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The BHP Group Ltd (ASX: BHP) share price has been a positive performer on Tuesday.

At the time of writing, the mining giant’s shares are up 1.5% to $38.40.

Where next for the BHP share price?

The good news for investors is that one leading broker believes the BHP share price gains are only just getting started.

According to a recent note out of Morgans, its analysts have an add rating and $48.00 price target on the Big Australian’s shares.

Based on the current BHP share price, this implies potential upside of 25% for investors over the next 12 months.

But it gets better. The broker is forecasting a fully franked ~$3.97 per share dividend in FY 2023. This equates to a yield of 10.3%, which stretches the total return on offer with BHP’s shares to over 35%.

What did the broker say?

Morgans likes BHP due to the diversity of its operations, which it believes make the miner a lower risk option for investors in the mining sector.

In fact, it is thanks to these qualities and its attractive valuation that the broker has put the company’s shares on its coveted best ideas list again this month.

Its analysts commented:

We view BHP as relatively low risk given its superior diversification relative to its major global mining peers. The spread of BHP’s operations also supplies some defence against direct COVID-19 impact on earnings contributors. While there are more leveraged plays sensitive to a global recovery scenario, we see BHP as holding an attractive combination of upside sensitivity, balance sheet strength and resilient dividend profile.

All in all, this could make BHP a top option for investors looking for dividends or mining sector exposure right now.

The post Here’s what this top broker is saying about the BHP share price appeared first on The Motley Fool Australia.

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More reading

• Why China’s slowdown isn’t as bad as it looks for ASX 200 mining shares
• BHP share price gains amid improved Oz Minerals takeover rumours
• 5 things to watch on the ASX 200 on Monday
• Analysts name 2 ASX 200 mining shares to buy
• Could the latest news out of China bode well for ASX 200 iron ore shares?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by 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.

Building up a quarterly stream of passive income through shares of dividend-paying stocks is a dream for many investors, but a lot of people approach it the wrong way. You can’t expect to build up a huge amount of passive revenue overnight, and you’ll need to have the right strategy to accumulate shares of dividend stocks that will be stable in the long-term.

Let’s examine three passive-income secrets to bolster your dividend flows and ensure that they aren’t eroded.

1. You don’t have to receive your dividends now

The most important passive-income secret is that you don’t need to actually accept any dividends in the form of cash if you’d prefer to make a larger amount of cash down the line. By setting up a dividend reinvestment plan (DRP), you can keep adding to your position automatically quarter after quarter, meaning that you’ll have more shares producing dividend income than you would if you had spent the money rather than reinvesting it.

Let’s work through an example with the pharmaceutical company AbbVie Inc. (NYSE: ABBV) to see how dividend reinvestment can boost your returns. Over the past five years, AbbVie has achieved a total return of 96.5%; however, the price of its shares alone only gained a bit more than 61%. In the same period, the company hiked its dividend by 120%, thanks to profitable sales of its ever-increasing portfolio of medicines.

If you’re not familiar, the total return of a stock accounts for the impact of dividend payments as well as share price appreciation, so it’s a good proxy for how much you’d make if you were reinvesting rather than spending the cash. Therefore, if you simply accept the company’s payments and spend them, you’ll have significantly less than if you set up a DRIP and wait the equivalent amount of time.

So when you’re thinking about passive income, it makes sense to think about when you will want to spend the money. The longer you can defer spending and keep reinvesting, the larger your income will ultimately be.

2. You don’t need to worry about beating the market 

But as a passive-income investor, outperformance shouldn’t be your goal, nor should it be something you expect to achieve most of the time. The reason: You’re invested for the cash flow, not the stock price returns. As long as the cash flow keeps rolling in at the same rate, the rest doesn’t matter so much.

Everyone talks about outperforming the market with their portfolio, and much ink is spilled about which stocks are likely to grow faster than the market’s long-term average of around 10% annually.

