Tag: The Motley Fool Australia

Qantas Airways Limited (ASX: QAN) shares have been on a roll in recent weeks.

Since early March, the airline operator’s shares have ascended by an impressive 24%.

This leaves them trading above the $6.00 mark for the first time this year.

Does this make its shares expensive? Or can they keep climbing? Let’s see what analysts are saying.

Are Qantas shares too expensive?

The good news for investors is that you may not be too late to the Qantas party.

In fact, if one leading broker is on the money with its recommendation, there could be even larger gains to come for investors buying at today’s price.

According to a recent note out of Goldman Sachs, its analysts have retained their buy rating and $8.05 price target on the airline operator’s shares.

Based on the current Qantas share price of $6.21, this implies potential upside of 30% for investors over the next 12 months.

And while the broker is not expecting any dividends this year, they could be on the horizon. The broker is forecasting a 30 cents per share dividend in FY 2025. This represents a very attractive 4.8% dividend yield.

Why is it bullish?

Goldman believes the market is undervaluing the company based on its improved earnings capacity following the transformation of its business following the COVID crisis.

Despite these improvements, the company’s valuation remains below pre-COVID times. It explains:

Qantas Airways is the flagship carrier of Australia and is the largest airline in Australia by capacity share, serving destinations domestically and internationally. As a key beneficiary of the re-opening of the world post-COVID, we expect the airline’s traffic capacity to return to 95% of pre-COVID levels by FY24e, with the airline’s earnings capacity (EPS) expected to exceed that of pre-COVID levels by ~52%. We forecast a ~24% FY19-24e cumulative uplift in unit revenues (c. 4.4%pa), and ~50% drop-through of QAN’s A$1bn+ structural cost-out program. QAN’s current market capitalisation and enterprise value are 10% below and 11% below pre-COVID levels.

Goldman then adds:

As such, we believe QAN is not priced for a generic recovery, let alone prospects for improved earnings capacity. We continue to see upside associated with substantially improved MT earnings capacity.

Overall, this could make Qantas shares a good option if you’re looking for exposure to the travel sector.

The post Are Qantas shares too expensive at over $6? appeared first on The Motley Fool Australia.

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More reading

• 4 reasons this fund manager thinks Qantas shares are a cheap buy
• Qantas share price sinks on $120 million ‘egregious and unacceptable’ ruling
• What does the Bonza collapse mean for Qantas shares?
• Qantas share price falls on reported data breach
• 10 top ASX shares to buy in May

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 Goldman Sachs Group. 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.

ASX growth shares can deliver the most growth over the long term thanks to the power of compounding. If I were investing $500 today, I’d want to choose stocks that can grow earnings significantly but aren’t priced exorbitantly.

There are plenty of great businesses on the ASX, such as WiseTech Global Ltd (ASX: WTC), Pro Medicus Ltd (ASX: PME) and REA Group Limited (ASX: REA). However, these stocks certainly come with hefty price/earnings (P/E) ratio price tags.

There are a few different factors I’d want to identify with a compelling ASX growth share.

ASX growth share characteristics I look for

One of the first things I’m looking for is that the business has a solid core offering that seems relatively insulated from technological change and competition – some industries are changing (and being challenged) very quickly.

Next, ideally, I want to see that the ASX growth share has in-built operating leverage, meaning as the business becomes bigger, profit margins grow enabling net profit after tax (NPAT) to rise faster than revenue. Why is that important? Profit is usually what investors use to value a business, and profit pays for dividends. Accelerating profit should mean good shareholder returns over time.  

Global growth is a key factor that I like to look for. Australia is a great country, but the relatively small population means the growth ceiling can be reached fairly quickly. Tapping into the North American, Europe or Asia markets can be very lucrative for an ASX company.

Finally, I’d want to invest in a business that is reasonably priced, thinking about the potential profit it may generate in the next two to three years.

Where I’d invest $500 right now

I’ll talk about my latest ASX growth share investment, seeing as I made it just a few days ago.

Collins Foods Ltd (ASX: CKF) operates KFC outlets in Australia, the Netherlands and Germany. It’s also responsible for Taco Bells in Australia. I think KFC has a strong brand, and I can’t see food as we know it being replaced any time soon.

