FTSE 250 stock TBC Bank (LSE:TBCG) is not exactly a household name. And with a market cap of £1.5bn, it’s some way down the list of the UK’s 250 largest companies.

But a 7.7% dividend yield is only half the story here. A consensus of analysts have set a whopping 40% higher price target on the shares, which now trade around 2,800p.

To be continued

Both revenue and net profits are expected to climb 25% higher by 2025.

As of 21 February 2024, the shares trade on a price-to-earnings (P/E) ratio of less than four. That’s substantially lower than the P/E average of 5.3 for UK-traded banks. And to my mind, it makes TBC shares pretty cheap right now.

Fitch, one of the world’s largest ratings agencies, upgraded TBC Bank’s credit rating in May 2023. It moved up from ‘BB-’ to ‘BB’, which means it can get better rates on its own credit.

Fitch added that TBC Bank’s “strong performance” through a series of tough economic cycles meant it merited the upgrade.

Part of the improvements the business made were increasing profitability and the fact that it had large amounts of liquid capital on hand.

King Georgia

TBC Bank operates in Georgia, where economic growth is flying higher. The World Bank found in December 2023 the country was growing at 8.3% a year. Companies in construction and manufacturing are driving this spike.

And with these businesses likely needing more startup and ongoing capital to take advantage of booming markets? TBC Bank has a broader base for its loans and revenue.

Georgia has also been growing more quickly than other middle-income countries. That’s probably why analysts are so bullish about the potential for this FTSE 250 stock.

Deep value

All the value metrics I watch closely are in the right range to make TBC Bank a buy now. Its price-to-earnings growth is at 0.3, with anything under one considered good value.

The bank is forecasting earnings per share to grow nearly 15% next year.

And while the dividend will fall from 9.34 GEL (Georgian lari) to 7.04 GEL in 2024, analysts expect an 18% bump over the following 12 months.

Risk factors

Economic growth is never guaranteed. And as a middle-income country, Georgia does not have the same levers that high-GDP countries could pull to reverse course.

Georgia’s position on the Black Sea also means it borders Russia and is a near neighbour to Ukraine. Anyone following the news for the last two years doesn’t need me to tell them the heightened risk factors there.

There is some exchange-rate risk to note, because the company reports its earnings in Georgian lari, rather than pound sterling. If the lari were to crash, TBC Bank’s profits would go the same way.

All that said, the country’s growth story, along with the bank’s rising profits, and a 7.7% dividend yield?

I think it’s starting to make TBC Bank look quite compelling.

The post 7.7% yield and going cheap! Why is this unknown FTSE 250 stock flying? appeared first on The Twelfth Magpie.

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• How has this under-the-radar FTSE 250 bank grown 7 times faster than the FTSE 100 since 2021?

Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As I was scanning down the list of the best FTSE 100 shares to buy, I came across takeover target DS Smith (LSE:SMDS).

I thought: “Wow, that looks like a boring company. There’s absolutely nothing to set the heart racing there.”

It’s a paper and packaging company, after all. But on the other hand, DS Smith has produced very steadily rising earnings over the last three years, and boasts a healthy 5.7% dividend yield.

Then there’s the news that rival Mondi is considering buying out DS Smith to produce one of Europe’s largest packaging companies.

Six of one

Comparing balance sheets, the two companies are remarkably similar. Each has annual sales around £7bn and operating profits in the region of £400m.

DS Smith has a market cap of £4.4bn, while Mondi is slightly larger at £6.1bn.

The difference is that DS Smith has not done as well as Mondi in managing its working capital. This is the difference between a firm’s current assets (like property and inventory) and current liabilities (like wages or rent).

In other words, it’s the cash left over to be able to run day-to-day operations. Over the last 12 months Mondi has had working capital of around £2.1bn. DS Smith, on the other hand, has had negative £189m.

No wonder it’s Mondi considering the takeover and not the other way around.

