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5 stocks to buy for high and rising dividend income

Harvey Jones — Tue, 08 Nov 2022 17:21:00 +0000

I’m hunting for dividend income, and there are so many FTSE 100 stocks to buy offering sky-high yields that I’m getting a little dizzy.

I’ve just taken a gamble and bought housebuilder Persimmon, which at the time was yielding almost 20% a year. Not only that, it was trading at just five times earnings.

It still felt like a risky move, given that house prices are starting to fall as interest rates rise. Yet I’m betting that the shortage of property supply should sustain demand. Also, mortgage rates may not rise as much as we expected just a couple of weeks ago.

Top income stocks to buy

Persimmon’s dividend cover is thin at 1.1% but even if management does cut its shareholder payout, it should still be pretty substantial.

At the other end of the risk spectrum, I think it is nearly always a good time to buy shares in National Grid. This is one of the most solid income stocks on the FTSE 100, supported by its regulated earnings, while exposure to North-Eastern US energy market gives it a bit of buzz.

The 5.3% yield is only covered 1.2 times but this is less of an issue with utilities, as their earnings are more secure so they can pay out more of them. National Grid’s shares are valued at 15.6 times earnings, pretty much in line with the long-term average.

Supermarket chain Sainsbury’s has just reported a 29% drop in first-half profits to £376m as grocery prices rocket and consumer incomes plunge. However, last week’s results got a positive reception, as group revenues rose 4.4%.

I expect Sainsbury’s to continue struggling, as the cost-of-living crisis drags on and German discounters Aldi and Lidl continue to grab market share. Yet I am relatively confident about its dividend. This is now the main reason to hold the stock, and management will be reluctant to cut it.

I’m hoping that won’t be necessary, anyway, as its attractive 6% yield is covered 1.9 times by earnings. Trading at just 8.6 times earnings, many of the challenges Sainsbury’s face are in the share price.

Dividend investors spoilt for choice

Aviva’s shares have finally come alive after years of going sideways, bouncing 12% in 12 months. It’s the dividend that matters here, though, and the stock currently yields a whopping 8.8%, nicely covered 1.5 times by earnings.

The Aviva share price doesn’t exactly look expensive, either, trading at 7.5 times earnings. It is not the most dynamic stock on the FTSE 100, but I would still want it as a cornerstone of my portfolio. Today’s entry price looks attractive to me.

Finally, I’d like to add a commodity stock to my list of stocks to buy for sustainable income, and I’m plumping for Anglo American. The mining sector has picked up in recent days, as hopes grow that China is finally easing its Covid lockdowns.

The upcoming global recession could squeeze demand for metals and minerals. Yet I’m not too worried, given that Anglo American’s 8.4% yield is covered 2.5 times, and the stock is valued at a dirt-cheap 4.8 times earnings. Anglo American is well worth its place on my list of best FTSE 100 dividend income stocks to buy today.

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Harvey Jones holds shares in Persimmon. The Motley Fool UK has recommended Sainsbury's. 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.

How I’d invest £10k in a Stocks and Shares ISA today

Harvey Jones — Wed, 12 Oct 2022 11:19:12 +0000

If I had as much as £10,000 to pump into a Stocks and Shares ISA right now I’d be looking to load up on top FTSE 100 dividend shares.

After years of trailing major indices such as the S&P 500, London’s blue-chip index is showing it’s made for tough times. US tech stocks may have cashed in on the cheap money era, but FTSE 100 shares now offer bruised investors a welcome safety net.

Investing goes in cycles and the tech splurge lasted beyond its natural term. That came as central bankers piled on the stimulus during the Covid crisis. Now investors are prioritising ‘value’ stocks, dividend-paying companies trading at low valuations.

My ISA line-up

The FTSE 100 is full of them and I’d start by exploring these 10 companies. All have risks, but offer big opportunities too.

Insurer Aviva has delivered little share price growth in recent years. But it’s a dividend aristocrat paying income of 9.95%. Trading at a dirt-cheap 6.8 times earnings, it’s hard to resist.

Barclays is even cheaper at just 3.7 times earnings, while yielding 4.28%. Sticking with financials, I also like Lloyds Banking Group, cheap at 5.5 times earnings with a 4.82% yield (and future dividend growth).

The financials sector is being shaken by the gilt crisis, while rising interest rates could squeeze both small business and retail customers. But I reckon those risks are reflected in their rock-bottom valuations.

I’d also include transmissions giant National Grid. Frankly, this is a stock I’d buy at any time, as a core portfolio holding. Today it yields 5.77% and looks fair value at 14.4 times earnings. It’s a solid long-term buy and hold for my ISA.

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.

Higher yields

With that as security, I’d take a bigger punt and buy a housebuilder such as Persimmon that yields a ridiculous 19.37%. Although I expect the dividend to be cut sooner rather than later, that won’t be a disaster given today’s starting point. House price crash fears are priced in at a valuation of 4.9 times earnings. At least, I hope they are.