It’s displaying excellent operating leverage at the moment. In the FY24 first-half result, Collins Foods reported revenue rose 14.3%, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) increased 16.7% and underlying net profit went up 28.7%. That’s exactly the sort of profit margin improvement I like to see.

There is plenty of room for Collins Foods to grow its KFC and Taco Bell networks in Australia, and the potential growth in Germany and the Netherlands is very compelling to me. It opened four new KFC locations in Australia in HY24 and eight in the Netherlands.

According to the estimates on Commsec, Collins Foods shares are valued at 18x FY24’s estimated earnings. It is then projected to grow earnings per share (EPS) by 44% to 74.8 cents, which puts it at just 13x FY26’s estimated earnings.

Collins Foods isn’t the only S&P/ASX 200 Index (ASX: XJO) share that I’ve invested in recently. I’ve also written about Corporate Travel Management Ltd (ASX: CTD) here and Johns Lyng Group Ltd (ASX: JLG) here as other ideas.

The post The smartest ASX growth shares to buy with $500 right now appeared first on The Motley Fool Australia.

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More reading

• 2 under-the-radar ASX growth shares I just bought for my investment portfolio
• Which ASX shares could be next on the menu for Ozempic?
• I think these 2 ASX growth shares are primed for blast-off
• 1 ASX 200 stock that’s on my buy list this month

Motley Fool contributor Tristan Harrison has positions in Collins Foods and Johns Lyng Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Corporate Travel Management, Johns Lyng Group, Pro Medicus, REA Group, and WiseTech Global. The Motley Fool Australia has positions in and has recommended Corporate Travel Management and WiseTech Global. The Motley Fool Australia has recommended Collins Foods, Johns Lyng Group, Pro Medicus, and REA Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Commonwealth Bank of Australia (ASX: CBA) share price will be one to watch closely today.

That’s because the banking giant has just released its third quarter update.

Let’s see what the bank reported for the three months ended 31 March.

CBA share price on watch following Q3 update

• Operating income down 1%
• Operating expenses up 2%
• Unaudited statutory net profit after tax down 5% to $2.4 billion
• CET1 ratio of 11.9%

What happened during the quarter?

For the 31 March, CBA reported a 1% decline in operating income. This reflects one less day in the quarter and slightly lower net interest margins. The latter was driven primarily by continued competitive pressures and customers switching to higher yielding deposits. This was largely offset by higher earnings on replicating portfolio and equity hedges.

CBA’s expenses increased 2% due to higher amortisation and staff costs, which were partially offset by productivity initiatives.

This ultimately led to Australia’s largest bank reporting an unaudited statutory net profit after tax of $2.4 billion for the three months. This is down 3% on the first half average and 5% on the prior corresponding period.

What else did CBA report?

CBA reported improved momentum in volume growth. This was delivered across home lending and household deposits in the quarter.

It advised that in the Retail Bank, transaction accounts continued to grow with an increase of ~143,000 accounts in the quarter. This was mainly driven by new migrant account openings.

Home loans grew $4.2 billion during the quarter. However, this was at 0.7x system for the three months.

Its proprietary mix for home loans represented 65% of new business flows for the quarter. Household deposits grew $5.3 billion in the quarter.

CBA has been working hard on its business banking operations. It advised that it has continued to build its Business Banking franchise through deep transaction banking relationships.

Business transaction accounts increased by ~25,000 in the quarter to over 1.22 million accounts. This is up 10% on the prior comparative period.

Business lending volumes grew above system at 1.1x for the three months, with diversified growth across multiple sectors.

Rising arrears

Finally, the bank’s balance sheet remains strong despite an increase in arrears. It reported a loan impairment expense of $191 million for the quarter, or 8 basis points of average Gross Loans and Acceptances (GLAA).

Home loan arrears increased during the quarter to 0.61% (+9 basis points), as higher interest rates continue to impact some borrowers. Credit card arrears increased during the quarter (+8 basis points) in line with seasonal trends. Personal loan arrears increased (+20 basis points) during the quarter, with elevated arrears observed for customers more susceptible to cost of living pressures.

Management warned that it expects to see further increases in arrears in the months ahead given continued pressure on real household disposable incomes.

Nevertheless, CBA finished the period with a healthy customer deposit funding ratio of 75%, LCR of 138%, and NSFR of 120%.

