Abrdn (LSE:ABDN) shares have had a difficult year. The asset manager began 2022 buoyed by improving financials only to be hit by sky-high inflation and the worsening economic outlook of the UK. 

In the first half (H1) of 2022, the firm recorded a total pre-tax loss of £320m. Fee-based revenue dropped 8% to £696m and adjusted operating profits fell 28% to £115m. 

As a result, Abrdn shares are down 47% in 12 months and 42% so far in 2022.

This prompted a demotion from the FTSE 100 in September and the investment firm is now a part of the mid-cap FTSE 250 index. 

But things could be changing. Abrdn shares are up 8% in the last week. Could this beaten-down stock present a mixture of growth and value, factoring in this historic decline and the 10.7% dividend yield? Let’s find out. 

Cheap or a value trap?

Most shares that fall nearly 50% in a year will appear cheap on paper. Looking at the performance of Abrdn shares performance over time, it is clear that the firm has declined steadily since hitting an all-time high of 571p in 2015.

The company has undergone many changes over the last decade, including a merger and subsequent sale of the Standard Life business, several high-profile boardroom changes, and a rebranding effort.

Most investment firms are struggling at the moment. The larger economic collapse in the UK has caused trading volumes to drop. 

This marketwide pullback caused Abrdn’s assets under management (AUM) to fall £34bn in H1 2022. Despite this, the company has managed to hold on to its position as one of the largest asset managers in the UK. 

And I think the latest collapse in Abrdn shares is primarily due to current market conditions rather than a failing business model. This is why I still hold on to my opinion that it is a bargain right now.  

Positives and verdict

Abrdn has been a consistent dividend payer for over 15 years now. In July 2022, the company managed to roll out a share buyback worth £300m. The board also announced its plans to return £500m to shareholders after the firm was removed from the FTSE 100 last month. 

The firm has also changed how it uses excess cash. While many analysts questioned the acquisition of Interactive Investor for £1.5bn, the firm has also been shedding excesses to generate more cash. 

Heading into H2 2022, the investment firm sold two of its stakes in HDFC for about £500m. The company also sold £300m worth of Phoenix Group shares to fund the aforementioned share buyback program.  

This makes me optimistic that the company plans on maintaining a decent dividend going forward. While the current yield of 10% might be unsustainable given falling profits, I think the annual yield will remain higher than the FTSE 100 average of 3.5%. 

When the economy recovers, I expect large asset managers to recover quickly. Given its current sky-high yield and history of shareholder returns, I think Abrdn shares currently offer a nice mix of growth potential and value. I am wary of further economic turmoil in the UK, which is why I am looking at a £1,000 lump sum investment when conditions stabilise. 

The post Up 8% in a week! Can beaten-down Abrdn shares make a comeback?  appeared first on The Twelfth Magpie.

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• How much second income could I make from £10k in the stock market?
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• How much do I have to invest in this newly-promoted FTSE gem to target £7,927 a year in passive income?
• Aberdeen shares are back in the FTSE 100 — is this turnaround stock just getting started?

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.

The FTSE 100 is falling fast and is at its lowest level in over 15 months. However, share buybacks by top Footsie companies are at all-time highs. Several industries are seeing record profits and will come out of this slump in a better financial position. 

I see this as the perfect opportunity to load up on some quality stock at great prices. And one firm looks like a good value pick to me.

DS Smith (LSE:SMDS) shares are currently trading at 267p. They have a price-to-earnings (P/E) ratio of 13.1 times and offer a dividend yield of 5.6%. This looks like a great bargain to me, and the company’s latest financial update has made investors very happy.

DS Smith shares could take off

Dividends stocks are under the spotlight right now. Chancellor Kwasi Kwarteng’s latest plans will see the tax on dividends lowered by 1.25%. This comes after share buybacks by UK firms hit a record of £16.2bn in the second quarter (Q2) of 2022. 

This shows that despite the turbulence in the market right now, investors who buy and hold quality shares will be rewarded. Returns from share price movements are low right now. But if I make smart decisions today and grow my passive income portfolio, I could benefit from higher payouts for decades.

This is where DS Smith shares look like a good option to me. The global packaging firm released a strong trading update this week. For the first half (H1) of 2022 (ended 31 October) operating profits are expected to be at least £400m, beating all previous estimates. To put this in perspective, total operating profits in FY2021 were £616m. 

