There are many ways to earn a profit in the stock market (and an equal amount of ways to make a loss!). A favourite method among investors to earn passive income is by owning dividend shares.

With inflation and interest rates on the rise, the stock market is becoming increasingly volatile. For this reason, I am on the hunt for high-yielding, low-risk dividend stocks I can add to my portfolio.

By investing as little as £100 a month into these stocks, and reinvesting the dividends, I believe I could be making well over £10k a year by the time I retire. Here’s how I plan to do it.

The method

I am currently 21, so I would be looking to pay £100 a month for the next 30 years. A spare £100 may be hard to find, but for context, skipping a £3 morning coffee each day pretty much covers it!

The key here is to keep up my payments and reinvest my dividends. By reinvesting my dividends, I can benefit from compound interest. For instance, starting at £0, and by investing £100 a month for 30 years, I could end up with well over £400,000, assuming a 13% annual total return (dividends plus company growth).

Assuming the above growth rate, I would reach my £10k target by year 18.

The stocks

I want to be earning passive income, which means I need to pick high-yielding dividend stocks. The best companies to pick here are slow-growth, stalwart industry giants. These companies are the most likely to turn over regular dividends and keep producing cash flows. A small amount of industry research and checking historic dividend payments should help me here.

A method I would plan to use in order to minimise risk would be to diversify my portfolio. This means picking high-dividend stocks across separate industries. Therefore, if one sector underperforms, its losses may be made up for by growth in another sector.

With the macroeconomic outlook looking increasingly uncertain for the next few years, this could be an essential method to employ.

The risks

While this sounds great on paper, it is not a foolproof method. There is no way of predicting a stock’s future dividend payments or annual returns (if there was, we would all be rich!).

Events like the Covid-19 pandemic force companies to skip dividends and even stop paying them for long periods of time. For this reason, it might take me longer than 18 years to reach my goal of £10k in passive income.

However, by year 30, I am confident that I will be able to hit that goal, even if I have to make some minor changes to my dividend portfolio along the way.

The post How I’m using £100 a month to try to earn £10k a year in passive income appeared first on The Twelfth Magpie.

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Dylan Hood has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone. 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 average retirement age in the UK is 64.5 years and it’s set to rise. And while financial freedom, early retirement and leaving behind the nine-to-five grind are the dreams of many, very few achieve this. However, more people like me are waking up to the power of creating passive income streams. And as a young investor, I have been actively researching investment routes that help create a passive income portfolio to slowly build wealth.

With an aim of retiring by my late 50s, I think I have created a template that could give me that extra decade of retirement time to enjoy. And all it takes is a few hours a month of planning and investing. 

#1 Reinvesting dividends

I have set aside £10,000 to kickstart my passive income portfolio. And with this, I am looking at DRIP (Dividend Reinvestment Plan) as the primary way to keep my passive income portfolio growing in line with expected inflation. 

The DRIP strategy uses the power of compounding. This simple tool is used by investors like Warren Buffett, whose company made $3.8bn in dividends alone in 2018. For the next 20 years, I will reinvest every dividend payout back into my initial investment. And this could increase my payout figures by over two times by the time I am 50. 

Let us assume I pick a stock from the dividend-rich FTSE 100. Companies like M&G and Rio Tinto are dividend aristocrats that offer 8%+ yields and have raised payouts steadily over decades. And I think they could, if current projections are maintained, offer a steady 5% annual yield on average.

Assuming 0% share price and dividend growth over the 20-year period, my investment would be worth £20,000 without DRIP. A £10,000 income from dividends sounds awesome, but it could be so much better.

With DRIP, the same investment would be worth £26,532.98. And the most impressive fact is that my dividend payout after the 20 years would be £1,263.48 received every year. This is over two times the £500 I would receive every year without DRIP. 

#2 Systematic investments

I am also looking to invest an extra £500 a month into this pot, amounting to £6,000 a year, for 20 years. This would take my total investment to £130,000.

And with DRIP investing and systematic payments every year, the final amount would become a whopping £224,928.70 with a payout of £10,425.18 that I will receive every year. I think I could easily receive £1,000 a month with some share price or dividend growth over 20 years. Not a shabby foundation for a passive income play, right?

However, it is important to note that dividend payouts will fluctuate. Dividends can be scrapped when a company (or the economy) struggles. I could actually lose money. Just picking companies with cash reserves or large market shares will not be enough. Being diligent and monitoring my investments periodically is crucial.