The post CBA share price on watch following $2.4b third quarter profit appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Thursday
• Are CBA shares a buy or a sell ahead of Thursday’s update?
• After hitting all-time highs in March, why did the CBA share price tumble 5% in April?
• Own CBA shares? Here’s what to look out for with the bank’s Q3 update
• Maximizing dividends: 3 of the best ASX shares for income investors right now?

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.

Luckily for income investors, there is no shortage of dividend payers on the Australian share market.

But which ASX dividend stocks could be quality options for an income portfolio right now?

Well, listed below are two stocks that have recently been named as buys by analysts. In addition, they have been tipped to provide investors with dividend yields of at least 5.5% in FY 2024 and FY 2025.

Let’s now take a look at why analysts are bullish and what they are saying about these stocks:

Accent Group Ltd (ASX: AX1)

The first ASX dividend stock for investors to look at according to analysts at Bell Potter is Accent Group.

It is a footwear focused retailer that operates over 800 stores (and numerous online stores) across brands including HypeDC, Sneaker Lab, Platypus, Stylerunner, and The Athlete’s Foot.

Following a review of the retail sector this week, the broker remains very positive on Accent Group. It said: “Our revenue assumptions for Accent Group (AX1) see improving comps towards the end of the 2H and we remain positive on recovering trends with positive commentary from global footwear brands such as Skechers & Deckers (Hoka). We also focus on incremental benefits to AX1’s younger customer demographics who we think could benefit from the upcoming tax cuts.”

Bell Potter expects this to underpin fully franked dividends per share of 13 cents in FY 2024 and then 14.6 cents in FY 2025. Based on the latest Accent share price of $1.83, this represents dividend yields of 7.1% and 8%, respectively.

The broker currently has a buy rating and $2.50 price target on its shares.

Dexus Industria REIT (ASX: DXI)

Another ASX dividend stock that could be a buy is Dexus Industria.

It is a real estate investment trust that primarily invests in high quality industrial warehouses located across capital cities such as Sydney, Melbourne, and Adelaide.

Morgans is positive on the company. It notes that “DXI’s industrial portfolio remains robust with the outlook positive for rental growth. The development pipeline also provides near and medium-term upside potential and post asset sales there is balance sheet capacity to execute.”

The broker currently has an add rating and $3.18 price target on its shares.

In respect to dividends, Morgans expects dividends per share of 16.4 cents in FY 2024 and 16.6 cents in FY 2025. Based on the current Dexus Industria share price of $2.97, this will mean dividend yields of 5.5% and 5.6%, respectively.

The post 2 ASX dividend stocks analysts rate as buys appeared first on The Motley Fool Australia.

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More reading

• 2 ASX passive income shares poised to pay a 9% yield
• Almost ready to retire? I’d buy cheap ASX dividend shares for income
• Buy these ASX dividend stocks that have 7%+ yields
• 2 cheap ASX shares to add to your portfolio before they get expensive
• Buy these ASX dividend shares for an income boost

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 recommended Accent Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The team at Morgans has been busy picking out its best ASX 200 share ideas for May.

The first two ASX 200 shares we looked at can be found here. Read on for three more picks:

CSL Ltd (ASX: CSL)

Morgans thinks that this biotech giant would be a great option this month. Especially given its attractive valuation and strong earnings per share growth outlook. It said:

While shares have struggled of late, we continue to view CSL as a key portfolio holding and sector pick, offering double-digit recovery in earnings growth as plasma collections increase, new products get approved and influenza vaccine uptake increases around ongoing concerns about respiratory viruses, with shares trading at 25x, a substantial discount (20%) to its long-term average.

The broker has an add rating and $315.35 price target on CSL’s shares.

ResMed Inc. (ASX: RMD)

Another ASX 200 share that Morgans is tipping as a strong buy is sleep disorder treatment company ResMed.

Its analysts feel that concerns over weight loss drugs disrupting its market are unwarranted. As a result, it believe ResMed’s long-term growth outlook remains very positive. It said:

While weight loss drugs have grabbed headlines and investor attention, we see these products having little impact on the large, underserved sleep disorder breathing market, and do not view them as category killers. Although quarters are likely to remain volatile, nothing changes our view that the company remains well placed and uniquely positioned as it builds a patient-centric, connected-care digital platform that addresses the main pinch points across the healthcare value chain.