This is great news for DH Smith’s dividend moving forward. The already sizeable yield could grow in the coming months if H2 performance meets expectations. Current full-year earnings projections will put year-on-year earnings growth at 10.9%.

After the update was released, DS Smith shares jumped over 12% in a day. But it is still trading 42% below its post-pandemic highs of 461p set in September 2021.

Concerns and verdict

With the FTSE 100 struggling to find stability, it is hard to say if this update alone could trigger a share price rise. In fact, the company posted decent results in line with expectations last year. However, its share price continued to fall. DS Smith shares are down over 30% in the last 12 months and 32% in 2022. 

Also, paper prices have remained high after the pandemic and are projected to rise over 2.5% annually for the next five years. DS Smith already has razor-thin margins. The e-commerce surge over the last 24 months has triggered a huge demand for packaging materials like cardboard. And rising paper pulp prices could put a strain on future revenue. 

However, I am optimistic that DS Smith can hit its new targets this year, which would increase investor interest. Given its size and global presence, I think the firm is well-placed to navigate rising raw material costs. I think DS Smith could offer a good mix of value and growth for my portfolio, which is why I am willing to invest if signs of recovery grow stronger. 

The post Are DS Smith shares the FTSE 100’s best bargain right now?  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 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.

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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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

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 finance firm’s stock looks cheap right now with a yield of over 9%. But should I invest or be wary of a value trap? Let’s find out. 

Passive income is the way 

My main goal for my investing journey is to maximise savings from my day job and retire early. And this quest for financial freedom isn’t unique. Millions of investors have slowly woken up to the power of dividends. Looking at the Google search data for ‘passive income’ since 2004 (see chart below), the jump in popularity over the last two years is clear.

A stable passive income portfolio could be incredibly rewarding in the long run. Many investors have used dividends to retire in their 40s. And it doesn’t require complicated analysis either. Looking for stable businesses with strong cash flow and a history of dividend hikes is a good starting point. How do Abrdn shares fare in these areas? 

Share price analysis 

Abrdn shares are currently trading at 160p at a price-earnings ratio of a measly 3.5 times. Factoring in the 9.1% dividend yield, this asset manager’s stock looks very attractive on paper. 

But shareholders have been selling this stock in record numbers. Down 44% over the last 12 months, Abrdn shares rank 98th in the FTSE 100 for returns. 

Looking at the 2021 results, I think the asset manager had a strong year. Its fee-based revenue model generated over £1.5bn from its total assets under management (AUM) worth £542bn.

As of 2022, Abrdn’s 9.1% yield is covered 1.18 times on an adjusted capital generation basis. While this is higher than 2020’s cover of 0.84 times, the board has made it clear that the current 14.6p per share payout will remain unchanged until a capital cover of  1.5 times is met. 

This makes a dividend rise in 2022 unlikely. But the board is confident of a progressive dividend hike in the next few years so the firm may be able to maintain its high yield longer term.

A major concern here is the revenue from fees. The current economic slowdown is already affecting the average trading volume in the US and UK. People are likely to protect savings during inflation, which could cause private investment figures to drop. And historically, finance firms perform poorly during inflation because of lower activity. 

I also understand that passive income can’t make me rich overnight or completely offset the effects of inflation. Depending on my capital, it could take decades of diligent investing before payouts are large enough to support my retirement.

However, as a passive income option for the long term, the Abrdn share price looks very attractive right now. The company seems to be in a decent financial position and the board is expecting a tidy jump in earnings this year as well. But I think I will wait for the half-yearly results scheduled for 9 August. I’d consider an investment in Abrdn if the results look favourable.

The post Should I buy Abrdn shares just for the 9.1% dividend?  appeared first on The Twelfth Magpie.

More reading

• How much second income could I make from £10k in the stock market?
• Has this FTSE 100 dividend stock finally turned a corner?
• How much do I have to invest in this newly-promoted FTSE gem to target £7,927 a year in passive income?
• Aberdeen shares are back in the FTSE 100 — is this turnaround stock just getting started?

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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• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

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.

I think that one of the best ways to build a passive income stream is through investing in dividend stocks. Many companies pay shareholders some of the profit they make in a given year and this payment is called a dividend.

The average dividend yield for the FTSE 100 right now is 4.1%. I believe this is a decent amount to use when determining the UK stock market’s ability to provide passive income through shareholder dividends.