Mining giant Rio Tinto is the second highest yielder on the FTSE 100 offering 14.21% and trading at 4.2 times earnings. Chinese demand for commodities is slowing and the dividend may be reduced at some point. Now still looks like a great entry point for contrarians like me. I’d also consider gold miner Fresnillo. It may benefit when inflation easies, the US dollar softens and the gold price recovers.

Clothing retailer Next will obviously suffer as discretionary consumer spending falls. But it looks better placed than most, and I’d consider it for my ISA too. Then I’d buy Unilever, because I’ve never seen it this cheap at 17.2 times earnings (it’s usually around 24 times) while yielding 4.42%.

Finally, I’d include spirits giant Diageo in my top 10. Yes, it looks expensive trading at 24.1 times earnings while the yield is just 2.08%.But it’s a solid, recession-proof business and they come at a premium in these troubled times.

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Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended Barclays, Diageo, Lloyds Banking Group and Unilever. 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.

These 3 dividend stocks are top of my shopping list

Harvey Jones — Mon, 10 Oct 2022 14:18:00 +0000

I am keen to go shopping for dividend stocks, as share valuations fall and yields rise. There are so many tempting income shares on the FTSE 100, I’m having trouble making my choice. The following three jump out, though.

To offer some respite against current volatility, I would consider buying dividend aristocrat National Grid (LSE: NG). It looks cheap today, with the share price falling 25% in the last six months. That has depressed its valuation to just 14.8 times earnings.

I do not expect much share price growth from National Grid. Its stock still trades at roughly the same level it did five years ago, while earnings are tightly regulated. But it has offered a solid income stream for years, and today the yield is a healthy 5.6%. That kind of income offers me some protection against today’s raging inflation.

Dividend stocks fight inflation

Trading has been solid so far this year with revenues been boosted by the strong US dollar. The group owns gas and electricity distribution across the Northeastern US and these revenues are worth more once converted into pounds.

Rising interest rates pose a problem for many sectors but banking is a rare exception. Higher rates allow them to widen net interest margins, the difference between what they charge borrowers and pay savers.

I’m turning my attention to NatWest Group (LSE: NWG), which now trades at just 9.3 times earnings after falling almost 10% in the last month. Again, long-term share price performance is underwhelming, as it is down 5% over five years. However, its 4.93% yield should keep me happy while I wait for its shares to recover.

Results have been good lately, with pre-tax profits jumping 13% to £2.6bn for the six months to 30 June. Management now expects a full-year return on tangible equity of 14%-16%, up from prior estimates of 10%. A recession and house price crash would hit customer confidence and increase debt impairments, but that risk is reflected in the low share price.

This stock really excites me

My final and perhaps most exciting dividend stock is consumer goods giant Unilever (LSE: ULVR). I’m excited, because the stock trades at around 17 times earnings, when its valuation is usually closer to 25 times.

Similarly, the yield is now 4.43%, when I’m used to seeing it closer to 2.5%. The reason for these figures is that the Unilever share price has floundered, falling 3.75% over one year and 11% over five years.

Management has struggled to get a grip on poor performance, but now there are signs of a turnaround.

Its new business unit structure should cut costs and speed growth, and analysts at Berenberg recently hiked its share price target from £40 to £48 as a result. It currently trades around £39. Again, I’m not expecting a sudden share price spike — these are uncertain times. I appreciate the risk of investing in Unilever when its customers are feeling squeezed, but here’s why I’d still buy it.

I’m treating all three of these dividend stocks as long-term buy-and-hold investments. Today’s low valuations make now a good entry point.

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Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended Unilever. 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.

Director dealings: HSBC, National Grid, Taylor Wimpey

John Choong — Fri, 20 May 2022 13:34:47 +0000

Director dealings are essentially insider transactions for shares between directors and the companies they work for. These dealings are always made public, and are often considered a good indicator of a company’s future prospects. However, they don’t get nearly as much attention as company news due to their complex nature. Nonetheless, here I’m breaking down this week’s director dealings for three of the FTSE 100‘s top firms.

HSBC

The HSBC share price has had a volatile time so far this year. The stock jumped nearly as high as 25% only to drop back down to a 5% gain this year. This has been mainly down to speculation of the bank having to break up its Asian and western operations. Amid all of the volatility however, it still didn’t stop a director from acquiring shares this week.

Dame Carolyn Fairbairn (The former CBI Director General) purchased a large number of HSBC shares on Wednesday.

Name: Dame Carolyn Fairbairn (Non-executive Director)
Nature of transaction: Acquisition of shares
Date of transaction: 18 May 2022
Amount purchased: 15,000 @ Â£5.01
Total value: Â£75,150.00

National Grid

National Grid disclosed its FY22 results this week. The energy company reported an underlying operating profit of Â£4.0bn, which is 11% higher year on year. The firm also announced a final dividend of 33.76p, bringing the total dividend to 50.97p. This is a 3.7% increase in its yield. As a result, the National Grid share price is now up by more than 10% this year, sparking interest by a director in buying shares.