The broker has an add rating and $34.11 price target on its shares.

Washington H Soul Pattinson & Company Ltd (ASX: SOL)

A third ASX 200 share that is on Morgans’ best ideas list this month is investment house Soul Patts.

The broker likes the company due to its positive long term track record and diversified business. It explains:

SOL’s investment portfolio includes a diversified pool of assets ranging from listed equities (both large cap and emerging companies), private equity, property and structured yield. On a 20-year horizon, SOL’s annualised TSR is 12.5% vs the All Ords accumulation index of 9%. SOL has a 20-year history of increased dividend distributions, with a 20-year CAGR of c.8%. In our view, SOL’s management team continues to deliver both organic and inorganic growth over the long term. We continue to like the SOL story, particularly its track record of growing distributions.

Morgans has an add rating and $35.60 price target on the company’s shares.

The post Morgans names more of the best ASX 200 shares to buy in May appeared first on The Motley Fool Australia.

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More reading

• Aussie investors: 3 ASX shares to buy and hold forever
• 3 ASX 200 shares I want to buy if the stock market crashes again
• 3 reasons CSL stock is a great long-term investment
• 3 excellent ASX 200 blue-chip shares to buy in May
• Top brokers name 3 ASX shares to buy next week

Motley Fool contributor James Mickleboro has positions in CSL and ResMed. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, ResMed, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has positions in and has recommended ResMed and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Owning National Australia Bank Ltd (ASX: NAB) shares has been pleasing when it comes to receiving passive income in the form of dividends.

The ASX bank share sector collectively has quite a high dividend payout ratio, which pushes up the dividend yield. The other side to the equation is having a reasonable price/earnings (P/E) ratio.

The NAB share price has risen strongly over the past year, as we can see in the chart below.

After the bank’s recent release of the FY24 first-half result, let’s consider how big the dividend payouts might be in the future.

HY24 payout recap

NAB reported that its cash earnings of $3.55 billion for the six months to 31 March 2024 were down 12.8% year over year and down 3.1% half-on-half.

However, the diluted cash earnings per share (EPS) of $1.12 didn’t drop as much – it fell 1.6% half-on-half and 12.3% year on year.

NAB decided to grow its interim dividend per share by 1.2% year over year to 84 cents per share. This was the same dividend as the FY23 second-half dividend. It represents a cash dividend payout ratio of 75%, which is generous and leaves some profit within the business for more growth.

That means the business currently has a fully franked dividend yield of around 5% and a grossed-up dividend yield of approximately 7%.

How much passive income would 200 NAB shares pay?

If NAB were to repeat the last two declared dividends as the next two dividends, it would be an annual payout of $1.68. Owning 200 NAB shares would mean receiving $336 of cash and $480 of grossed-up dividends if we include the franking credits.

But that’s assuming the dividends don’t change in the coming years. Some analysts think the NAB dividend may grow in the next few years.

The estimate on Commsec suggests the bank could pay a passive income of $1.70 per share in FY25 and $1.71 per share in FY26.

That means that if an investor owned 200 NAB shares, it could pay $340 in cash dividends and $486 in grossed-up dividends, with the franking credits as a bonus.

Outlook for NAB shares

The NAB dividend could be heavily influenced by how the economy performs for the foreseeable future. NAB had this to say regarding the economic outlook:

In Australia, household consumption growth slowed sharply in the second half of 2023, impacted by interest rates and cost of living pressures. This is weighing on real GDP growth which is expected to remain below-trend over the near term.

However, some relief is anticipated later this year with expected tax cuts and a forecast easing in monetary policy from November should inflation continue to moderate. Following 1.5% GDP growth over 2023, growth of 1.7% is forecast over 2024, before improving to around 2.25 % in 2025.

Pressure has eased in the labour market and wage growth is expected to slow from elevated rates in 2023. The unemployment rate is expected to continue to drift higher, peaking at around 4.5% by end 2024, but most indicators of labour demand remain healthy suggesting employment will continue to grow.

The post How much passive income would I make from 200 NAB shares? appeared first on The Motley Fool Australia.