Also, putting all my eggs in one basket is unwise. I will continue investing in growth stocks from sectors I see as fairly future-proof to diversify. But I think these two guidelines are a great starting point for me to target a £1,000-a-month passive income stream.

The post Here’s how a £500 passive income plan could help me retire early appeared first on The Twelfth Magpie.

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Suraj Radhakrishnan 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 a long-term dividend shares investor, I’m a firm believer that it’s far easier to save your hard-earned cash when you have a purpose for that money.

For some people, that might be as simple as wanting a better standard of retirement. For others, it’s perhaps a safety net for quitting an unloved job.

As for me, I’m an avid explorer, and suspect I will be for a long time yet. So, the idea of investing in dividend shares to pay for my travels had me hooked from the start.

How do dividend shares pay for my holidays?

The theory of using dividend shares was pretty simple. I planned on investing in enough shares so that the total dividend payments would pay for my travels. And since I wouldn’t touch the underlying investments, they would continue to do so each following year.

So, I started saving money each month, and buying good quality dividend-paying companies. It wasn’t always easy to find the money to save or to know which shares to pick.

And undeniably, it was hardest at the start, when I was saving hard but not seeing much happen. But as any Fool knows, investing is very much a long-term game. It all became far more interesting when the numbers started to add up after a few years.

These days, my dividend portfolio produces enough cash to pay for my trips away every year — now that was worth saving for!

What makes a good dividend portfolio?

When assessing what investments to include in my dividend portfolio, I have a few simple guidelines I look to follow.

• Consistency — are there any gaps in the payment history?
• Growth — are dividends increasing steadily over time?
• Diversification — will this investment help diversify my portfolio?

Following these principles, I now own a wide range of income-paying investments. Usually, I like to have between 10 and 15 different assets. And in that group I have both individual shares, like BP, alongside dividend-focused ETFs such as S&P Euro Dividend Aristocrats.

Why is it so important to have a range? Well, dividends are not guaranteed. But, if a company does cut its dividend, the average dividend yield on my portfolio will fall less when diversified than if I only own one or two shares.

But how did I know how much I needed to save?

How much do I need to have invested?

When working out how much I needed to have invested, it’s the average dividend yield of my portfolio that matters.

For example, my original investment portfolio has grown over time to have an average dividend return of around 10%. That means that if I have £40k invested, the equivalent of two Stocks & Shares ISAs, I will likely generate around £4k each year.

Even with inflation and the cost-of-living challenges, that still gets me a good break away to somewhere warm and sunny.

It’s not completely work-free and I still need to re-evaluate each position regularly. I like to read a diverse range of share analyses, like at The Motley Fool. That means I can swap out any under-performers for better quality investments.

That effort all seems entirely worthwhile when I’m walking down the beach towards a chilled beer. Now that’s happy travels!

The post Dividend shares are paying for my summer holiday! appeared first on The Twelfth Magpie.

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Michelle Freeman has positions in BP and SPDR S&P EURO DIVIDEND ARISTOCRATS ETF. 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.

One way of separating the wheat from the chaff is to look for companies that have better-than-average records of consistently raising their bi-annual payouts.

Here are three examples, all of which come from the FTSE 250 and probably remain under the radar of many private investors.

Cranswick

Meat supplier Cranswick (LSE: CWK) is a great passive income stock, in my view. The company has a long history of growing its annual cash returns to investors. In fact, hikes in recent years have often been by double-digit percentages. So while no dividend stream can be guaranteed, this is exactly the sort of form I’m looking for.

Based on recent trading, I have no concerns over this trend continuing. In its most recent update, the FTSE 250 stock said trading over the festive period has been “comfortably ahead” of the same time in 2020. This was despite “unprecedented industry-wide labour and supply chain challenges” and cost inflation.

Will we still be talking about these headwinds in a few years though? I sincerely doubt it. 

As good as the dividend hikes have been, Cranswick is a fairly low-margin business. Admittedly, the 2.2% forecast yield isn’t all that generous compared to others in the UK market either. 

Still, the amount of free cash flow (essentially, what allows a company to pay passive income to holders) is looking very healthy indeed. This makes me believe the company will continue growing its dividends in the years ahead. 

Bodycote

Heat treatment and thermal processing specialist Bodycote (LSE: BOY) is another FTSE 250 member that’s been increasing its annual payouts to investors for a long time. This quality tends to be indicative of a very resilient company.  