List price

I’m not surprised the news came out, to be honest. Sometimes discussions slip out when the buying or selling party wants to test the market’s reaction.

Mondi made a “highly preliminary expression of interest” in acquiring its closest rival, DS Smith said in a market statement.

The DS Smith share price spiked 22% in the days after the announcement, but has fallen back a couple of percentage points since.

London has been abuzz with the news after a pretty tragic lack of new listings.

A swathe of big companies going public in the last 12 months have all chosen the US instead of the UK. These include the City commodities broker Marex and Cambridge chip giant Arm, which now trades on the Nasdaq in New York.

Emerging mergers

Two other FTSE 100 giants, housing companies Barratt Developments and Redrow, announced a surprise £2.5bn merger in February 2024. The higher-valued Barratt Developments said it would takeover its smaller rival to create a new joint business called Barratt Redrow.

But there are issues there, too. The UK’s competition watchdog may not allow the merger to go through. And a bigger joint company doesn’t always provide more value for shareholders.

In this case, there is also no guarantee Mondi will make DS Smith an offer.

With this kind of uncertainty around, both companies’ share prices could be volatile in the near future.

And at this stage, it is difficult to see what new shareholders could gain from taking positions in either company. Personally, I’d wait until any merger is completed before considering a new position here.

The post Is FTSE 100 takeover target DS Smith a great buy? appeared first on The Twelfth Magpie.

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Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has recommended DS Smith. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The real reason I started building passive income was to take the pressure off grinding out work every day.

Relying on a salary — or, in my case, freelance writing — to provide enough pension contributions, is hard enough already.

And the problem is now so bad that middle-class families struggle for a decent living standard even on £60,000 income.

That’s according to a report released in mid-February 2024 by abrdn (LSE:ABDN). It found 30% of private tenants’ rent is ‘unaffordable’. This is defined as more than a third of their total income.

And sky-high rents and mortgage payments from the massive spike in interest rates over the last three years are somewhat to blame.

Binary choices

The study’s author, Professor Donald Hirsch, writes that UK families are faced with a difficult choice.

Option one is providing for the future, he says. Option two is “having enough disposable income for a decent living standard today”.

The thing about dividend income is that I can choose to take it now, or reinvest it for the future.

For shares I buy in a Stocks and Shares ISA, it’s a case of ticking a box online or in an app.

And investors don’t pay any additional tax on dividend income in a Stocks and Shares ISA. That’s the kind of information I wish I had to hand 20 years ago.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Alternative options

I wrote for The Motley Fool in January 2024 how I’d built £4,000 of passive income starting from nothing. And that figure is rising every month, given that I compound my gains from dividend-paying company shares.

The FTSE 250-listed asset manager mentioned above, abrdn, looks to me like one of those potential dividend-payers.

With a 9.2% yield and potential for a rising share price ahead, it’s certainly on my investing watchlist.

If I was to take a position here, I’d try to buy and hold as long as possible.

Interactive

abrdn actually owns Interactive Investor, one of the UK’s largest Stocks and Shares ISA providers. More people are coming around to the idea of low-cost investing for passive income. So this makes for a profitable revenue-generator for the parent company.

Today, 21 February 2024, abrdn shares are trading at around 160p per share. If I was to put my £4,000 of passively-earned income into abrdn shares? I’d own around 2,500 shares.

With today’s 9.2% yield, or 14.6p per share in dividends, I’d be receiving annual payments of around £200. It’s not a king’s ransom by any means. But it would make the cash I have work harder for me.

Summing up

With so much pressure on families to keep up a decent living standard it’s no wonder people feel like they are falling behind. But with a few simple adjustments, I believe passive income is closer than many people think.

The post Passive income from 9.2% yield stock could cut pressure as costs spike appeared first on The Twelfth Magpie.

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Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Metals Exploration (LSE:MTL) is a barely-known penny stock that I think has potential to deliver my best ever gains.

The AIM-listed gold explorer trades for 2.7p per share as of 21 February 2024 — that’s tiny.