The type of companies that have highly stable cash flows to make long-term passive income tend to be more interested in returning capital to shareholders than other companies that are more focused on deploying capital to grow. Take Innovative Industrial Properties (NYSE: IIPR), a real estate investment trust (REIT), as an example. Its business model is to buy marijuana cultivation facilities, then rent them back to their former owners to capture a long trail of income. 

The company has underperformed the market over the last three years, but its dividend has risen by 124% in that time. Right now, its forward dividend yield is near 7.7%, which is quite high.

If you plan to invest in Innovative Industrial Properties expecting a certain amount in cash annually based on your initial purchase, its performance relative to the market is a moot point. You’ll get your cash flow regardless of what the market does, as long as the business can support the payout. 

3. Diversify your holdings to avoid wipeouts

A third secret of passive-income investing is that you need to diversify your selection of income stocks, just as with your portfolio as a whole. It’s pretty obvious why: If you derive all of your passive cash flow from a single business, and that business goes bust or faces stiff headwinds that require it to slash its payout, you’re out of luck. And since dividend cuts are often a harbinger of further difficult times, you might even need to take steep losses on the price of your shares, not to mention the actual money into your account every quarter. 

So don’t invest all of your passive-income capital into one stock. Try to have at least a dozen. And if possible, make sure that they’re in various different industries and use different business models.

For instance, Innovative Industrial Properties and AbbVie compete in entirely different areas, and they aren’t vulnerable to the same types of risk. So they’d be suitable options to buy for diversified passive income. When the economy is struggling or one of your companies hits a major stumble, you’ll be grateful that only a portion of your dividend revenue takes a hit.

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

The post 3 passive-income stock secrets you’ll wish you knew earlier appeared first on The Motley Fool Australia.

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More reading

• 3 things you shouldn’t do if the stock market crashes

Alex Carchidi has positions in Innovative Industrial Properties. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Innovative Industrial Properties. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

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Shares in Cochlear Ltd (ASX: COH) have backtracked since the release of the company’s full-year results last month.

On the operational side, the company reported a solid performance as it continues its recovery from COVID-19.

Cochlear implant units grew 5% across the board – around 10% above pre-pandemic levels. Western Europe was the best performing region.

As for financials, the hearing solutions company achieved sales revenue of $1,641 million, up 9% in constant currency.

The bottom line rose by 18% to $277 million with key drivers being strong sales revenue and continued investment in market growth activities.

This led the board to ramp up its final dividend.

Investors were quick to react to the results, sending the Cochlear share price 2.18% higher to $218.86 on the day.

Despite climbing again the following day, the share has fallen wayside ever since due to market volatility and inflationary pressures.

At the time of writing, Cochlear shares are trading at $208.85 – down 0.96% so far today.

Let’s take a look at the details that you need to know about the upcoming dividend.

Almost out of time to secure the Cochlear dividend

The Cochlear share price is edging lower today despite investors looking to scoop up the company’s final dividend.

In case you weren’t aware, the ex-dividend date is tomorrow, Wednesday 21 September.

This means you have until today to buy Cochlear shares to be eligible for the dividend – provided you keep them until tomorrow morning.

Keep in mind that when a company’s shares trade ex-dividend, the share price tends to fall in proportion to the dividend paid out. However, this can vary depending on how the market is tracking for the day as well as investor sentiment.

If you make the cut, you’ll receive a partially franked dividend payment of $1.45 per share on 17 October.

This brings the total dividend for FY 2022 to $3 per share, reflecting an 18% increase from the $2.55 per share declared in the prior corresponding year.

If you are looking to add more shares to your holdings, Cochlear is not currently offering a dividend reinvestment plan (DRP).

Cochlear share price snapshot

The Cochlear share price has fallen 2% this year and is down 10% over the last 12 months.

This is a better performance than the S&P/ASX 200 Health Care (ASX: XHJ) sector. It’s down 9% in 2022 and 13% since September 2021.