As things stand, Bodycote is expected to yield 21p per share in FY22. That becomes a yield of 3%. Again, this fairly average return doesn’t bother me. I’d rather invest in a company where my passive income is likely to be paid and also increasing every year. 

The shares have fallen 20% in 2022 so far, which highlights how even solid dividend payers can be just as volatile as more growth-focused stocks. Headwinds, such as supply chain disruption and cost inflation, won’t go away overnight either. 

Nevertheless, Bodycote seems to be trading just fine. This month’s full-year results revealed a 7.1% rise in revenues to almost £616m. Operating margins also rose to 15.4%. 

Clarkson

Shipping services provider Clarkson (LSE: CKN) strikes me as another stock that many private investors might be unfamiliar with. Similar to the other two shares mentioned here, the £1.1bn-cap company regularly lifts its annual dividend. In fact, it’s been doing this for the last 19 years! 

A forecast 2.5% yield in 2022 is expected to be covered almost twice by profit. That last bit is important. The greater the dividend cover, the less likely it is that the payment will be cut.

On the downside, shares in Clarkson aren’t a bargain, at almost 21 times earnings. This potentially makes the stock a more risky buy.

Even so, the balance sheet looks pretty solid to me. Earlier this month, Clarkson also announced record underlying pre-tax profit of £69.4m for 2021. Maintaining this kind of form should allow the passive income to keep ticking higher.

The post 3 ‘secret’ FTSE 250 stocks to buy for passive income appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bodycote. 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.

Many investors will be drawn to the ‘usual suspects’ for their dividend fix, namely FTSE 100 companies. However, I think looking further down the market spectrum can also be a good idea. Here are three less-well-known shares I’d be prepared to buy today.

Liontrust Asset Management

Like many other listed companies, fund manager Liontrust (LSE: LIO) hasn’t had the greatest of starts to 2022. Actually, that’s an understatement. Its share price has now tumbled 24% year-to-date, most likely due to concerns that profits will fall due to people pulling their money out of the market. 

That’s said, it’s still up 34% over the last 12 months. And, of course, the beauty of investing for dividends is that I can take such volatility in my stride so long as the passive income keeps rolling in. 

Importantly, Liontrust has consistently hiked its annual payout by a double-digit percentage for many years. Analysts have the company returning 64.1p per share in the current financial year. At today’s share price, that equates to a yield of 4%. It’s also sufficiently covered by profits, making a cut unlikely.

That said, investors need to be aware that the fund management industry is notoriously competitive and there’s always a risk Liontrust may need to cut fees to help retain clients.

Redde Northgate

Redde Northgate (LSE: REDD) provides “mobility solutions and automotive solutions” to businesses. It also strikes me as a great source of dividends.

The £1bn-cap company looks set to return 19.4p per share to holders in FY22, giving a chunky yield of 4.9%. This should help holders to keep up with rising costs. Like Liontrust, the payouts are safely covered by expected earnings. With the exception of 2020, Redde Northgate is also a regular dividend hiker. 

The shares aren’t exactly expensive either, changing hands for nine times forecast earnings. That’s despite the company’s value rising 45% over the last 12 months!

I suppose one thing to bear in mind here is that Redde Northgate may need to replenish its fleet of vehicles every now and then. That could end up reducing margins significantly, especially at today’s prices.  

Synthomer

Chemicals firm Synthomer (LSE: SYNT) is a final secret stock offering a tempting dividend yield. It’s a leading supplier of aqueous polymers that are used in things such as latex gloves.

Just like the aforementioned asset manager, Synthomer’s share price has been on a downer since the beginning of 2022. In the last 12 months, it’s fallen 22%. On a positive note, this does leave them looking cheap at just seven times expected earnings. 

Unfortunately, the dividend is expected to fall by 22% this year. However, I’m including it here for two simple reasons. First, the yield is still expected to be 5%, which is a far more passive income than I’d get from a cash savings account. Second, this payout looks thoroughly secure based on predicted profits. 

Similar to Redde Northgate, a risk with Synthomer is that supply chain hold-ups may impede growth. This may explain why the shares have been out of form recently.

Notwithstanding this, the vast majority of brokers covering the company remain positive. This suggests now might be as good a time as any for long-term investors like me to load up.

The post 3 secret inflation-busting dividend stocks to buy for passive income appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Synthomer. 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.

