The US market has been pushing the ASX200 higher, after a quarter-point interest rate by the US Fed last Wednesday and a resilient US jobs report that added 128,000 jobs in October. However, while the ASX200 has had some good sessions, there is still some weakness across multiple sectors.
ASX Financials, notably the big four banks, have been weighing down the index after weak earnings and the fear of further dividend cuts and capital raisings. The ASX has witnessed many growth darlings trading at premium valuations struggling to make gains. This includes household names such as the A2 Milk Company Ltd (ASX: A2M) and Afterpay Touch Group Ltd (ASX: APT).
It could be a good time for investors to consider shares that trade at a more modest valuation. Here are 3 ASX 200 shares that provide both growth opportunities and a reasonable dividend yield.
1. Magellan Financial Group Ltd (ASX: MFG)
Magellan Financial Group is arguably one of the best funds management businesses in Australia. It offers international investment funds to high net worth and retail investors in Australia and New Zealand and institutional investors globally.
In October, Goldman Sachs placed a sell rating on Magellan citing that its individual funds had all unperformed their respective benchmarks by around 3%. It blamed Magellan’s heavy skew to US tech that would have neutralised its outperformance through July and August.
Contrary to the sell rating, investors should not forget about Magellan’s strong earnings growth in FY19 that saw its adjusted revenue increase by 28%, adjusted net profit after tax (NPAT) increase by 35% and dividends increase by 38% to $1.85 per share. Investors should also note that US tech shares are shrugging off their October struggles and pushing forward. The Nasdaq index has just hit record highs following the strong jobs report.
Magellan is pointing to multiple areas to sustain its growth story. This includes themes such as infrastructure, self-directed retail with a focus on its Magellan High Conviction Trust IPO, its Airlie fund and retirement income. I believe current equity markets will buoy the Magellan share price. It currently pays a 3.74% dividend yield.
2. Dicker Data Ltd (ASX: DDR)
Dicker Data is a fast growing wholesale distributor of computer hardware and software. It offers investors a dividend yield of 3.26% with strong growth capabilities.
In the company’s Q3 market update, it cited that its revenue YTD to September 2019 was 17.8% higher than the comparative period last year. This was driven by strong performance across all vendor partnerships and realising full value of new vendors. The company’s operating profit was also 38.7% higher, tracking ahead of the forecasted figures.
I believe Dicker Data is strongly positioned to take advantage of the major update cycle to Windows 10 and its ability to offer “as-a-service” solutions to clients.
3. Collins Foods Ltd (ASX: CKF)
The Collins Foods share price slumped yesterday due to Federal Court proceedings by Taco Bill Mexican Restaurants. It claims that members of the public will be misled or deceived to believe that Taco Bell restaurants are operated by Taco Bill.
News aside, I am a strong believer in the Collins growth story. The company has consolidated itself as the largest KFC operator in Australia, with initiatives around digital and delivery expected to drive further growth. The company has been reliable and consistent in earnings growth, typically delivering mid-teens growth in revenue and net profit across the past five years. Collins also pays a dividend yield of 2.0%.
People love KFC, and I believe its modest growth with dividends will persist.
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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Dicker Data Limited. The Motley Fool Australia has recommended Collins Foods Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.