popular “coronavirus shares” are hitting record highs

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. Sebastian Bowen owns shares of Alphabet (A shares), National Australia Bank Limited, and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares), Amazon, Apple, Berkshire Hathaway (B shares), and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), short January 2022 $1940 calls on Amazon, long January 2022 $1920 calls on Amazon, and short September 2020 $200 calls on Berkshire Hathaway (B shares). The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Alphabet (A shares), Amazon, Apple, and Berkshire Hathaway (B shares). 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 Nearmap Ltd (ASX: NEA) share price is up 32% in August, after its shares gained another 12% in today’s trading.

The rally is enough to put Nearmap’s share price up 20% year-to-date. And shareholders who bought at the 25 March low, following the COVID-19 driven ASX rout, would be sitting on a gain of 250% today.

By contrast, the S&P/ASX 200 Index (ASX: XJO) is down 8% for the calendar year and up 35% from its March lows.

What does Nearmap do?

Founded in Perth in 1998 in Perth, the company provides high resolution aerial imagery technology and location data for companies and government customers across Australia, the United States, Canada and New Zealand. Its technology enables clients to conduct virtual site visits rather than having to fly to and over site locations in person.

Nearmap shares listed on the ASX in 2000.

Why is the Nearmap share price up 32% in August?

Nearmap’s 32% share price leap in August comes despite an almost 16% intraday share price drop last Wednesday 19 June after the company released its FY20 results. Shares closed the day down 10%.

Investors hitting the sell button likely were focusing on some of the negatives in the report. Those details included the fact that the cash balance of $33.8 million for the financial year was down from $75.9 million on the previous year. Earnings before interest, taxes, depreciation, and amortisation (EBITDA) also fell, down to $9.1 million from $15.5 million in FY2019.

However, as Nearmap CEO Dr Rob Newman pointed out, the company maintained its forward guidance — reset in February after some of its North American customers were shut down — despite the coronavirus pandemic. “That’s a really good indicator that our business has been strong and resilient through this more challenging period,” he said.

The market may also be re-evaluating the high barriers to entry that any would-be competitors have if they wish to challenge Nearmap in the field of aerial imagery. Dr Newman says:

What other companies still take months to do, we do in days. … And now we have our 3D and AI. There is no other company in the aerial imagery space that would do that complete vertical integration on the scale we do. We do it for 80 million properties across the world.

Investors have clearly had time to digest and rethink their positions since the company released its results. The Nearmap share price is up 28% since last Wednesday’s closing bell.

More reading

• 4 exciting ASX tech shares surging higher today
• These are the 10 most shorted shares on the ASX
• Are these ASX shares future millionaire makers?
• Top brokers name 3 ASX shares to buy next week
• 3 exciting mid cap ASX tech shares to buy for the long term

Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Nearmap Ltd. The Motley Fool Australia has recommended Nearmap 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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Luckily for investors, the Australian share market is home to a good number of high quality blue chip shares to choose from. 

Perhaps the hardest part is deciding which ones to buy over others. Two top blue chip shares that I think would be great options for a balanced portfolio are named below.

Here’s why I like them:

CSL Limited (ASX: CSL)

It is almost impossible to recommend blue chip shares and not choose CSL. I continue to believe the global biotherapeutics giant is one of the best companies on the share market and that it would make a fantastic core holding in most portfolios. CSL is made up of the CSL Behring and Seqirus businesses.

CSL Behring is the global leader in plasma therapies, whereas Seqirus is the second biggest in the influenza vaccines industry. I believe both are well-positioned for long term growth thanks to their leading therapies and vaccines, talented management teams, and their lucrative research and development pipelines.

REA Group Limited (ASX: REA)

I think REA Group is another blue chip share for investors to consider buying right now. I was very impressed with the property listings performance during the housing market downturn and the way it still achieved strong profit growth despite the tough trading conditions.

And while the housing market is now under pressure because of the pandemic (especially given the Melbourne lockdowns), I’m optimistic that it will recover swiftly once the crisis passes. This could mean a rebound in property listings from early in 2021. This, combined with price increases, new revenue streams, and its cost cutting, could see REA Group’s growth accelerate over the coming years. Overall, I think this makes REA Group a great blue chip to buy and hold for the long term.

More reading

• Here are the highlights of this ASX reporting season
• ASX 200 Weekly Wrap: Blue chips, earnings drag ASX lower
• 2 of the best ETFs for investing in ASX shares
• Top brokers name 3 ASX shares to buy next week
• 2 ASX 50 shares to buy for your retirement portfolio

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 recommended REA 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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The Buddy Technologies Ltd (ASX: BUD) share price jumped higher today. In afternoon trading, the Buddy share price was up more than 18% to close the day’s trade at 5.1 cents. The increase came after the release of the company’s unaudited July 2020 results in a letter to shareholders from chief executive officer, David McLauchlan. 