Cochlear commands a market capitalisation of approximately $13.87 billion and has a dividend yield of 1.38%.

The post Here’s how to grab your piece of the latest Cochlear dividend appeared first on The Motley Fool Australia.

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More reading

• Here are 3 ASX 200 shares turning ex-dividend tomorrow
• ASX 200 better buy: Cochlear or CSL shares?
• Goldman Sachs says these ASX shares are flying under the radar post-results
• How do CSL shares stack up against Cochlear following earnings season?
• Here’s why analysts say these blue chip ASX 200 shares are buys

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. 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 Brickworks Limited (ASX: BKW) share price has been a strong performer on Tuesday.

In morning trade, the building materials company’s shares are up 6% to $21.76.

Why is the Brickworks share price zooming higher?

There have been a couple of catalysts for the strong gain by the Brickworks share price today.

The first is the release of the New Hope Corporation Limited (ASX: NHC) full year result this morning.

Brickworks is a major shareholder of the coal miner, which means it will be benefiting from the bumper dividend payment announced today.

The company was able to declare a fully franked 31 cents per share final dividend and a 25 cents per share special dividend thanks to sky high coal prices.

What else?

Also giving the Brickworks share price a big boost this morning is a broker note out of Morgans.

According to the note, the broker has upgraded the company’s shares to an add rating with a trimmed price target of $23.00.

Morgans commented:

The stock trades at a c.30% discount to the last disclosed NTA-A (Jan-22) and an 11% discount to our valuation ($23.00/share). At the current share price investors can buy several quality businesses well below replacement cost, which are likely to deliver a consistent and increasing dividend stream through time.

Expectations reduced across the board. We estimate the US building products division is trading at a c.67% discount to NTA, the Australian building products at a c.40% discount and the property trusts at a c.40% discount to NTA.

We estimate the building product divisions are trading at an implied c.7.5x FY23F EBIT, with the property trust reflecting an implied cap rate of 5.19% (10-year levered IRR of c.10%). This leaves the interest in Washington H Soul Pattinson & Company Ltd (SOL), which we estimate trades at a 10% discount to our marked-to-market NTA of $14.88/BKW share.

The post Why is the Brickworks share price racing 6% higher today? appeared first on The Motley Fool Australia.

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More reading

• One ‘safe’ and one ‘exciting’ ASX share to own for years like Warren Buffett: fund manager
• Steady compounders: 3 ASX 200 shares that have delivered over a decade
• How I’d invest $10,000 in ASX shares if I were saving for a house
• ‘Good value’: Expert names 2 ASX dividend shares to pounce on next dip
• Top ASX dividend shares to buy in September 2022

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks. The Motley Fool Australia has positions in and has recommended Brickworks. 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 Wesfarmers Ltd (ASX: WES) share price is in the red this year. It has dropped by more than 20% amid a decline for many of the ASX’s shares and sectors.

The S&P/ASX 200 Index (ASX: XJO) as a whole has fallen by more than 10% this year.

There are plenty of retail names that have fallen noticeably in 2022. The JB Hi-Fi Limited (ASX: JBH) share price has fallen 15%, the Harvey Norman Holdings Limited (ASX: HVN) share price has declined 15%, the Nick Scali Limited (ASX: NCK) share price has dropped around 30%, the Super Retail Group Ltd (ASX: SUL) share price has fallen around 20%. And so on, you get the picture.

Why are ASX retail shares hurting?

Retail isn’t the only sector that’s hurting, but it’s facing a combination of factors that could be hurting the valuation.

Central banks are raising interest rates to try to tame inflation. Higher interest rates may be good for savers, but in investment terms, it meant to lower the valuation of assets. That’s the theory anyway.

This would explain the lower valuations that many assets are seeing.