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More reading

• 3 ASX 200 shares I want to buy if the stock market crashes again
• Why Judo Capital, NAB, Paladin Energy, and Perpetual shares are falling today
• Why Graincorp, Lindsay Australia, NAB, and Sims shares are sinking today
• Why is the NAB share price sinking today?
• 5 things to watch on the ASX 200 on Tuesday

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 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.

Rather than ‘sell in May and go away’, I like to ‘buy while the cash is cold and hold’ — there has to be something catchier… nevertheless, the point still stands. No old saying will prevent me from pulling the trigger on buying if there are looming opportunities in the market.

The fight against inflation waged by the Reserve Bank of Australia continues to threaten a ‘genuine’ recession. Warren Buffett recently said the investment landscape isn’t ‘attractive’. And I haven’t purchased any individual shares since February… that’s bearish, right?

I don’t think so.

It might mean those no-brainer buys are harder to find, but I reckon a keen-eyed investor can spot a beauty even now.

Why buy ASX dividend shares?

I try not to place too much emphasis on income in my portfolio. While still in my younger years, my goal is to maximise wealth growth. Hence, I’m not looking for companies with the highest dividend yield, trying to squeeze out every last dollar I can to fund my next year of activities.

However, if I can find a great quality company that just happens to pay dividends… That’s the investing equivalent of finding loose chips in the bottom of the Maccas bag after devouring your fries. You weren’t expecting it, but you’re glad to see them.

After a while, those dividends add up. I’ve purchased other ASX shares with money solely sourced from dividends. It feels like I’ve stumbled upon some sort of money glitch. Whatever ‘math’ you want to call it, investments funded by income from ASX dividend shares are pretty magical.

I’ve prattled on long enough. Here’s what I’m buying this month.

My bottom drawer buy

It mightn’t be a dividend aristocrat, but it’s close enough for me. Sonic Healthcare Ltd (ASX: SHL) has steadily grown its dividends for 30 years. That’s worthy of some sort of term. Maybe dividend stalwart is fitting.

The laboratory, pathology, and radiology services provider is a cornerstone of healthcare systems worldwide. However, investors have sold down the stock by more than 40% from its all-time high as COVID testing revenues have evaporated.

In my view, the market is overlooking the quality of Sonic’s base business. Pathology and laboratory testing is a difficult industry to crack. The value typically accrues to the players with the greatest scale — that’s what Sonic Healthcare is in multiple markets.

Due to the sell-off, this ASX dividend share is currently trading on a dividend yield of 4%.

Pouncing on the pullback

Macquarie Group Ltd (ASX: MQG) posted a lacklustre full-year result last week. Net profit for the 12-month period was down 32% versus the prior year, prompting the financial dynamo to dial back its final dividend by 14.4% to $3.85 per share.

The Macquarie share price is now roughly 5% below its 52-week high.

At first glance, the result appears worthy of selling. But let’s not be hasty.

I believe Macquarie will still be a frontrunner in the long term. The company houses an immense array of expertise in funding and managing infrastructure. Such skills could be in high demand over the coming decades.

This ASX dividend share is yielding 3.4%.

The post 2 magnificent ASX dividend shares I’ll be buying more of in May appeared first on The Motley Fool Australia.

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More reading

• 2 cheap ASX 200 shares I’d buy for growth and dividends
• Are Macquarie shares in the buy zone?
• Forget NAB and buy these ASX dividend shares
• 5 things to watch on the ASX 200 on Monday
• Want $500 in monthly passive income? Buy 938 shares of this ASX 200 stock

Motley Fool contributor Mitchell Lawler has positions in Macquarie Group and Sonic Healthcare. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Sonic Healthcare. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

On Wednesday, the S&P/ASX 200 Index (ASX: XJO) continued its winning run and pushed higher. The benchmark index rose 0.15% to 7,804.5 points.

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

ASX 200 expected to fall

The Australian share market looks set for a subdued session on Thursday following a mixed night on Wall Street. According to the latest SPI futures, the ASX 200 is expected to open the day 16 points or 0.2% lower this morning. In the United States, the Dow Jones was up 0.45%, but the S&P 500 was flat and the Nasdaq fell 0.2%.

Oil prices rise

ASX 200 energy shares including Beach Energy Ltd (ASX: BPT) and Woodside Energy Group Ltd (ASX: WDS) could have a good session after oil prices charged higher overnight. According to Bloomberg, the WTI crude oil price is up 1.1% to US$79.22 a barrel and the Brent crude oil price is up 0.7% to US$83.77 a barrel. This was driven by a surprise stockpile decline in the United States.