Today’s gains follow on a series of strong trading days that have seen the Buddy share price rocket 70% higher in August. Year to date, Buddy’s share price is up 30%. Though shareholders who bought as recently as 23 July would be sitting on gains of 420%.

What does Buddy Technologies do?

Founded in 2006, Buddy Technologies provides cloud-based technology that aims to make its customers’ work and living spaces smarter, via IoT (internet of things) connected devices.

Buddy is a leading provider of smart lighting solutions. The company’s Wi-Fi-enabled lights are currently used in nearly 1 million homes and sold in over 100 countries.

The company’s platforms include Buddy Cloud, allowing access to storage and data from any environment and Buddy Ohm. Buddy Ohm is intended to improve operations, savings and sustainability by providing real time building operational data.

What did Buddy’s letter to shareholders say today?

In his letter to shareholders, chief executive officer David McLauchlan announced that July had just marked the company’s first earnings before interest, tax, depreciation and amortisation (EBITDA) positive month in 2020. Consolidated revenue came in at $4.9 million. That was up 90% from June and 80% from July 2019.

McLauchlan noted that government subsidies related to COVID-19 were down 66% from June. That means that July’s unaudited customer revenue was up 138% from June and 72% from July 2019.

The company’s total current assets also increased 18% over the previous month, to $10.7 million. That includes cash holding of $1.9 million.

Looking ahead, McLauchlan cautioned investors to set appropriate short-term expectations, noting investors “should not necessarily expect linear or ‘straight line’ results from here on out. This month’s results were strong in large part because of significant deliveries of LIFX White lights.”

But McLauchlan assured that the remainder of the year still holds a lot of promise for the company, with record orders of LIFX White lights received last week portending a strong October. He said demand across the board remains high.

More reading

• Buddy share price soars 19% on record orders
• Why the Buddy Technologies share price more than doubled in a week

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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Dividends are one of the great benefits of holding shares. They represent the distribution of company profits to the owners of a company – its shareholders.

Dividends provide shareholders with a passive income stream that can be used to fund a lifestyle, or be reinvested. They often come with tax benefits too – franked dividends include imputation credits, which can be used to offset tax payable by the investor.  

Why invest for dividends? 

Dividends come in the form of cash, so provide a periodic realised return on your investment. Capital gains are the other form of return on shares. To realise capital gains, however, shares must be sold. Potential capital gains can also disappear where the share price falls. 

Reinvesting dividends is a quick and easy way to grow your portfolio. Many companies and exchange-traded funds (ETFs) offer dividend reinvestment programs that will automatically reinvest distributions back in that company or ETF. Investors can also direct dividends be paid into a separate bank account, and save them to fund new investment opportunities.  

There can be tax advantages associated with receiving dividends. Franked dividends come with tax credits attached which means investors receive a rebate for tax already paid by the relevant company. If an investor’s personal tax rate is lower than the company tax rate, they can receive a refund.

How to find dividends

Company profits can either be paid out as dividends or reinvested in the company to fuel future growth. Generally, mature, lower growth companies are in a better position to pay out a higher proportion of profits as dividends than smaller, higher growth companies. Companies in stable industries with predictable cash flows are more likely to be able to pay reliable dividends. Companies in emerging or cyclical industries are less likely to be able to sustain a high level of dividends.  

Dividend yields and payout ratios 

A company’s dividend yield is its annual dividend divided by the share price. It represents the dividend-only return on the investment in the share. When dividends remain the same, the dividend yield on a share will rise when the share price falls and fall when the share price rises. Investors must be wary when using the dividend yield to guide investment decisions – it may be inflated due to a falling share price, and dividend cuts can and do occur. 

A company’s payout ratio shows the percentage of earnings that are paid out to shareholders as dividends. It is calculated by dividing the total dividends paid over a period by the company’s earnings over that period. The payout ratio can indicate how sustainable a company’s dividend payments are. A low payout ratio indicates a company is reinvesting most of its earnings into its business to spur future growth. A high payout ratio indicates that the opposite is true. 

Different industries tend to have different payout ratios. Defensive industries with stable income flows such as telecommunications and utilities tend to have higher payout ratios. For example, AGL Energy Limited (ASX: AGL) has a target payout ratio of 75%. Industries with fluctuating cash flows or in cyclical sectors such as resources tend to have lower payout ratios.