But, retailers are facing a particular set of difficult circumstances. Inflation could increase the costs of retailers in areas like rent, wages, the supply chain, the production costs of the products themselves and so on. The higher interest rates and inflation could also mean that households decide to spend less on retail (and perhaps allocate their discretionary spending to ‘experiences’ after COVID impacts of the past two years).

The prospect of higher costs and lower revenue certainly wouldn’t be ideal. However, don’t forget that for some retailers they were cycling against lockdowns in the last six months of 2021, so open stores could be a positive for sales growth in the first half of FY23.

Why the Wesfarmers share price could be an opportunity

Fund manager Airlie Funds Management is a fan of Wesfarmers shares. Airlie holds shares of the owner of Bunnings, Kmart, Officeworks and Priceline in its portfolio.

Vinay Ranjan from Airlie has pointed out to Livewire that the business is a quality company with a strong balance sheet. Bunnings in particular is a standout to him. Commenting on the FY22 result and Bunnings, he said:

Bunnings, which is the core earnings driver of the business and the most important division, grew sales 9% in the second half. To give you some context, across a three-year period Bunnings sales have now grown about 35%, from FY19 to FY22, so it’s a pretty impressive result.

He and the Airlie team were impressed by the resilience of the retail businesses that Wesfarmers owns, but also noted the performance of some non-retail businesses. For example, Wesfarmers chemicals, energy and fertilisers (WesCEF) increased profit by 40% “on the back of some pretty strong commodity prices for ammonia, natural gas and fertilisers.”

One interesting takeaway was that earnings growth was below sales growth for Bunnings, suggesting that Bunnings is “investing a lot back into price and making sure the customer is getting some really good value.” Ranjan said that it’s important for the long-term strategic value for Bunnings, so it was “good to see”.

Wesfarmers share price rated as a buy

Ranjan said:

We’d be adding on any weakness. We are cognizant of the outlook for the consumer being a bit tougher and more challenging from here. But in saying that, if there is a business to own in this space, this is the one.

The brands they own, particularly Bunnings and Kmart, provide a lot of value to the customer and in an inflationary environment we expect those brands to outperform. They are real destination, highly resilient type businesses.

The post Down 23% in 2022, are ASX investors throwing Wesfarmers shares out with the bathwater? appeared first on The Motley Fool Australia.

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More reading

• 2 excellent ASX dividend shares experts rate as buys
• Wesfarmers shares: Buy, hold, or fold?
• Wesfarmers share price drops 4%: Time to buy?
• Why this top broker is tipping 15% upside for the Wesfarmers share price
• How I’d invest $10,000 in ASX shares if I were saving for a house

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Harvey Norman Holdings Ltd. and Super Retail Group Limited. The Motley Fool Australia has positions in and has recommended Harvey Norman Holdings Ltd., Super Retail Group Limited, and Wesfarmers Limited. 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 Bitcoin (CRYPTO: BTC) price has edged up 1% over the past 24 hours, currently trading for US$19,548 (AU$29,062).

The world’s top crypto has been overshadowed in the media in recent weeks by the second biggest token in virtual circulation, Ethereum (CRYPTO: ETH).

That’s because Ethereum finally underwent its long-awaited merge last Thursday. The process sees the token transition from proof of work (PoW) to proof of stake (PoS). PoS requires far fewer computers to maintain the blockchain security and cuts energy use by more than 99%.

The Ethereum price is down some 13% since the day the merge went fully active, while the Bitcoin price has dropped 3%, according to data from CoinMarketCap. But there’ve been other short-term forces at work pressuring cryptos and risk assets more broadly. Namely the prospect of further aggressive tightening from the world’s top central banks.

As for the longer-term potential impacts of the merge on the Ethereum price, we explored that here.

But will the Ethereum merge also impact the Bitcoin price in the eyes of investors over the long term?

For some insight into that question, we defer to head of marketing at CoinSpot Ray Brown.

How might the merge affect the Bitcoin price?

“Ethereum has long been the ‘number two’ cryptocurrency in terms of value and cultural relevance, with Bitcoin synonymous with cryptocurrency as a whole,” Brown said.