But having done the digging, I see record profits in its financial statements. And one of my preferred value metrics is flashing a buy.

Any price-to-sales (P/S) ratio of less than one is considered good value. Metals Exploration is trading on a P/S ratio of 0.46.

Mining for gold

The business is the sole owner of the Runruno gold mine in the Philippines. And the company is expanding.

CEO Darren Bowden announced in January 2024 the company is taking a 72.5% stake in YCM. It owns the rights to the Abra tenement, a 62 square mile gold development 130 miles north of Runruno.

Historically the region has produced over 40m ounces of gold.

Profit with purpose

This year Metals Exploration forecasts profits five times higher than any year since 2017, at $58.5m (£46.4m).

When the FTSE 100-obsessed market wakes up to this fact, it could send the company share price soaring.

The other thing I really like is an extraordinarily high return on capital employed (ROCE). This is a measure of how much money the company produces from what it spends. In the last 12 months the miner has produced an 86% ROCE.

Its fourth-quarter results to 31 December 2023 also show record annual positive free cash flow of $72.3m (£57.3m). And earnings per share are slated to jump from 0.45 cents to 2.40 cents.

Resulting facts

The most recent Metals Exploration half-year results to 30 June 2023 show:

• Record operating profit, up 231%
• Record gold production, up 45%
• Debt reduced by 47%

When I last looked at Metals Exploration, I found net debt of $92.9m too high to consider an investment. Paying that down to $48.8m feels a sensible move.

Factor the risks

At this end of the market, there is lower liquidity — fewer buyers and sellers. There’s some currency risk here too: the company also reports its earnings in US dollars. And net debt is certainly a factor.

But adding new licenses to its stable of mining operations looks like a solid move to me. And a price-to-earnings ratio of just two suggests either:

• The market has low confidence in the stock
• The market is dramatically mispricing the stock

I’m leaning towards the latter. Its annual revenue of £125m is more than double its £55m market cap.

And from less than £1,000/oz in 2017, gold is now selling for over £1,600/oz. So the high current market price of gold will boost everything from profits to the ability to pay down debt.

Smaller is better

Investor James O’Shaughnessy famously touted “tremendous returns” from tiny stocks. This strategy is higher risk, but produced an annual compound return of 20.05% over 40 years.

The FTSE 100 has returned an average of 6.9% a year over the same period.

I know from experience that penny stocks can massively outperform. But only if I pick on the basis of booming profits and strong management.

The post Could this 2p UK penny stock be my biggest investing goldmine? appeared first on The Twelfth Magpie.

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• How much could Barclays shares pay in dividends by 2028?
• With a 6% yield and a P/E of just 7.4, is this share a screaming buy for a second income?
• Forget Nvidia! This ETF is booming inside my Stocks and Shares ISA
• These cheap FTSE 250 shares could deliver a £1,550 ISA income in just 12 months!
• How much in dividends will these high-yield shares generate in 2026?

Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I wrote for The Motley Fool in 2019 that FTSE 250 star Games Workshop (LSE:GAW) would be the perfect share to retire on.

The company manufactures tabletop miniatures for its action-fantasy world, Warhammer.

And it has been incredibly successful.

No rivals

The thing with Games Workshop is that it has no peers. It owns Warhammer outright.
The wargaming hobby has between 3m and 5m players worldwide.

And while it can be a costly pastime, these players are willing to spend huge sums on building their collections.

For research, I ran a straw poll of the friends of mine who got into Warhammer. I asked them how much they’d spent on the game.

“I dread to think,” said my friend James, who works as a programmer in Leeds.

“It must be approaching five figures by now.”

This is not unusual. Games Workshop suggests its target audience for Warhammer figurines is children aged 12 to 17.

But the biggest buyers tend to be parents, and those with plenty of disposable income.

Amazon deal

I don’t think Games Workshop has made the most of its intellectual property yet. But we heard news this year it had inked a deal with Amazon to produce the first Warhammer TV shows.