Traditional dividend shares no longer so reliable 

Banks, utilities providers, and real estate investment trusts have all historically been known for dependable dividend income. But the banks have taken a knife to dividends as profits plunge in the wake of COVID-19.

Commonwealth Bank of Australia (ASX: CBA) cut FY20 dividends by 32% as FY20 profits fell 11.3% to $7,296 million. Westpac Banking Corp (ASX: WBC) scrapped its interim dividend entirely last week and Australia and New Zealand Banking Group (ASX: ANZ) cut its interim dividend to 25 cents a share from 80 cents a share in 2019. 

Utilities providers have been more reliable sources of dividend income this reporting season. 

AGL Energy has a dividend yield of 6.31% and paid dividends of 98 cents per share in FY20, 80% franked. AGL targets a payout ratio of approximately 75% of underlying profit after tax where a minimum franking level of 80% can be maintained.

Telstra Corporation Ltd (ASX: TLS), with its high proportion of mum-and-dad investors, maintained its full year dividend of 16 cents a share, despite its net profit after tax decreasing by 14.4% to $1.8 billion. 

Mining shares have also been known to pay substantial dividends when conditions allow. Rio Tinto Ltd (ASX: RIO) paid $3.6 billion in dividends in 1H20. Other than 2016, Rio has increased its dividend every year since 2010 and currently has a dividend yield of 5.62%.

BHP Group Ltd (ASX: BHP) paid dividends of 55 US cents per share in FY20, giving a payout ration of 72%. Both the big miners have benefitted from the increases in the iron ore price, which has been on the rise since March. 

Dividend scans

A quick Google search will reveal the ASX shares with the highest dividend yields. Currently, these include Whitehaven Coal Ltd (ASX: WHC), which has a dividend yield of 11.65% and Yancoal Australia Ltd (ASX: YAL) which is yielding 15.70%.

Whitehaven Coal paid dividends of 1.5 cents a share in 1H FY20 despite a 30% drop in revenue, with CEO Paul Flynn saying, “the payment of a modest dividend reflects our confidence in the fundamentals of the business and prospects for a stronger second half.” 

Yancoal Australia also saw a fall in revenues in 1H FY20, but profits increased thanks to non-operating items of $575 million. Nonetheless, challenging conditions in coal markets meant Yancoal declined to declare an interim dividend in order to preserve cash. This is a timely reminder that high dividend yields are no guarantee that dividends will actually be paid. 

Foolish takeaway

Dividends represent a tangible return on share investments. Whether used to fund current lifestyle needs or fuel future portfolio growth, dividends serve a crucial purpose in portfolio construction. But identifying shares that will consistently pay decent dividends is easier said than done. This is why diversifying sources of dividend income is recommended. 

More reading

• Top fund manager sees sharp fall in global dividend payouts
• 6 ASX giants pay $1 billion for ripping off customers
• Here are the highlights of this ASX reporting season
• ASX 200 Weekly Wrap: Blue chips, earnings drag ASX lower
• Why I would buy CBA and this top ASX dividend share

Motley Fool contributor Kate O’Brien owns shares of BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia owns shares of and has recommended Telstra 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 S&P/ASX 200 Index (ASX:XJO) went up by 0.3% today with reporting season continuing.

Afterpay Ltd (ASX: APT)

It was acquisition news that sent the Afterpay share price higher by 4.4% today.

The buy now, pay later business announced plans to expand into Europe by acquiring European business Pagantis.

Afterpay thinks that Europe is the next logical step for growth because of its “large millennial population, vast fashion and beauty retail markets, and significant debt card usage.” Afterpay has said that the ecommerce market in the EU is worth more than €300 billion.

Pagantis is a buy now, pay later provider operating in Spain, France and Italy. It also has regulatory approval to operate in Portugal.

Afterpay’s Clearpay plans to rollout across the EU market in the third quarter of FY21, however this acquisition will accelerate and de-risk the roll-out for the ASX 200 share, according to Afterpay’s leadership.

The acquisition price is at least €50 million with €5 million of cash on completion and at least €45 million in cash payable on completion.

Pagantis has around 1,400 active merchants and 150,000 active customers.

Fortescue Metals Group Limited (ASX: FMG) reports large dividend

Fortescue reported that its FY20 underlying earnings before interest, tax, depreciation and amortisation (EBITDA) grew by 38% to US$8.4 billion with the EBITDA margin rising to 65%.

Underlying net profit after tax (NPAT) went up by 49% to US$1.75 billion. This earnings strength allowed Fortescue to increase its final dividend by 19% to $1 per share. That took the annual FY20 payout to $1.76 per share, 54% higher than last year.