CBA Q3 update

The Commonwealth Bank of Australia (ASX: CBA) share price will be on watch on Thursday when the banking giant releases its third quarter update. One area of focus for investors will be productivity. Goldman Sachs recently commented: “In light of the soft revenue growth environment, it has become increasingly important for the sector to take a more proactive approach in cost management. Adding to this challenge has been stickier than expected inflation which was a headwind to costs in FY23 with its impact broadly based across i) staff, ii) third party, iii) and investment spend. Overall we are of the view the key to offsetting these inflationary pressures will be the banks’ ability to deliver productivity improvements.”

Gold price softens

It looks set to be a subdued day for ASX 200 gold shares Newmont Corporation (ASX: NEM) and Northern Star Resources Ltd (ASX: NST) after the gold price softened overnight. According to CNBC, the spot gold price is down 0.3% to US$2,316.4 an ounce. The precious metal appears to be in a holding pattern while waiting for rate cut clues.

Westpac goes ex-dividend

Westpac Banking Corp (ASX: WBC) shares are going ex-dividend on Thursday and look likely to drop into the red. Earlier this week, Australia’s oldest bank released its half year results and posted a 4% year on year decline in net operating income to $10,590 million. However, this couldn’t stop the bank from increasing its fully franked interim dividend by 7.1% to 75 cents per share and declaring a special fully franked 15 cents per share dividend. These dividends will be paid to eligible shareholders on 25 June.

The post 5 things to watch on the ASX 200 on Thursday appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• Want the massive Westpac dividend? Here’s why you need to hurry
• Woodside shares are down 17% in 6 months. Is now the right time to buy?
• Morgans names the best ASX 200 stocks to buy in May
• 5 things to watch on the ASX 200 on Wednesday

Motley Fool contributor James Mickleboro has positions in Westpac Banking Corporation and Woodside Energy Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. 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.

I think that buy and hold investing with ASX shares is one of the best ways to grow wealth.

Let me now demonstrate why.

Buy and hold ASX shares

Over the long term, the share market has delivered investors an average annual return of 10% per annum.

And while there is no guarantee that it will continue doing the same in the future, we’re going to assume that it does for the purpose of this article.

Based on that return, if you are able to invest $10,000 into ASX shares each year and earned the market return, you would grow your portfolio to $175,000 after 10 years thanks to the power of compounding.

But why stop there? Compounding really starts to work its magic the longer you leave it. So, if we fast forward another 10 years of doing the same, your portfolio would have become worth almost $650,000.

But which ASX shares would be good options for a buy and hold investment? Three to consider are as follows:

CSL Ltd (ASX: CSL)

The first ASX share that could be a great buy and hold option is CSL.

It is the biotechnology giant behind the CSL Behring, CSL Vifor, and CSL Seqirus businesses. These are leaders in their respective fields and provide world-class plasma therapies, iron deficiency and nephrology treatments, and vaccines.

UBS thinks investors should be buying its shares at present. The broker currently has a buy rating and $330.00 price target on CSL’s shares.

Nextdc Ltd (ASX: NXT)

Another ASX share that could be a great long term option for investors right now is NextDC.

It is a leading data centre operator with world class operations across the Asia Pacific. Thanks to the shift to the cloud and the artificial intelligence boom, demand for data centre capacity is growing rapidly. This has many analysts predicting that NextDC will grow its earnings very strongly over the next decade.

One of those is Morgans, which has an add rating and $19.00 price target on its shares.

Pro Medicus Limited (ASX: PME)

Finally, this health imaging technology company could be a quality option for investors.

It is a leading provider of radiology information systems (RIS), Picture Archiving and Communication Systems (PACS), and advanced visualisation solutions across the globe.

Goldman Sachs is very bullish on the company’s long term outlook. So much so, it recently put a buy rating and $134.00 price target on its shares.

The post Aussie investors: 3 ASX shares to buy and hold forever appeared first on The Motley Fool Australia.