As for whether Bitcoin remains number one, Brown said that will depend somewhat on the success of the new proof of stake protocol used across such a massive network:

It remains to be seen whether the merge will have any real impact on Bitcoin’s dominance in the long term. If the merge proves to be completely successful, an increased popularity of proof-of-stake chains could rattle Bitcoin’s dominance, as the leading crypto is effectively married to a proof-of-work protocol, which many are already hypothesising could grow more unpopular as demand for less energy-intensive solutions intensifies.

The Bitcoin price might also lose ground to its rival should the merge prove to drive greater interest in Ethereum’s smart contract solutions.

According to Brown:

The increased versatility of Ethereum could also work significantly in its favour over Bitcoin. And if Ethereum’s utility as a smart contract provider gains further traction thanks to higher efficiencies and lower costs post-merge, this could easily be reflected in a shift in market values.

The post How will the Ethereum merge impact the Bitcoin price? appeared first on The Motley Fool Australia.

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More reading

• Why Bitcoin, Dogecoin, and Shiba Inu fell this morning
• Spinoff token EthereumPOW price crashes 86% post merge. Here’s why
• 3 cryptocurrencies to buy and hold forever
• Ethereum’s merge is done: now what?
• 3 reasons the Ethereum price could gain in the post-Merge months

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin and Ethereum. The Motley Fool Australia has positions in and has recommended Bitcoin and Ethereum. 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.

What happened

Cryptocurrencies took a hit this morning as investors brace themselves for the Federal Reserve’s upcoming meeting this week, which is expected to end with yet another big rate hike.

As of 10:41 a.m. ET Monday, the price of the world’s largest cryptocurrency, Bitcoin (CRYPTO: BTC), traded roughly 3.3% lower over the last 24 hours. At one point earlier this morning, the price of Bitcoin had fallen to a three-month low below $19,000 per token.

The price of meme tokens Dogecoin (CRYPTO: DOGE) and Shiba Inu (CRYPTO: SHIB) traded 4.5% and 5.4% lower, respectively.

So what

The Fed will begin its September meeting tomorrow and then likely raise its benchmark overnight lending rate, the federal funds rate, on Wednesday followed by public comments from Fed Chairman Jerome Powell.

After new inflation data came in hotter than expected last week, sending markets tumbling, it became all but obvious the Fed would do at least a 0.75% rate hike at this September meeting, which would be its third such move in a row. But there is also a chance the Fed surprises the market and hikes rates by a full percentage point. Currently, the CME’s FedWatch tool has the likelihood of a full-point hike at 20%.

The U.S. economy is already in a technical recession after U.S. gross domestic product (GDP) contracted in both the first and second quarters of the year, but many are concerned that these aggressive rate hikes from the Fed could tip the economy into a much more severe recession. 

Continued rate hikes do not bode well for cryptocurrencies, which have already been hammered this year. As rates rise, safer assets start to yield more, which makes riskier assets like tech stocks less appealing.

Cryptocurrencies have moved a lot like highly valued tech stocks this year but are arguably even riskier because they are more difficult to value. While one can say that a tech stock looks appealing at a certain valuation, it’s a lot harder to make this case for the likes of Bitcoin because there is nothing really backing digital assets. Investors in cryptocurrencies also don’t receive any kind of capital distributions like dividends or stock repurchases.

Now what

It’s certainly tough to know what the Fed will do on Wednesday after recent inflation data came in higher than what economists had expected.

I’m hopeful the Fed will take a longer-term view and consider that recent rate hikes dating back to June have still not likely worked their full way into the economy, as it can take six months or more to do so, which is why I feel like another 0.75% hike right now is plenty.

I’m still bullish on Bitcoin on a long-term basis as I see growing adoption playing out, despite the ongoing crypto winter. I’m not interested in many altcoins right now like Dogecoin and Shiba Inu.