Average yields

The Footsie’s average yield fluctuates as the companies in it adjust their payments to fit their financial situations and as share prices change. Sometimes the yields can go up, but they can also go down. However, several UK firms pay more than the average of the FTSE 100 index. As I write, Rio Tinto, the major mining firm, has a dividend yield of just over 9.8%. National Grid, the utility focusing on electricity, estimates a yield of around 4.6%. Vodafone, the telecommunications company, is paying roughly 5.9%.

These numbers are all higher than the FTSE average. But it’s worth remembering that no company is under obligation to issue a dividend and may be forced to cancel them in extreme circumstances. The covid-19 pandemic forced lots of UK companies to do this in 2020.

Pay attention and diversify

Different industries make money in different ways. Some can be expected to be steady earners all year round. Others, like mining and commodities, can be more cyclical. For companies like these, dividends might come and go. But that doesn’t rule out the possibility of me investing in cyclical stocks. It simply means that I must choose the right moments to invest and keep a close check on my equities while they are held.

Natural resources stocks are attractive to me right now, so I’m interested in companies like Glencore, Anglo American, and BP. However, when it comes to a dividend-driven investment plan, I believe that diversification across sectors is very important. I know that these industries probably won’t be booming so much in the future. So defensive stocks like Imperial Brands, Tate & Lyle, and some others highlighted in this article would also be on my radar.

High-dividend stocks tend to have other valuable qualities as well, which is one of their greatest advantages. And one hypothesis I’m following right now is that in the next bull market, firms with strong value characteristics would likely lead the charge upward.

After all, it’s difficult to dispute that growth stocks with high valuations have recently seen significant losses. And it might indicate that they’ve had their moment in the spotlight for the time being, and possibly for years to come.

£1,000 per month in dividends

To earn £1,000 each month in dividends, I would need a portfolio worth around £300k. At 4.1% I could potentially receive £12,000 in yearly dividend income. Building a portfolio of this size will require careful planning, saving and investing over many years. But it’s not impossible. By starting to invest today, focusing on the long term, and reinvesting the dividends I earn along the way, I could reach that goal much sooner than by simply saving.

The post How I plan to use investing to earn £1,000 a month in passive income appeared first on The Twelfth Magpie.

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• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

James Reynolds 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.

The prospect of earning money without having to work for it is enticing. But is it too good to be true? Depending on how one approaches it, I don’t believe so. Investing in dividend stocks, for example, is one of my favourite passive income ideas. I can earn without lifting a finger by owning a little portion of a major corporation that pays out some of its income as dividends.

Here’s how I’d use £40 every week to invest in dividend stocks and create passive income streams.

Build good habits

My first step would be to start saving £40 each week. I could start doing this by setting up a direct debit or by stuffing money into a piggy bank regularly. In any case, I believe that developing a habit of regular saving is critical to my passive income goals. That way, when additional financial pressures emerge, as they certainly will, I can concentrate on how to keep my monthly donations going.

Although it would take some time for me to accumulate a large enough balance to make investing beneficial, I would open a share-dealing account on the first day. That way, when I’m ready to start buying dividend stocks, I’ll be able to do it quickly.

Finding dividend shares to buy

As the pounds piled up, I’d spend weeks looking for dividend stocks that fit my requirements. I’d like to avoid some of the most typical blunders individuals make when they first start investing.

For example, let’s say I come across Ferrexpo (LSE: FXPO), which has a 12% yield. If I invest £1,000 in Ferrexpo shares, I should be able to earn around £120 each year in passive income. Not too shabby at first glance. However, upon closer inspection, there are certain dangers. Ferrexpo’s profits are centred on a single Ukrainian mining site. Its capacity to produce profits and pay dividends in the future may be harmed by its concentration of production in a nation with high political risk. Furthermore, the price of iron ore has an impact on its profitability. That explains why the dividend last year was more than 10 times more than it was four years ago.

Depending on my specific investment objectives and risk tolerance, Ferrexpo could still be a suitable choice for me. The idea is that before purchasing any dividend stocks, I need to conduct extensive research. I wouldn’t just look at a company’s yield without trying to figure out where the cash for dividends comes from. I’d look for stocks with strong business strategies that might potentially maintain or boost dividends in the future.

Passive income expectations

After saving £40 per week, I’d have £2,080 by the end of the year. So, if I invested in shares that yielded 5% on average, I’d expect to receive roughly £104 in yearly income in my first year. That isn’t a tremendous sum, to be sure. However, it might be the start of a series of realistic passive income sources for me. If I keep at this, week after week, year after year I can expect to have built a reasonable portfolio by the time I retire.