Looking at the performance of The Witcher developer — CD Projekt — we can parse out what Jeff Bezos’ deal may mean for the British company.

When Amazon signed a deal to produce a TV series with the Polish games studio in 2015, that popular role-playing video game had already hit 20m sales.

As of 2024, sales for the series have increased to over 75m games.

Buy and hold

That said, I’d have to be so comfortable with this FTSE 250 stock that I could look past some hefty share price falls.

From 865p in January 2005, the shares crashed to 123p in July 2008. That’s an 85% drop in three years.

2008 to 2010 was a rough time for the company. It cancelled its 19p per year dividend and for those three years focused on getting the ship back on course.

But crystallising these losses? That would have meant missing out on the run up from 123p in 2008 to 9,975p today. That’s an 8,000% increase.

In capital gains alone, without even taking dividends into account, I could have turned £5,000 into £400,000.

Time in the market

At around £100 per share, I’d need to invest £5,000 today for 50 shares. Today that would bring me £165.51 in dividends annually.

If I reinvest those gains, and add, say, an extra £1,500 per year? After 20 years I’d be sitting on a total return of £91,948.

Of course, nothing is certain in business. This calculation relies on consistent, linear projections, which can be wrong.

62% dividend hike

But the success of the Games Workshop strategy means boss Kevin Rountree has been able to whack up the dividend from 260p in 2023 to 423p in 2024.

That’s a 62% increase year on year.

And one line in particular from the CEO stands out to me.

“We sell our products globally at a profit. We intend to do this forever”, writes Rountree.

That’s a simple, repeatable plan I can get behind.

The post I’d buy 50 shares of this FTSE 250 stock to aim to retire with £90,000-a-year appeared first on The Twelfth Magpie.

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Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has recommended Games Workshop Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Recently I’ve been writing about the FTSE 100 stock crowned the UK’s best performer over the last 40 years. That was Relx, the scientific publisher. 

But there are two others that could also have returned incredible gains. With a couple of set-and-forget investments of £1,000, I could have enjoyed life-changing wealth. 

The Big Smoke

An investment of £1,000 into British American Tobacco (LSE:BATS) in 1984 would be worth over £330,000 today, with all dividends reinvested.  

There are positives and negatives here. 

Today it pays a 10% dividend yield. But the share price has crashed 56% since 2017.

Its earnings per share, the most common measure of profitability, are expected to rise from 350p to 393p in 2025. And the FTSE 100 company says it will push dividends higher, to 254p by 2025.

But buying into an industry in structural decline doesn’t make much sense to me. In 1984, around 35% of men and women in the UK smoked cigarettes. Those numbers have been falling sharply in recent years. As of 2023, data shows that figure has plummeted to 12.9%. 

Power metal

The same investment into Rio Tinto (LSE:RIO) in 1984 would have generated returns of £301,740. Again, that’s by holding long term and reinvesting every dividend payment into more shares. 

The mining giant has been a controversial pick for investors due to its climate issues over the years. A quick Google search will reveal these faster than I could recount them here. 

Still, it expects to grow its earnings per share and its dividend faster and higher than the tobacco company. 

The business expects to plump up today’s 5.9% yield to 7.1% by 2025. It sees earnings per share a whopping 34% higher over the next two years, too. 

There appears to be growing potential from its new iron ore mine in Simandou, Guinea.

More recently it has switched its Australian operations to using renewable energy from the country’s largest solar farm in Queensland.

Timing vs time in the market

So what should we learn? 

Picking a selection of FTSE 100 stocks and holding them, while reinvesting dividends, can produce great wealth over the long term. 

And my focus should not be on buying shares at the perfect time, but my total time in the market.

Take, for example, this advice from Nick Murray. His may not be a name everyone instantly recognises. But his book, Simple Wealth, Inevitable Wealth, has sold over a quarter of a million copies. 