Net debt at the end of FY20 was US$258 million, which was US$1.8 billion lower than the net debt of US$2.1 billion at 30 June 2019. Net cash from operating activities rose by 47% to US$6.4 billion.

In FY21 the ASX 200 company is aiming for iron ore shipments of 175mt to 180 mt. C1 costs are expected to be between US$13.00 to US$13.50 based on an assumed exchange rate of AU$1 to US$0.70. Capital expenditure is expected to be between US$3 billion to US$3.4 billion.

Reliance Worldwide Corporation Ltd (ASX: RWC)

The top performer in the ASX 200 today was Reliance Worldwide after reporting its FY20 result.

Net sales were up 5% for the year to $1.16 billion. Americas revenue grew by 6% for the year. Asia Pacific external sales rose by 2% in FY20 despite the slowdown in Australian new residential construction. However, UK and European sales were adversely impacted by COVID-19 but there was a gradual recovery evident towards the year end.

Adjusted EBITDA, which excludes $33.4 million of restructuring and impairment charges, fell almost 10% to $251.3 million. EBITDA was $$217.9 million.

Adjusted NPAT fell 18% to $130.3 million with reported NPAT falling 33% to $89.4 million.

The ASX 200 company said that during the year it undertook cost reduction initiatives to ensure the company was appropriately placed to pursue future profit growth. In the US it closed its Tennessee manufacturing facility with production transferred to the company’s main US plant in Alabama. John Guest synergies delivered during the year was $13.8 million.

Net debt was reduced by $124.4 million to $302.2 million. Operating cash flow rose 56% to $278.3 million. Despite the improving balance sheet, the final dividend payment was 2.5 cents per share, causing the annual dividend payment to be 7 cents per share – down 22.3% from the 9 cents per share annual dividend.

The outlook for FY21 is uncertain due to COVID-19, so it didn’t provide formal guidance. However, sales growth in the US has been 22% higher in July than for the same month in the prior year. Other regions have displayed solid sales too.

The first three weeks in August have continued to show positive momentum.

More reading

• Is this ASX 200 market too greedy right now?
• On a day when the ASX 200 is going nowhere, these popular “coronavirus shares” are hitting record highs
• Why reporting season isn’t the bloodbath we expected
• Meet the group reaping the biggest profit from the gold bull run
• ASX 200 up 0.2%: Afterpay expansion, Fortescue’s monster dividend, NIB disappoints

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Reliance Worldwide Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. The Motley Fool Australia has recommended Reliance Worldwide 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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Make no mistake, I think dividend income is one of the best things you can get from an ASX share. It’s truly passive income — it doesn’t discriminate on who you are, where you are or what you do. If you own a dividend-paying share, you shall receive it.

Now, some ASX investors only invest for dividend income. If a share pays no dividend, these investors just won’t be that into it.

On one level, I understand this perspective. Some dividend investors, such as retirees, for example, rely on shares to fund their living expenses. Capital appreciation isn’t as useful as a regular stream of cash flow. Even for those investors who don’t need dividends to fund their lifestyles, I understand the appeal of having cash regularly coming through the door. It can supplement your other sources of income, help give you extra capital to invest or otherwise just give you that tangible reassurance that your money is making you more money.

But I also believe that a complete focus on dividend income can be a mistake for many investors. Here’s why:

The downside of a dividend share

To understand the downside of a dividend, we first have to understand where dividends come from. When a company makes a profit, it has three things it can do with the money: reinvest it back into the business, keep it on its balance sheet or return it to shareholders via share buybacks or dividends. Thus, like everything in life, the payment of a dividend comes at an opportunity cost. If a company chooses to pay a dividend, it is concurrently choosing not to invest that money back into the business. That’s why some companies don’t pay dividends at all – they prefer to maximise growth for the company.

Now, some companies are large and mature, with no real growth opportunities in front of them. Take Woolworths Group Ltd (ASX: WOW). There are very few Australian towns or cities left that don’t have a Woolworths within driving distance. It’s simply not viable for Woolies to keep building extra stores on every street corner because the Australian grocery market is pretty much at saturation point. Rather than ploughing every cent of its profits into adding 200 new Woolies stores every year, the company is instead choosing to pay out a reasonable dividend. That’s an action I’m sure the shareholders of Woolworths think is appropriate, given the absence of any massive growth opportunities in front of the company.

Should you go for growth instead?