BAE Systems

The recent flurry of activity in the defence sector has turned the spotlight back on juggernaut BAE Systems (LSE: BA). For me, this has (and will continue to be) a great source of dividends. 

The company’s down to return 24.6p per share in FY21. Using last Friday’s closing share price of 571p, that’s a yield of 4.3% — higher than that generated by the FTSE 100. What’s more, this income stream can be bought at a good price. Right now, BAE shares are changing hands for 12 times earnings. 

Of course, there are some drawbacks to investing here. I sincerely doubt BAE’s share price will ever explode. So, one ‘risk’ (aside from a dip in defence spending) is that I could ultimately make more money buying a stock with faster growth prospects and a more modest payout.  It’s also worth mentioning that dividend hikes, while consistent, aren’t massive, at roughly 2-4% a year.

Bunzl

If I were concerned with dividend growth rather than the size of those dividends, Bunzl (LSE: BNZL) is another company that would easily make my FTSE 100 shortlist. It’s been one of the most reliable top-tier hikers for years.

The reason for this is partly because it works in a defensive sector. Bunzl supplies consumable products such as disposable tableware, hygiene supplies and food packaging around the globe. It’s deadly dull stuff. And that’s what makes it so great, in my opinion.

As mentioned however, one potential drawback is the relatively small yield. A 55.4p per share return this year equates to 2.1%. That’s below what I could get from the FTSE 100 as a whole. So, is it worth taking on single stock risk if I could just buy a tracker and be done with it?

Personally, I think it might be, even if Bunzl trades on almost 19 times earnings. While hardly shooting the lights out, shares have done far better than the FTSE 100 over the very long term. And if dividends were reinvested, I suspect the difference in returns is even more stark. 

DCC

Dublin-based DCC (LSE: DCC) is my third pick of the best stocks to buy for dividend growth. Like BAE and Bunzl, the £6bn-cap sales, marketing and support services firm has a wonderfully-unblemished record of hiking its bi-annual payouts. 

Based on a potential 170p per share return in the current financial year, DCC yields 2.8%. Again, this is low relative to the FTSE 100 (and other constituents). However, the size of hikes in recent years is worth paying attention to.

Double-digit increases were seen in 2017, 2018 and in the last financial year. This is no guide for the future, of course, but it does make DCC stand out. What’s more, the shares still trade on a little less than 14 times earnings. 

Like the other companies however, DCC’s share price performance is unlikely to rival some of the index’s more glitzy members. I’d also need to be aware that this multi-faceted business could be impacted by a slowdown in demand for things like healthcare supplies and oil.  

The post FTSE 100: 3 of the best stocks to buy for dividend growth appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Bunzl. 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.

Jersey Electric

As its name suggests, market minnow Jersey Electric (LSE: JEL) supplies electricity to approximately 50,000 domestic and commercial customers on the island. Importantly, it’s the only company to do so, making it arguably as defensive as small-cap stocks come. 

As a result of this, Jersey has shown itself to be an extremely consistent dividend raiser (+5% every year).  A total payout of 17.3p per share is expected in FY21. That’s a 2.9% yield; not massive but easily covered by profit.

As one might expect from a solid income payer, however, JEL’s share price performance has been adequate rather than explosive. The stock is up 44% in value since 2016. That’s clearly a whole lot less than other UK shares. So, a danger with JEL is that I wouldn’t get much in the way of capital growth. A valuation of 16 times earnings for a predictable utility stock isn’t exactly cheap either. 

Still, that predictability might suit me down to the ground if income were a priority. If/when markets correct, I can be pretty confident that JEL will recover quickly. That’s exactly what happened last year. 

NWF 

Small-cap NWF Group (LSE: NWF) describes itself as a “specialist distributor of fuel, food and feed across the UK“. Like Jersey Electric, it’s also a brilliantly regular dividend hiker. This potentially makes it another one of the best shares to buy at this end of the market spectrum.

The company is down to return 7.34p per share to holders in FY22, at least according to analysts. That’s a yield of 3.43% at last Friday’s closing price. Some might say that’s not enough given that shares in minnows can be pretty volatile due to their illiquid nature. Margins are also wafer-thin.

In NWF’s defence, its annual payouts are usually very well covered by profits, making them pretty secure. That’s more than you can say for some far larger stocks these days. On top of this, NWT’s shares aren’t expensive relative to the wider market. I could pick some up today for 12 times forecast earnings. 