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

The post Why Bitcoin, Dogecoin, and Shiba Inu fell this morning appeared first on The Motley Fool Australia.

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More reading

• How will the Ethereum merge impact the Bitcoin price?
• 3 cryptocurrencies to buy and hold forever
• Ethereum’s merge spotlights a key strength, says Coinbase exec
• 5 reasons I wouldn’t touch Shiba Inu with a 10-foot pole
• Why did the Bitcoin price just dip below US$20,000?

Bram Berkowitz has positions in Bitcoin. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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

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The Telstra Corporation Ltd (ASX: TLS) share price could have new life breathed into it over the next week amid plans to legally separate the company from its InfraCo business unit, as reported by the Australian Financial Review on Sunday.

Telstra shareholders can vote on the proposed company split at a scheme meeting next month. The first court hearing will be on Friday. If the split goes ahead, the business restructure will occur on 1 January 2023.

Some banking experts have given their take on what the Infraco split could mean for the company.

Let’s cover the highlights.

What could the Infraco split mean for Telstra?

Experts said Telstra will have more control over Infraco’s securities. This includes the ability to “sell, float, or demerge securities in InfraCo Fixed without NBN Co consent,” the article said. However, there are some conditions. One is that Telstra must own a 50.1% stake in InfraCo.

Separating Telstra’s business units could prove to be expensive, with a proposed $126 million one-off cost. Plus, there’s the potential for costs to add up quickly if Telstra sold more than 10% of its Infraco stake, the article said.

The broader picture is that Telstra deems the $126 million cost immaterial, according to a booklet sent to investors. The restructure will help unlock value from Telstra’s infrastructure and separate management teams will mean improved focus for each business unit.

When the announcement was made in March 2021, the Telstra share price moved up 0.26%.

At the time, Goldman Sachs described the restructuring as a positive move for shareholders, stating:

We remain positive on TLS, as this update outlines the next steps of the corporate restructure and potential asset monetization, and gives us confidence that its infrastructure value will ultimately be realized by shareholders. Based on our updated transaction multiples/illustrative SOTP valuations, TLS shares currently trade on just 4.1-4.7x ServeCo FY23E EBITDA or 5.7-6.3X at our unchanged A$4.00 12m TP, vs. SPK.NZ at 8.3x. We reiterate our Buy on TLS, our preferred ANZ Telco, ahead of its FY21 results and Nov-21 ID, both of which we view as positive catalysts.

Telstra share price snapshot

Shares of the telco opened this morning at $3.81 each.

The Telstra share price is down 10% year to date. The S&P/ASX 200 Index (ASX: XJO) is down 10.5%.

The company’s market capitalisation is $43.79 billion.

The post Could this prove to be a new cash cow for Telstra shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs. The Motley Fool Australia has positions in and has recommended Telstra Corporation Limited. 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 Fortescue Metals Group Limited (ASX: FMG) share price is trading slightly higher on Tuesday after the iron ore miner finally revealed how much it expects to spend to decarbonise its Pilbara operations.

In early trade, the Fortescue share price is up 0.8% to $17.57.

Fortescue share price higher on ‘industry-leading decarbonisation strategy’

This morning Fortescue unveiled its heavy industry decarbonisation strategy which is aiming to eliminate fossil fuel use and achieve real zero terrestrial emissions (Scope 1 and 2) across its iron ore operations by 2030.

Management notes that this investment will eliminate Fortescue’s fossil fuel risk profile and enable it to supply its customers with a carbon free product.

According to the release, although it will come at the significant cost of US$6.2 billion (A$9.2 billion), the company expects to generate attractive economic returns from operating cost savings due to the elimination of diesel, natural gas, and carbon offset purchases from its supply chain.

Management also believes that Fortescue is well positioned to capitalise on first-mover advantage and the ability to commercialise decarbonisation technologies.