The post My plan to build a passive income portfolio with just £40 per week appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

James Reynolds 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.

Warren Buffett famously said, “If you don’t find a way to make money while you sleep, you’ll work till you die”. We all want passive income, and building it is one of the best ways to achieve that financial independence. There are many forms of passive income, like owning rental properties or a business. But dividend investing is my personal favourite. 

Dividends

Dividends are a portion of a company’s profits allocated to its shareholders. These payments can be made once, twice, or even four times a year and are often reflective of how profitable that company has been. Dividend investing is a strategy by which investors build a portfolio of reliable companies that regularly pay a stable dividend, which can then be re-invested into that portfolio. This strategy is very popular in the UK and in recent years we have seen record high dividend yields. Some even going to 13% or 15% of the share’s value!

Average yield

But these high rates are usually unsustainable over the long term. For example, the mining company EVRAZ paid 53p per share in 2019, a whopping 13.39% of the share price. But EVRAZ only paid 42p in 2017 and didn’t pay anything in 2016 or 2015.

The vast majority of UK companies pay a dividend of around 4%. This year, companies like BAE systems and Unilever are expected to allocate 4.22% and 3.39% respectively. It’s worth remembering that no company is under any obligation to increase, maintain, or even pay a dividend. Consistency is everything.

Capital needed

To reach my goal of £300 per month, I will need a total pot of £90,000. Four percent of £90,000 is £3,600. That, divided over 12 months is £300.

While I don’t have anywhere near that money on hand, if I save £250 per month, I would reach that magic number in about 30 years. 

Admittedly 30 years is a long time, but if I start investing that money right away, then the compounding interest will bring that date forwards faster. Now I just need to choose some companies.

Companies

While the goal is to aim for safe companies I can rely on, I do think it’s worth taking a few risks to help speed up the clock. I have spoken at length about how much I like Imperial Brands. The tobacco company has paid a sizeable dividend to its shareholders at least twice a year since 2002. The average yield today is actually 8.9%.

Since my plan uses 4% over 30 years as its benchmark, I’m not worried if Imperial Brands decides to cut down its dividend payment. However, I do think its important I don’t rely on this process and balance out the portfolio with smaller yield companies which I can depend on more consistently.

Lloyds Bank makes a dividend payment of around 2.6% which is beneath my target, but would balance out the risk. Finally, I would choose Unilever as the company is large, profitable, and currently pays a 3.39% dividend.

None of this is a guarantee for the future. Any one of these companies may eventually collapse for some unforeseen reason. All investing bears risks. But without risks one cannot achieve a reward. The important thing is to build a diverse portfolio so that, when retirement comes, I will have a passive income stream I can rely on.

The post Building passive income: how I’m aiming to generate £300 per month in dividends appeared first on The Twelfth Magpie.

More reading

• Why Barclays shares could have a huge second half of 2026
• Back below 500p, is it time to consider BP shares again?
• Is there any value left in Lloyds shares now they’re over £1?
• How much would I need in a Stocks and Shares ISA to target £19,036 a year in second income?
• After huge new nuclear deals, are Rolls-Royce’s sub-£15 shares set to power higher?

James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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 Lloyds (LSE: LLOY) share price is bouncing back from a tough 2020. The price has soared approximately 25% year to date, from 35p to 44p. And it’s up from just under 30p a year ago.

But while my Foolish colleague Cliff D’Arcy thinks that Lloyds will continue to have a great 2021, I have concerns. Especially regarding the implications of its upcoming ex-dividend date.

What is ex-dividend?

Ex-dividend describes a stock that is trading without the value of the next dividend payment. The ex-dividend date is the day the stock starts trading without the value of its next dividend payment.

That means if a Lloyds investor bought the stock before the ex-dividend date, they would be entitled to the bank’s final dividend of 0.57p per share. This is the maximum dividend payment amount permitted by banking regulators in Britain. However, if they were to buy the stock later, they wouldn’t be entitled to the bank’s final dividend.

The ex-dividend date for the final dividend has been set as today, April 15, with the record date —  the date by which investors must be on the company’s books in order to receive the dividend — set for tomorrow.

Lloyds is set to pay that final dividend on May 25.

