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3 Proven
ASX Shares

About The Author
Owen Raszkiewicz

Owen is the Founder of Rask Finance and Rask Invest.

A former investment analyst and business writer by trade, Owen is a passionate value investor and has applied himself to helping others understand their finances. Owen's free financial education videos and courses have been viewed tens of thousands of times for thousands of hours. He is also the host of the popular The Australian Investors Podcast.

Owen has appeared on Channel 10's The Project and written for or been quoted in many prominent financial publications.

He holds a Master's of Applied Finance, Master's of Financial Planning, Bachelor of Technology and Advanced Diploma of Financial Services. He has also completed Level 1 of the Chartered Financial Analyst (CFA®) program.

In addition to starting The Rask Group, which includes Rask Finance and Rask Invest; Owen launched Rask Media, a free financial news platform which reaches thousands of people every month.

Owen is a signatory of the Banking + Finance Oath, and The Rask Group is 100% Committed to promoting ethics in business and finance.

You can reach Owen on Twitter:@OwenRask

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How I Invest For Growth & Dividends

Regular Rask readers will know my investing checklist is unashamedly simple and, from a high level, is nearly identical to the investment process detailed by Warren Buffett and Charlie Munger.

Here's my investing checklist:

  • Buy shares in businesses/shares I can understand
  • With a competitive advantage / moat
  • Run by aligned and talented management, and
  • Which can be purchased at a reasonable price

I use the checklist to help me identify the companies that I believe can grow their share prices over many years and pay dividends. It’s a simple strategy that has served me (and other investors) well over the years, so that’s what I’ll keep doing. (for more information on my strategy click here)

To see how it works, let’s run 3 of Australia's proven growth + dividend companies against the four points on my simple investing checklist to see how they stack up in today's market.

TPG Telecom Ltd (ASX:TPM)

TPG’s current dividend yield leaves something to be desired. However, as a long-term investor, I’m looking for sustainable dividends. First and foremost that comes back to understanding the business and its drivers of profit.

Australia's third-largest broadband internet provider, TPG seems willing to trim its dividend payments when it believes there is a better use of its cash. Its investment in mobile could explain why its trailing dividend yield looks a little low right now.

But make no mistake TPG rewarded its loyal shareholders many times over in the form of dividend income. Indeed, TPG’s share price has come a long way since its lows of 16 cents in 2008/2009.

Investors shrewd enough to buy and hold TPG between the Global Financial Crisis (GFC) and October 2018 would have made 400% of their money back in dividends (plus franking credits). In addition, with its share price around $8, capital gains would be close to 4,900%.

That’s not the type of investment we can expect too often — or at all. And I’m certain a smart investor would be saying, “Owen, we don’t drive our investments looking through the rear-view mirror!”

That’s right, TPG has done very well historically.

But how about the future?

There are two key reasons I’m confident in TPG’s future:

  1. TPG founder, David Teoh, has heaps of skin in the game and has proven himself many times over. Meaning, since he owns so many of his own company’s shares his interests should be aligned with other investors like me. Having a CEO and board with ‘skin in the game’ is essential (see the checklist above)
  2. TPG is backed by a highly respected corporate investor in Washington H. Soul Pattinson & Co. Ltd (ASX: SOL). More on them below.

Does it have a competitive advantage or moat?

TPG is far from a risk-free investment. Indeed, the Australian mobiles and broadband markets are changing rapidly. What's more, technology and the competition are constantly improving.

In addition, I believe TPG doesn’t have a very strong moat/advantage because it's a capital intensive business (it's not cheap to build mobile towers!) and competition is fierce (refer to the Rask Finance website for more analysis on moats).

Why Moats Are Vital

A moat matters because it means a company can reinvest in its business and earn more money than its peers.

See Jack Dorsey's MIT Sloan Presentation, "Competitive Advantage & Capital Allocation", March 2017

I believe companies with wider moats will do better than those without a moat.

So what's the verdict on TPG?

Due to valuation, I’ve got TPG shares firmly on my long-term watchlist in 2018 (i.e. not in my portfolio). Should prices fall, I’ll be running the ruler over them. But until then I’m not rushing out to buy.

Is TPG a business I can understand? Yes
Does it have a competitive advantage? Weak
Does management have integrity and talent? Yes
Does the valuation makes sense? No, it's not a bargain today (in my opinion)

Washington H. Soul Pattinson (“Soul Patts”)

Again, Soul Patts’ current dividend yield won’t knock the socks off an investor (especially if they’ve been investing in ASX bank shares!).

But as with TPG, what Soul Patts lacks in yield it makes up for in long-term - modest - growth potential and excellent management.

Soul Patts is a conglomerate style company. Meaning, it buys — and holds — large chunks of other companies like TPG, Australian Pharmaceutical Industries Ltd (ASX: API), Brickworks (ASX: BKW) and many more.

Run by the Millner family, Soul Patts has one of the best investing track records I have seen in Australia. For example, it hasn't missed a dividend payment in 20 years¹.

I don’t expect the same amount of capital growth and dividends from Soul Patts going forward. Put simply, it’s harder to grow an already larger pie.

But I’ve learned time and again to give the Millner family the respect they deserve, so it’ll remain on my watchlist until I’m comfortable to pull the trigger. Given its track record and cash balance, I could be waiting a while!