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More reading

• 3 ASX 200 shares I want to buy if the stock market crashes again
• Here are the top 10 ASX 200 shares today
• Morgans names the best ASX 200 stocks to buy in May
• 3 reasons CSL stock is a great long-term investment
• Here are the top 10 ASX 200 shares today

Motley Fool contributor James Mickleboro has positions in CSL, Nextdc, and Pro Medicus. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goldman Sachs Group, and Pro Medicus. The Motley Fool Australia has recommended CSL and Pro Medicus. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Through the Australian share market, we can buy passive interests in a diversified set of operations via a single investment.

With an investment in Wesfarmers Ltd (ASX: WES) stock, we have just that. The holding company boasts a portfolio containing some of Australia’s strongest retail, healthcare, and chemicals brands.

These include Bunnings, Kmart/Target, Officeworks, Priceline Pharmacy, and Flybuys just to name a select few. When you own Wesfarmers stock, you own pieces of these companies, too.

Wesfarmers has a long history of creating value for its shareholders. Its share price is up 81% since May 2019. A $10,000 investment back then is now worth $18,100, plus $1,667 in dividends.

But what about the future? Here, I’ll explain.

Diversification: Good for risk and value

One major reason for Wesfarmers’ success is its highly diversified operations. Most people think of diversification as spreading their risk across a number of assets.

But diversification also provides many sources of value. Wesfarmers has 37 brands operating under its wings. It has fingers in many pies.

Goldman Sachs touched on this in a recent note, stating many Wesfarmers’ divisions remained “under-appreciated by the market”, including digital, retail media and the WES health platform.

Goldman also expects a respective 6% and 11% growth in sales and earnings before interest and tax (EBIT) for the Bunnings franchise in FY 2025/2026.

This could generate “strong annual free cash flow of $2.5 billion–$3 billion to fund two new high-growth and high-return platforms, Health and Lithium…”.

These are two points to take note of.

Speaking of Bunnings and Kmart

Wesfarmers’ portfolio is filled with low profit margin, high sales volume companies. They have wide consumer penetration, as a result.

Goldman cited volume and consumer penetration in its view on Wesfarmers stock. It said the company had the “largest volume of consumer data assets”, which included “14.2 million total loyalty members across Flybuys, Priceline and PowerPass”.

Both Bunnings and Kmart fit this mould, too. For instance, Bunnings made up 44% of the company’s revenues in the six months to 31 December 2023 but comprised 58% of the group’s EBIT. Kmart was 22% and 29%, respectively.

Bunnings’ H1 FY 2024 EBIT margin was 12.9%, whereas Kmart’s was 10%.  But sales volume was tremendously high — $9.9 billion and $5.9 billion respectively.

Both companies subsequently have stellar returns of capital (ROC), tallying 66% for Bunnings and 59% for Kmart. That means every $1 Wesfarmers invests into Bunnings and Kmart returns 66 and 59 cents on that dollar, respectively. This is a competitive advantage.

Dividends increasing

Aside from the capital appreciation, a final tailwind for Wesfarmers is the company’s dividend. The fully franked payment of $1.94 per share gives an ungrossed dividend yield of around 2.84%, as I write.

However, it’s the recent increase that’s worth noting.

The company’s half-year sales growth was flat at 0.5%. But it grew net profit after tax (NPAT) by 3%. That means each $1 of new revenues brought in $6 of additional profit for the half – quite the result.

The Wesfarmers board increased its dividend by 3.4% to $0.91 per share. Goldman Sachs sees this trend continuing through FY 2025/2026 as “cost optimising and digitalisation initiatives drive margin expansion”.

Foolish takeaway

Wesfarmers stock has proven to be a superb long-term investment. Based on performance, I believe it can continue to beat the S&P/ASX 200 Index (ASX: XJO) over time.

Since January this year, the Wesfarmers share price has climbed more than 20% into the green.

The post Is Wesfarmers stock a good long-term investment? appeared first on The Motley Fool Australia.

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More reading

• 3 ASX 200 shares I want to buy if the stock market crashes again
• Would I still buy Wesfarmers shares as they hit all-time highs?
• New record high: Is it too late to buy Wesfarmers shares?
• Where will the next $75 billion come from for Wesfarmers shares?
• If you invested $10,000 in Wesfarmers shares a decade ago, here’s what it would be worth now

Motley Fool contributor Zach Bristow 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 Group and Wesfarmers. The Motley Fool Australia has positions in and has recommended Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.