Wynnstay

Agricultural product manufacturer Wynnstay (LSE: WYN) has shown itself to be admirably predictable when it comes to returning cash to its owners. We’re talking about an average hike of +5%, with the total sum always covered by profits.

A potential 15.2p per share in FY21 would give a yield of 2.7%. That’s the lowest of those mentioned here. However, it’s important to consider the impact of many years of compounding that regular dividends enable.

There are drawbacks, of course. Margins, like those at NWF, are seriously low. And, although performing superbly over the last year (+64%), WYN’s shares are now only back to the level they were in 2016. Like most things in life (and investing), I think balance is key. I would never fill an income-focused portfolio solely with small-cap stocks.

So, while Wynnstay might make a nice addition, I’d aim to reduce volatility by also holding some larger dividend hikers as well. 

The post Small-cap income: 3 of the best shares to buy for rising dividends appeared first on The Twelfth Magpie.

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Paul Summers 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.

Investec

Asset manager Investec (LSE: INVP) is one stock that, 2020 aside, has reliably increased its dividends. I’m intentionally ignoring last year because a global pandemic (and the many dividend cancellations ) will hopefully prove an anomaly.  

Based on data from Stockopedia, Investec is down to return 18.7p per share in the current financial year. This would represent a 44% hike to the total payout. At last Friday’s closing price of 298p, that becomes a monster yield of 6.3%. Importantly, this payout looks set to be covered well over twice by profits. In other words, it looks very secure. Another positive with Investec is that its shares look cheap at a little under 8 times earnings.

That said, it’s important for me to be aware that financial stocks such as Investec are vulnerable to economic setbacks. Should the global recovery slow, there’s a possibility that the INVP share price will lose momentum. The stock is also still to recover to pre-Covid levels. 

Redde Northgate

Integrated mobility platform Redde Northgate (LSE: REDD) supplies vehicles to businesses alongside maintenance, repair, recovery and accident services. That sounds dull as ditchwater. However, this is another FTSE 250 constituent with a good record of regularly raising its payouts. And when I’m looking for dividends, that’s all that really matters.

A 17.8p per share return is expected in FY22. That’s a yield of 4.1%. For perspective, the FTSE 250 index itself returns just 1.8%. Like Investec, REDD’s cash returns are protected twice by earnings. 

REDD stock recently hit a three-year high as a result of the company snapping up electric vehicle charging equipment supplier ChargedEV. This sounds like a prudent acquisition to me considering the growth expected in this area over the next decade or so as more customers transition away from internal combustion engines.

A P/E of 12 also looks great value as things stand. Then again, REDD doesn’t have the high returns on capital and chunky profit margins I usually look for as a way of lowering risk. So, I’d need to make an exception here. 

Synthomer

Speciality chemicals firm Synthomer (LSE: SYNT) is a final example of what I consider to be one of the best stocks to buy for rising income. 

Analysts believe that SYNT will return a total of 23.5p to owners in FY21. If this comes to pass, it would represent a doubling of 2020’s payout. Again, this cash return would be easily covered by profit. In fact, Synthomer’s dividend is the safest of those mentioned by this measure. 

I’d also be buying a stake in a company in rude health. Synthomer reported a threefold increase in EBITDA (to £322.7m) over the first six months of 2021. Importantly, this was also above that logged for (pre-Covid) H1 2019.

I think this makes the stock — at just below 8 times earnings — look a steal. Even so, I’d be careful not to assume that recent dividend hikes will be replicated. Moreover, no income stream in the world is ever guaranteed.

The post FTSE 250: 3 of the best stocks to buy for rising dividends appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Synthomer. 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.

Has Dechra been doing well?

You could say that. Thanks to a combination of manufacturing sites remaining operational during the pandemic and the explosion of pet ownership, this firm has been very busy indeed. As CEO Ian Page said recently, it’s clear “people have been spending more time with their pets and have therefore been more cognitive of their welfare”.

All this has really boosted DPH’s top line. In July, the company said a “stronger than expected trading performance” had continued to the end of June. It now expects group revenue for the full year to come in 21% higher.

Pleasingly, a good amount of this growth was organic. However, the acquisitions of products such as ear infection gel Osurnia and weight gain drug Mirataz have also helped. The latter is already performing “ahead of expectations” following its launch. 