“Time in the market is your greatest natural advantage”, Murray wrote. 

Whereas timing the market — only buying stocks at their absolute lowest, or selling at their absolute highest? 

To do this, I’d need to know exactly what will happen in the future. And be able to predict precisely how all the other investors in the market will react. 

Attempting it is a fool’s game. It’s costly, and time-consuming. Not to mention stressful. And I’ve never met anyone who can do it consistently. 

The biggest lesson to learn is not about picking the perfect FTSE 100 stock.

If I can learn to trust that time is the engine of compounding gains? Then the passage of time becomes my greatest advantage.

The post 2 FTSE 100 stocks that turned £1,000 into £300,000 appeared first on The Twelfth Magpie.

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Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco P.l.c. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Vodafone (LSE:VOD) share price is a head-scratcher, for sure. At its current level around 63p, the FTSE 100 shares are paying a whopping 12% dividend yield.

And a 55% share price crash over the last five years means the company is trading on a price to earnings (P/E) ratio of less than 4.2.

My colleague from The Motley Fool, James Beard, wrote recently on Vodafone’s rivals. He said the two largest telecoms providers in Europe — Deutsche Telekom and Swisscom — trade on P/E ratios of 12 and 14.9.

Butt buying beaten-down companies at bargain prices and compounding the gains over many years is a proven investing strategy. So is now the perfect time to buy Vodafone?

Turnaround potential

It has seen a huge uptick in share trading in 2024. It’s possible investors see its 60p-65p mark as a good buy-in point.

The company has produced consistent sales of between £35bn and £40bn a year between 2018 and today.

But profits? That’s a different story.

In 2018 it made £2bn. Then a £6.8bn loss in 2019. Followed by a £785m loss in 2020, a £59m profit in 2020 and, get this, an £11bn profit in 2021.

Projections suggest around £1.7bn of profit next year, and £2bn by 2025.

Bad news bears

But a slew of negative headlines had turned some investors away from the company. These include:

• A monopoly probe into its merger with mobile phone provider Three
• The Emirates-backed stake in its shares posing a national security risk
• Spending £800m over the last two decades on consultants

And a heavy debt load now approaching £42bn means the market has been downbeat on Vodafone.

This could lead the FTSE 100 company to cut its dividend from 8.9p per share to 6.9p by 2025. That’s according to leading City analysts.

And the company has been engaged in selling off the assets it picked up during its empire-building phase. This inconsistent strategy smacks of poor management.

Kicked out

Could it get kicked out of the FTSE 100? That would be disastrous for Vodafone and its shareholders.

At around 63p, Vodafone’s market cap is £17bn. Only the highest-valued 100 companies in the UK can be in the FTSE 100. If they lose market value, the businesses at the lower end are pushed out of the index.

In general when companies are promoted to the FTSE 100 they see an uplift in prices. The main reason is that a lot of large funds have to buy the newly-added shares.

And the opposite — heavy selling — tends to happen when stocks exit the FTSE 100.

To approach the lower end of the list, around £3.5bn, Vodafone’s share price would have to fall to 13p.

From today’s share price, that would be another drop of around 80%. It’s unlikely, but not impossible.

Will I buy?

Even at bargain prices, I won’t be touching Vodafone just yet. There’s just too much risk sloshing around.

And I need a little more certainty to ensure I’d be buying a company that’s actually on the verge of a turnaround.

The post What’s going on with the Vodafone share price? It now pays a 12% yield! appeared first on The Twelfth Magpie.

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Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone Group Public. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

When I look at the Lloyds (LSE:LLOY) share price I can see why it constantly tops the list of the UK’s most-traded shares.

Shareholders have been hurt time and again by the black horse bank. 

Lloyds shares are down more than 20% in the last 12 months and they’ve never really recovered from the 2008 stock market crash. 

Dividends have softened the blow somewhat. Analysts think Lloyds will pay 2.76p per share dividends this year and 3.24p per share in 2025. 

