Some ASX blue chip shares can provide reliable earnings and dividends. The last 12 months has been very disrupted by COVID-19 impacts, but that doesn't mean that businesses can't keep generating growth and returns for investors.
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Wesfarmers Ltd (ASX: WES)
Wesfarmers is one of the oldest ASX blue chip shares around and it could also be one of the most reliable.
It has a number of different businesses in its stable including Bunnings, Kmart, Officeworks, Target and Catch.
These retail businesses are largely performing well during these strange COVID-19 affected times. Even Target is reporting a bit of growth at the moment.
Indeed, in the FY21 half-year result Kmart Group actually reported the strongest growth of any division with underlying earnings before tax (EBT) growth of 42% to $487 million on the back of revenue growth of 9% to $5.4 billion. Target sold more items at full price, lowered its costs and this helped profit grow "significantly". Catch, the online-only retailer, saw gross transaction value rise by 95.6%.
The most important division is Bunnings, which seems to be able to generate earnings growth in a booming economy as well as a pandemic recession. The Bunnings underlying EBT grew 35.8% to $1.275 billion.
One of the advantages of Wesfarmers is its diversification strategy. It can decide to invest into whatever industry it thinks has good long-term prospects, such as lithium. The Mt Holland project could be a very useful source of cashflow in the next few years when lithium demand is likely to be much higher.
Bapcor Ltd (ASX: BAP)
Bapcor may not be as big as a business as Wesfarmers, but it's the clear market leader of its industry in Australia and New Zealand.
The two key brands are Burson Auto Parts and Autobarn. Burson is a business that aims to rapidly supply mechanics with parts they need at auto service centres. In the HY21 result, Bapcor Trade – which includes Burson – saw revenue growth of 24.5% to $313.7 million and earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 24.5% to $57.4 million.
Retail revenue also keeps growing strongly – Autobarn same store sales were up 37%. Overall retail EBITDA jumped 55.8% to $38.8 million.
Bapcor also has a number of specialist wholesale businesses that are leaders within their own right. HY21 specialist wholesale revenue went up 39.5% to $328.4 million and EBITDA climbed 54.9%. The auto parts business said that there was a solid improvement in Truckline profitability.
In some ways, Bapcor can generate more growth in difficult times because that's when people are more likely to try to fix their car than just buy a new one.
Magellan Financial Group Ltd (ASX: MFG)
Magellan is one of the largest fund manager businesses in Australia. It's rated as a buy by the brokers at Morgans with a price target of just over $58.
It's known for investing in a diversified portfolio of global shares that have strong competitive advantages such as Microsoft, Alphabet, Facebook and Yum! Brands.
Magellan has a global shares strategy, which is where most of the funds under management (FUM) is invested. It also manages several billion invested in Australian equity strategies as well as a larger amount covering global infrastructure equities.
The business continues to attract new FUM from investors and this leads to higher management fees and higher profit for its management business.
In the FY21 half-year result, its average FUM grew by 9% to $100.9 billion and the net profit after tax (NPAT) grew 3% to $202.3 million whilst profit before tax and performance fees of the funds management business grew 8% to $256.2 million.
Magellan's board grew the interim dividend by 5% to 97.1 cents.