Is Soul Patts a business I can understand? Yes
Does it have a competitive advantage? Yes (Narrow to Wide)
Does management have integrity and talent? Yes
Does the valuation makes sense? No, it's not a bargain today (in my opinion)

ARB Corporation Ltd (ASX: ARB)

ARB takes its name from Anthony Ronald Brown, the founder of Australia’s most popular and respected 4×4 accessories brand.
ARB successfully tapped one of the most lucrative niches in Australian culture: our love affair with suburban SUVs and the outdoors.

The red and black ARB logo can be found on bullbars, lighting, trays for utes and much more. It also owns and distributes other brands through its growing store-owned network and third-party distributors.

A family run business since the 1970’s, ARB’s profit and dividend payments more than doubled in the decade to 2018, so it’s easy to see why its share price continue to hit all-time highs.

Does it have a competitive advantage or moat?

I think ARB has a fairly strong competitive advantage which may not be apparent to some investors on first glance. Indeed, since ARB works with car makers, its bull bars are designed to fit new model cars, they’re rated to the highest safety standards and then tested. That keeps smaller players out of the market.

Why don’t I own ARB shares today?

In my opinion, ARB fails the fourth point on my checklist: valuation.

Is ARB a business I can understand? Yes
Does it have a competitive advantage? Yes (Narrow to Wide)
Does management have integrity and talent? Yes
Does the valuation makes sense? No, it's not a bargain today (in my opinion)

I think ARB has benefitted immensely from the rise of SUVs/4x4s and new car sales in Australia. Sales for both new cars and SUVs are consistently chalking up new records². Look around, it seems nearly every soccer mum and dad own an SUV.

Unfortunately, I think we may be reaching a tipping point with a more normalised level of 4×4 and SUV vehicle sales in Australia.

Having said that, if ARB achieves similar success in North America (the home of big utes / “trucks”) or Europe, my concerns about its dependence on Aussie consumers will prove wrong. But while it has shown some signs of success aboard, it’s still early days in my opinion.

So although I would love to invest in an iconic Aussie brand like ARB, I know patience won’t lose me money.

Buy, Hold Or Sell

Seasoned share market investors know share prices are often driven by two things: investor emotion (in the short-term) and company financials (over 3+ years).  Although I wouldn’t rush to sell these three companies (if I held them), I believe they are somewhat pricey. That makes them a ‘hold’ in my book.

Why Holding is Important…

As an aside, I think it’s worth mentioning that the overwhelming majority of investment returns tend to come from holding great companies.

Meaning, investors don’t make money when they buy or sell shares — they make money from doing virtually nothing and letting the company grow over time. Give it a chance to grow!

As my favourite business writer, Morgan Housel, once put it³: “99% of long-term investing is doing nothing; the other 1% will change your life.”

If there’s one thing I’ve learned it’s the need to be patient and wait for great buying opportunities. Not just good opportunities. Great opportunities.

Here's What I Am Buying Right Now

When it comes to buying shares for my family’s portfolio and picking my #1 share ideas for our investment service, Rask Invest, I’m looking for deeply undervalued established blue chips (30%+) or the TPGs, ARBs and Soul Pattinson of 10 years ago.

That's why the Rask Invest model portfolio is filled with several small companies which I believe can become tomorrow's blue chips. Companies that meet my simple but stringent investment criteria, with the potential for substantial increases in profit and big dividends.

My Rask Invest model portfolio is filled with only my best ideas. And many of my best opportunities are right here on the ASX, hiding from the mass media and broader investment community. They're trading at irresistible prices.

Of course, the names are reserved for Rask Invest members who get the opportunity to read my research and buy the latest investment ideas -- 5 full trading days before I buy in with my own money for the model portfolio. I eat my own cooking!

That's something you'll be hard pressed to find anywhere else.

Cheers to our financial futures!

Owen Raszkiewicz -- Lead Adviser, Rask Invest -- Twitter: @owenrask

Get My #1 ASX Share Ideas Right Now

 

 

 

 

GENERAL ADVICE WARNING & PERFORMANCE WARNING

This document was written by Owen Raszkiewicz and is issued by Rask Group Pty Ltd, which is authorised to provide general financial advice only. That means, the information included in this report does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information.

Please remember, past performance is not indicative of future performance, as an investment’s past performance may not be reflective of its potential future returns. That is, investment returns are not guaranteed.

You should consider obtaining independent financial, legal and taxation advice before acting on the information presented here. Please read our Financial Services Guide.

The Rask Group Pty Ltd (ACN: 622 810 995) is a Corporate Authorised Representative (no. 1264179) of MSC Advisory Pty Ltd (ACN: 607 459 441) (AFSL: 480 649).

At the time of publishing/updating this report, Owen Raszkiewicz does not have a financial interest in any of the companies mentioned.

Updated: 15 October, 2018.

 

Sources: 

  1. Washington H Soul Pattinson ASX Release, 2018
  2. ABS new vehicle sales data, December 2017, Australian Bureau of Statistics 9314, http://www.abs.gov.au/ausstats/abs@.nsf/mf/9314.0
  3. Morgan Housel, 2013, The Motley Fool, "99% of Long-Term Investing Is Doing Nothing; the Other 1% Will Change Your Life",https://www.fool.com/investing/general/2013/12/20/99-of-long-term-investing-is-doing-nothing-the-oth.aspx

Other:

  • Jack Dorsey's MIT Sloan Presentation, "Competitive Advantage & Capital Allocation", March 2017
  • ARB Corp, Soul Pattinson & TPG Financial Reports & Media Releases

 

 

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