Cost savings

It will take some time before the company’s savings are realised. This could explain the lukewarm response to the announcement from the Fortescue share price in early trade.

Fortescue expects net operating cost savings of US$818 million per annum from 2030 with a payback of capital by 2034. This is based on prevailing market prices of diesel, gas and Australian carbon credit units.

The capital estimate is US$6.2 billion, with the investment largely planned between FY 2024 and FY 2028.

This investment includes the deployment of an additional 2-3 GW of renewable energy generation and battery storage and the estimated incremental costs associated with a green mining fleet and locomotives.

Furthermore, the capital expenditure to purchase the fleet will be aligned with the scheduled asset replacement life cycle and included in Fortescue’s sustaining capital expenditure. Studies are underway to optimise the localised wind and solar resources.

Fortescue’s executive chairman, Dr Andrew Forrest AO, commented:

There’s no doubt that the energy landscape has changed dramatically over the past two years and this change has accelerated since Russia invaded Ukraine. We are already seeing direct benefits of the transition away from fossil fuels – we avoided 78m litres of diesel usage at our Chichester Hub in FY22 – but we must accelerate our transition to the post fossil fuel era, driving global scale industrial change as climate change continues to worsen. It will also protect our cost base, enhance our margins and set an example that a post fossil fuel era is good commercial, common sense.

No comments were made regarding Fortescue’s dividend policy. However, it appears inevitable that its payout ratio will need to be lowered in the coming years in order to compensate for this increased investment each year.

The post Fortescue share price edges higher amid $9b ‘industry-leading decarbonisation strategy’ appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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If you’re looking for dividend shares to add to your income portfolio, then it could be a good idea to check out the two listed below.

These ASX dividend shares have been rated as buys by analysts at Goldman Sachs. Here’s what the broker is saying about them:

Charter Hall Social Infrastructure REIT (ASX: CQE)

Goldman Sachs currently has a conviction buy rating and $4.35 price target on this dividend share.

The Charter Hall Social Infrastructure REIT is a real estate investment trust that invests in social infrastructure properties such as bus depots, police and justice services facilities, and childcare centres.

Goldman believes the company is well-placed for growth in the coming years thanks to the sector’s positive fundamentals and its strong balance sheet. The broker commented:

[W]e continue to believe the REIT is relatively well positioned given the sector’s positive fundamentals and CQE’s strong balance sheet, with headroom and liquidity to pursue investment opportunities, although rising interest costs will be a near term headwind in FY23. Furthermore, we remain attracted to its relatively resilient cash flows, underpinned by triple net leases to strong tenant covenants. CQE trades at an ~8% discount to NTA (versus a ~14% premium historically) and offers a potential 12m total return of ~20% at our revised TP of A$4.35, and we maintain our Buy rating (on CL).

As for dividends, Goldman is forecasting dividends per share of 17.3 cents in FY 2023 and 18 cents in FY 2024. Based on the current Charter Hall Social Infrastructure REIT unit price of $3.48, this will mean yields of 5% and 5.2%, respectively.

HomeCo Daily Needs REIT (ASX: HDN)

Goldman has a buy rating and $1.63 price target on this dividend share.

HomeCo Daily Needs is another real estate investment trust but this time with a focus on metro-located, convenience-based assets across neighbourhood retail, large format retail, and health and services.

The broker believes that its shares are cheap at current levels, particularly given its positive medium term growth outlook. It commented:

We continue to believe HDN is undervalued at its current valuation given its diversified tenant base, and see it as well positioned to benefit from the shift to omni channel retailing, with additional external growth opportunities to drive earnings growth over the medium-term.

Goldman is also forecasting some very generous dividend yields. It is expecting dividends of 8.3 cents per share in FY 2023 and 8.5 cents per share in FY 2024. Based on the current HomeCo Daily Needs REIT unit price of $1.26, this will mean yields of 6.6% and 6.75%, respectively.

The post Goldman Sachs names 2 ASX dividend shares to buy appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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