At a share price around 40p, that means hefty yields between 6.9% and 8.1%. But could rival NatWest (LSE:NWG) be a better buy?

Go west

As of 7 February 2024, I could buy NatWest shares for around 220p. If I’d picked the perfect recent low, in September 2020, I could have doubled my money. 

But it’s basically impossible for me to time the market like this.

However, when NatWest puts out its full-year results in February, I’m expecting a slight improvement. I see profits jumping from £3.5bn to £4bn. 

The opportunity

The government bailed out NatWest amid the financial crisis in 2008 with £45.5bn of taxpayer’s money. 

Chancellor Jeremy Hunt now wants to sell the government’s 39% stake in the bank. And we heard in early February that Hunt has drafted in M&C Saatchi to help make this happen. 

So I’d expect to see a fairly major advertising campaign urging the public to buy NatWest shares. I’m expecting to see this share sale as early as June 2024.  

But would I put my own money down on this opportunity?

Big buybacks

In an effort to push up share prices, UK banks are embarking on a campaign of share buybacks. 

Lloyds and HSBC are tipped “to lead the sector”. Lloyds in particular is set to spend £2bn more on buying back its own shares. This could prop up the ailing share price.

But I found one statistic more interesting from recent reporting. NatWest isn’t on the list of those banks planning to reduce its outstanding shares. 

But its valuation is the most compelling of all, analysts say.

Today the shares are priced at five times its 2025 forecast earnings. That compares favourably with 6.2 times forecast earnings, which is the sector average in Europe. 

And share buybacks — like those ongoing at Lloyds — seem a short-term solution. They aren’t really additive to long-term growth. 

Diving deeper

2024 may be another tough year for UK-listed banks. Analysts expect a key rate of profitability called ‘net interest margin’ to be weak in this financial quarter. 

This is the difference between the interest banks charge on lending, and the amount they have to pay out on borrowing. 

Inflation remains a stubborn problem. This may stop the Bank of England from cutting interest rates. And a weaker outlook for future growth means one thing. Investors may sell out of FTSE 100 stocks to seek better returns elsewhere.

Dividends better?

However, I can see NatWest plans to hike its dividend from 13.8p to 16.9p per share this year. That would give it a 7.8% yield. That’s even better than what’s on offer at Lloyds.

I will be watching NatWest’s earnings report on 16 February 2024. If it’s more profitable than its rival, this could be a great buy for me.

The post NatWest or Lloyds share price: which will climb higher in 2024? appeared first on The Twelfth Magpie.

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Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I started investing late in life, but I’ve still managed to develop thousands of pounds in passive income.

And I think it’s easier than most people believe. Like a lot of readers, I also started with next to nothing.

No savings, no investments and no trust fund. No business interests, and no property. No buy-to-let rental income either.

I had the money I made from freelance writing.

But without passive income, I had no safety net to simply enjoy my leisure time.

So this is how I started.

Zero to hero

Depositing small, regular amounts into a tax-advantaged account like a Stocks and Shares ISA or SIPP is a great way to get up and running.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

It soon grows into a decent stake without you really noticing. Today I’m 42 years old and I have about £4,000 of passive income banked.

Almost exactly half of this comes from share price increases in the growth stocks I own.

The rest is from regular dividend payments from income stocks.

Not all companies pay dividends. These include the biggest names: Amazon, Netflix and the Google owner Alphabet.

Thirst for growth

It can be frustrating to find a stock you like, and see it doesn’t pay dividends. However, it’s not always a binary choice between dividends or growth forever.

For example: one of my best investments did not pay a dividend when I first bought the shares.

However, it will start sending me free dividend cash this year.

This is the £200m market cap viral medicine testing company Hvivo (LSE:HVO).

It trades on the AIM market, one step below the FTSE 250.

Buying shares in what was then an unknown 12p-per-share penny stock was quite scary. But I did a huge amount of research before buying in.