FTSE 100 beater

As one might expect, such robust trading has done the DPH share price no harm. Having climbed nearly 70% over the last 12 months, the company is currently valued at £5.7bn. In sharp contrast, the FTSE 100 has climbed ‘just’ 19% since August 2020. 

This difference in returns is even starker over the long term. Had I bought the stock five years ago, I would have trebled my money. The FTSE 100 is up a little less than 4% since 2016. In short, Dechra Pharmaceuticals is another example of how investing in a fairly concentrated group of individual stocks has the potential to deliver a far better return than the index.

Sky-high valuation

This is not to say there are no drawbacks to investing here.

The first relates to its valuation. Having done so well, the shares now look seriously expensive to acquire at 46 times earnings. For that price, I want to see a company generating things like sky-high returns on capital. That’s not the case here. Yes, pet ownership shows no signs of decreasing. And yes, the share price could also conceivably rise as FTSE 100-focused funds are forced to buy. However, I’m still not sure I’d be getting great value for money.

Despite being a regular dividend-hiker, DPH also wouldn’t be my first choice if I were looking to produce income from my investments. Based on a potential 41.1p per share return in the current financial year, the stock yields just 0.7%. That’s a lot less than that offered by some stocks in the top tier. Even the FTSE 100 index as a whole yields 3.4%.

I’d buy the (inevitable?) dip

As someone who’s hugely positive about companies operating in the petcare space, I’m not surprised by Dechra’s almost certain promotion to the FTSE 100. Then again, I can’t help but think that an awful lot of good news is priced in. So, this business stays on my watchlist for now. Should markets take a turn for the worse and good stocks fall alongside bad ones, I’ll be more likely to pull the trigger. 

The post FTSE 100 reshuffle: time to buy this hot growth stock? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Meggitt and Morrisons. 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.

“Best-ever” sales

The figure of £725m may have been below the predicted £781m but this does not appear to be bothering the market much. The FTSE 100 stock is up well over 4% as I type.

I suspect this is partly due to Aviva logging some of its “best-ever” figures. UK general insurance sales hit their highest level in 10 years. Net inflows in its Savings and Retirement division also jumped 24% to £5.2bn.

Elsewhere, there was evidence of Aviva continuing to become a leaner beast. In addition to selling off many of its businesses as part of its transformation plan, the firm has been cutting costs. These fell 2% over the period with the company on track to meet its £300m savings target in 2022.

All told, I suspect existing holders will be pretty satisfied with today’s news. So, what does the future hold?

Where next for the Aviva share price?

Taking into account today’s rise, the Aviva share price has now climbed 30% in 2021. That’s a great gain for existing owners. However, many other companies in the FTSE 100 have seen similar increases. What’s more, the stock still changes hands for less than it did before the pandemic took hold.

I suspect we’ll see this boundary breached in short order. Aviva’s outlook feels pretty rosy, at least based on what the company is telling us.  

Unsurprisingly, the £16bn cap predicts its Savings and Retirement area will continue to grow. In insurance, the company also has “excellent opportunities for growth“.

This is not to say there aren’t risks. Lower prices in some areas (motor insurance, for instance) will “increasingly impact earnings“, Aviva said. I suspect a slowdown in UK economic growth could also impact progress.

Dividend growth

While further good trading will do the Aviva share price no harm, I suspect there are a couple of other reasons why positive sentiment around the stock should grow.

Based on analyst projections, the FTSE 100 company is down to hand out 21.9p per share for the whole year. That would equate to a 5.2% yield at the current share price. Although I could get a higher return elsewhere in the index, this payout is likely to be covered well over twice by profits. This means there’s no danger of a dividend cut on the horizon. The yield is also far higher than the FTSE 100 as a whole (3.2%). 

The good news continues. In today’s statement, CEO Amanda Blanc said Aviva would also be returning “at least” £4bn to owners by the end of the first half of 2022. This will begin with a share buyback of up to £750m. A buyback is usually good news for the share price since it increases the ownership stakes of the remaining holders.

Cheap FTSE 100 income

Despite the recent, sustained rise to the Aviva share price, the stock still trades on just 8 times forecast earnings. That still looks reasonable to me. Taking this and all of today’s news into account, I’d be comfortable snapping up this stock today as part of an income-focused ISA.  

The post A cheap FTSE 100 dividend stock I’d buy for my ISA appeared first on The Twelfth Magpie.

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Paul Summers 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.