So, if you’re only choosing to invest in companies like Woolworths that offer substantial dividend income upfront, you will likely have a portfolio full of mature businesses operating in fairly saturated markets. That’s not a recipe for a market-beating ASX portfolio. You are excluding a lot of companies that are investing in growing their own future at the expense of companies that simply can’t grow too much larger. Remember, a company will usually only pay a substantial dividend if it has nothing better to do with the money. So if you rely on this income to fund your lifestyle, you might be ok with that. But if you’re looking to use ASX shares to build wealth as fast as possible, I think dividends should be a secondary consideration.

More reading

• Ecofibre share price on watch after doubling profits
• ASX 200 Weekly Wrap: Blue chips, earnings drag ASX lower
• 5 blue chip ASX 200 shares a beginner can use to start a share portfolio
• Meet the latest ASX stock that’s more than doubled its full year COVID-19 earnings
• Woolworths share price higher on acquisition news

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Woolworths 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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Today, the iSentia Group Ltd (ASX: ISD) share price plunged by 10.20%, closing at 22 cents. This slide came after the company released its annual results for the 2020 financial year (FY20).

What was in the announcement?

iSentia reported revenue of $110.3 million in FY20, down $12.2 million compared to the 2019 financial year. According to the company, revenue growth in South East Asia was offset by declines in Australia and New Zealand, along with North Asia. iSentia stated that revenue in Australia and New Zealand was affected by competitive pressures.   

The company posted net profit after tax before amortisation of -$4.9 million. According to iSentia, this loss was due to costs associated with the closure of its North Asia business.

iSentia revealed earnings before interest, tax, depreciation and amortisation (EBITDA) of $20.9 million in the 2020 financial year. EBITDA was down $2.2 million when compared to the 2019 financial year.

The company reduced its net debt by $3.7 million in FY20, with net debt standing at $24.6 million at 30 June 2020 versus $28.3 million on 30 June 2019.

According to iSentia, its cost base was reduced by $10 million or 10% during the 2020 financial year, which it stated meant that the company was yielding a more sustainable, adaptable business model. The company reported that cost savings were evenly split between operating expenses and cost of sales.

iSentia did not provide earnings guidance for 2021, however, it did comment on the current outlook, stating: “Despite the economic uncertainty, we expect both the media intelligence sector and Isentia’s subscription model to remain resilient, allowing continued focus on the strategic plan and ongoing investment in new products and technology.”

About the iSentia share price

iSentia is a media monitoring and data analytics provider, with most of its revenue coming from software-as-a-service products. It operates in Australia, New Zealand and South East Asia and has been listed on the ASX since 2014. In June, iSentia announced that it would exit its loss-making North Asia business.

The iSentia share price is up by 120% on its 52-week low of 10 cents, however, it is down 24.14% since the beginning of the year. The iSentia share price is down 42.10% since this time last year.

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Motley Fool contributor Chris Chitty has no position in any of the stocks mentioned. The Motley Fool Australia has recommended iSentia Group 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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If you’re looking to invest $2,000 evenly across a couple of growth shares, then you might want to take a look at the ones listed below.

Combined, I believe these ASX growth shares could turn those funds into something much larger over the next decade. Here’s why I think they are in the buy zone:

Bravura Solutions Ltd (ASX: BVS)

The first ASX growth share to consider buying is Bravura Solutions. It is a leading provider of software products and services to the wealth management and funds administration industries. It offers a number of quality products such as the world class Sonata wealth management platform. This popular wealth management platform allows advisers to connect and engage with clients via computers, tablets, or smartphones.

It also has the Rufus transfer agency solution, the Garradin back office solution, and the recently acquired Midwinter financial planning software. The latter gives Bravura a new avenue for growth in an industry benefiting from structural tailwinds. Overall, I believe these quality products leave the company well-positioned in a very lucrative market. This could lead to the company delivering above-average earnings growth over the 2020s and make the Bravura share price a market beater over the period.

Xero Limited (ASX: XRO)

I think Xero is a growth share to consider buying right now. It is one of the world’s leading cloud-based business and accounting software providers which has been growing at a rapid rate over the last few years. This certainly was the case in FY 2020 results when Xero revealed further strong growth in sales and operating earnings. This was driven by stellar customer growth, price increases, and its sky high retention rate.

The good news is that Xero still has a very long runway for growth over the next decade. This is thanks to its global expansion and particularly its opportunity in the United States. At the end of FY 2020, Xero had just 241,000 subscribers in the North American market. This compares to 914,000 subscribers in a significantly smaller ANZ market.

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• Nextdc and 2 other thriving ASX tech shares to buy
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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 Xero. The Motley Fool Australia owns shares of and has recommended Bravura Solutions 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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