I listened to investor presentations. I looked at their rival companies to see how fast they could grow. I watched like a hawk to see if management actually made good on promises.

Hot profit

Hvivo’s sales shot up from £3.3m in 2019 to £55.5m in 2023.

From losing £5m a year, the company is now raking in £8m a year in profits.

It is vastly more cost-effective for big pharma companies to use Hvivo’s models than any other method. That’s why Hvivo’s pay-up-front clinic model has seen such explosive growth.

So I’ll hold this alongside my other dividend-paying shares.

I’ll use compound growth to my advantage here: reinvesting any dividend payments into buying more shares. For me, that includes 7.5% dividend renewables fund Greencoat UK Wind and the low-cost 13.8% dividend yield metals producer Sylvania Platinum.

Building passive income is a way I’ve used to make my money work for me, rather than the other way around. Given my results to date, I can’t see myself stopping any time soon.

The post How I built £4,000 of passive income starting with £0 appeared first on The Twelfth Magpie.

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Tom Rodgers has positions in Greencoat Uk Wind Plc, Hvivo Plc and Sylvania Platinum. The Motley Fool UK has recommended Greencoat Uk Wind Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The PZ Cussons (LSE:PZC) share price was smashed in early February, dropping almost 20% in a week.

It’s a shock dive for the FTSE 250 shampoo, soaps and toiletries brand.

So what’s happened here and could this be a moment to snap up cheap shares?

Foreign exchange

A large proportion of PZ Cussons sales come from its business in Nigeria.

But the Nigerian currency, the Naira, has crashed over the last 12 months. It’s around 70% weaker than it was in February 2023.

And the country’s market regulator has now effectively devalued the currency by changing how it calculates the rate of exchange.

This means that foreign companies making sales in Naira find the funds they have are not worth as much in pounds or dollars as they were. These currency woes forced the Manchester company to take a whopping £88.2m loss.

Dividend cut

The PZ Cussons board said in a February trading update that it would need to cut its interim dividend by 44% to 1.5p.

Investors hate it when companies cut dividends. That’s because so many people rely on dividends for income in retirement.

And when companies lose that goodwill of their investors they can start to see confidence falter, with persistent share price weakness.

Still — can PZ Cussons stay in business? It’s very likely. This is a company making £55m of profit a year, after all. So it’s possible it could be a good stock to consider buying as a turnaround play.

Instability and uncertainty

PZ Cussons has known for a long time that currency instability could hurt its business.

This is also not a particularly streamlined company, with operations in Indonesia and Australia and New Zealand, as well as the UK and Europe.

The company is generating large revenues but has been forced to revise down its estimates.

Markets hate uncertainty. And when companies have to significantly cut their outlook for how much they’ll make, it forces investors to rip up their plans.

What I’d have made

I first looked at PZ Cussons as a potential buy and hold way back in 2011. That’s because it’s a brand with headquarters just down the road from where I live.

So what if I’d put £1,000 into the company back then when the shares were trading at around 360p? I’d have around 277 shares, which would only be worth £290 today, not including dividends.

And profit margins have been declining for the last couple of years, down from 12% to 9%. So even though sales are steady, the company is retaining less money from its trading.

The bottom line

My major concerns are the low return on capital, return on assets, and return on equity. These are measurements of how much a company gets back from the money it spends.

PZ Cussons is only producing returns in the low single-digits. This says to me that the company isn’t using its spare cash very effectively.

Even as a turnaround play, I think there are better stocks and funds on the FTSE 250.

Those I’ve written about for The Motley Fool recently include the TwentyFour Income Fund that pays 9.7% yield, or abrdn with an 8.6% yield.

With high-yield options everywhere I look, I don’t think PZ Cussons cuts the mustard.

The post A massive loss hits the PZ Cussons share price! Time to bag a bargain? appeared first on The Twelfth Magpie.

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Tom Rodgers has no position in any of the shares mentioned. The Motley Fool UK has recommended PZ Cussons. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.