What this payment means for Lloyds investors

Though I think Lloyds is in for some volatility this week, ex-dividends aren’t a long-term concern. Volatility happens because dividends are typically paid in cash and in such a case, represent a distribution of retained earnings. Ultimately, dividends paid could make up a small or large percentage of a company’s overall market value and therefore trigger differing levels of volatility on the ex-dividend date.

For now though, there are more pressing concerns regarding Lloyds as an investment that I wish to address.

Should Lloyds investors be concerned?

Lloyds had a poor 2020 as profits fell 70% year-on-year to £1.2bn. I believe this was to be expected, especially at a time of ultra-low interest rates. Lloyds generates revenue by taking deposits and lending funds. Low interest rates mean lower returns.

Another concern is an increase in the average British person’s savings. By the end of 2020, average savings had increased 25% to 15.6% of disposable income. This savings glut will add £180bn to UK household savings in the five quarters to June 2021. But this wave of deposits isn’t good news for banks, which will struggle to lend people money profitably. It seems, Britain’s new-found love of saving could actually act as a drag on the Lloyds share price.

Despite this, Lloyds investors will be pleased with the company share price’s apparent comeback in 2021. And while personal loan numbers may take a hit, business loans could be on the rise, boosting investor sentiment. As businesses reopen post-Covid, Lloyds, being one of the UK’s biggest lenders to consumers and corporates, should see higher loan growth translate into increased earnings.

Lloyds still has plenty going for it. And though I believe it will temporarily drop due to its ex-dividend date, I don’t think it will be a long-term issue. My focus is on its fundamentals, such as its loan business, and they look promising, which is why I’m keeping it on my watchlist for now.

I will wait out any potential volatility and allow the dust to settle before considering an investment when the economy fully reopens.

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The Motley Fool UK has recommended Lloyds Banking Group. 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 UK became the first major economy to pass a net-zero emissions law in 2019. This requires various industrial sector companies to eliminate all greenhouse gas emissions by 2050. Contrary to popular belief, the transition to net-zero emissions appears to be progressing well. In 2018, UK emissions were 44% lower than levels in 1990, primarily due to innovations in the energy sector.

Today renewable energy technologies generate approximately 46% of electricity. Wind farms generate 33% of that. 

A renewable opportunity in the FTSE 250?

Greencoat UK Wind (LSE:UKW) is an investment trust that specialises in UK wind farms. It allows investors to indirectly own wind turbines and profit from the electricity they generate.

The business is quite simple. Led by the board of directors, the trust identifies critical wind assets around the country and adds them to the portfolio.

Greencoat sells the energy directly to the national grid. It invests profits into future investments and pays them out as dividends to shareholders. Running wind farms is not a particularly capital intensive operation. Excluding maintenance costs, the remaining expenses are negligible, allowing for an average operating profit margin of over 80%. This level of profitability is partly due to only 17% of owned wind farms being located off-shore. These are typically more expensive to maintain. 

Management has also enacted financial restrictions that shield shareholders from unnecessary risk. For example, the firm cannot have more than 40% debt as part of the capital structure.

Source: Greencoat

The financials

Greencoat’s 2019 income statement reveals an over 60% decline in revenues from the prior year. This decline was a result of multiple faults in several farms that were taken offline for repairs.

In the most recent interim report, the company announced it had fixed these faults. Revenue for the first half of 2020 currently stands at £135m with an estimated final revenue of £270m. This represents a 200% and 16% increase in revenue compared to 2019 and 2018, respectively. While this is undoubtedly good news, it does reveal how much damage a few faults can have on the overall performance of the business – an ongoing risk.

Lack of price power is another unavoidable issue. Approximately 50% of all revenues are exposed to the floating power price. With legislation capping energy prices, there is little room for electrical price appreciation.

The bottom line

Joe Biden is set to be the 46th US president, and the market is enjoying large returns from the ‘Biden Bounce’. The additional pressure on the global energy sector to transition to renewable energy may result in new innovations in wind farm technology.

Despite its limitations, the FTSE 250 stock has become the UK’s leader in wind generation. The dividend remains linked to retail price index inflation and at current prices represents a 5.3% yield that has been steadily increasing by 4% each year. Mixing low reliance on debt, continuous cash flow, a handsome dividend, and a very windy country, creates a recipe for success in my eyes.

The post Biden bounce! 1 cheap FTSE 250 stock I’d buy today appeared first on The Twelfth Magpie.

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Zaven Boyrazian does not own shares in Greencoat UK Wind. The Motley Fool UK has recommended Greencoat UK Wind. 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.