There’s still plenty of worry in the air. Talk of a possible windfall tax on energy companies has hindered the stock’s trajectory upwards. Nonetheless, a non-executive director still saw this is an opportunity to buy National Grid shares on Thursday.

Name: Victoria Wood (CAP of Tony Wood, Non-executive Director)
Nature of transaction: Acquisition of shares
Date of transaction: 19 May 2022
Amount purchased: 2,000 @ Â£12.29
Total value: Â£24,586.60

Taylor Wimpey

Housebuilding giant Taylor Wimpey had a relatively decent week. Its shares managed to outperform the wider FTSE 100 index as it gained over 2%. Its stock is still down by more than 25% this year, but a number of director dealings are still happening inside the company, suggesting confidence that it has a bright future in the long term.

Although higher mortgage rates are expected to cool the housing market, Taylor Wimpey said: “Demand for our homes remains strong, with the business well positioned to deliver further progress in 2022 and beyond” in its most recent trading update. As such, a number of directors added more shares to their portfolio.

Name: Jennie Daly (CEO)
Nature of transaction: DRIP shares
Date of transaction: 13 May 2022 (Reported 17 May 2022)
Amount purchased: 5,815 @ Â£1.25
Total value: Â£7,260.42

Name: Chris Carney (Group Finance Director)
Nature of transaction: DRIP shares
Date of transaction: 13 May 2022 (Reported 17 May 2022)
Amount purchased: 6,513 @ Â£1.25
Total value: Â£8,131.92

To provide context, DRIP shares are usually part of a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to award equity to employees flexibly. Publicly listed companies normally exercise this option because itâs tax-efficient for both the employer and its employees.

Types of shares within a SIP (Source: BDO.co.uk)

There are many types of shares in an SIP. But in this instance, the CEO and Group Finance Director used the dividends they received on SIP shares to reinvest into further Taylor Wimpey shares. It should be noted though, that dividend shares must normally be held in the trust for at least three years to get full tax relief.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended HSBC Holdings. 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.

Investors are piling into this FTSE 100 stock. Should I buy too?

Paul Summers — Mon, 14 Feb 2022 07:34:01 +0000

FTSE 100 telecommunications giant Vodafone (LSE: VOD) was the most popular buy among Hargreaves Lansdown clients last week. Should I be filling my boots too? Here’s my take.

Why is Vodafone so popular?

Perhaps the most prominent reason for Vodafone’s sudden popularity is that it’s well-placed to benefit from the current rotation into value stocks. Interestingly, pharma giant GlaxoSmithKline, power provider National Grid and Vodafone’s peer BT have also been in big demand.

With the possibility of interest rates rising faster than expected, I fully appreciate why some would seek to ride this (temporary) wave.

Let’s not forget that Vodafone is a favourite among dividend investors as well. A yield of 5.4% is clearly an awful lot better than I’d get from a typical cash savings account. It’s also very attractive, considering the rising cost of living.Â

Can this momentum last?

As a Foolish investor, I’m not interested in owning stocks for only a few days before dumping them. I’ll leave that to the traders who are happy to trust their ability to time the market. I know this is something I simply can’t do. So, I’m asking whether Vodafone stock is good enough to earn a spot in my portfolio for years.

In some ways, I think it is. Due to the nature of what it does, Vodafone possesses defensive characteristics that many companies would envy. It’s the largest mobile and fixed network operator in Europe and owns a highly valuable brand. It also possesses the continent’s fastest-growing 5G network.

That’s encouraging given the global 5G services market is expected to achieve a compound annual growth rate of 46% between 2021 and 2028.Â

One might also argue that we’re only at the beginning of this stock’s recovery. Vodafone’s share price may be close to its 52-week high, but it’s still not even back to pre-pandemic levels.Â

Costly FTSE 100 business

Having said this, I’m also of the opinion that there are far better businesses to buy than Vodafone.Â

Considering just how costly it can be to keep its infrastructure in good working order (and update it when required), returns on capital are unsurprisingly low. That’s problematic, considering the best stocks to own over the long term tend to be those that bring in a lot of cash relative to the investment required. Margins are also pretty slim in this line of work.Â

Then there’s the price I’m being asked to pay. Sure, a valuation of 16 times earnings isn’t unreasonable. But nor is it screamingly cheap, considering the amount of debt carried by the company.

Despite highlighting its income credentials earlier, it’s important to note that Vodafone has a consistently inconsistent track record when it comes to hiking its annual dividend. Personally, I’d much rather cash returns were modest but growing every year. This is more indicative of a company in rude health.

My verdict

Having endured an awful 2021, recent activity suggests Vodafone could be in for a better 2022. I can most definitely see the appeal of buying now if I were concerned about the short-term global economic outlook.

As someone with time on my side however, I’m sticking to snapping up quality growth stocks and funds while they’re on sale. Just like Warren Buffett suggests.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline, Hargreaves Lansdown, and 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.

3 ‘safe haven’ FTSE 100 stocks to buy

Paul Summers — Mon, 07 Feb 2022 14:50:40 +0000

With investors enduring a tough start to 2022, I’m been taking a closer look at FTSE 100 stocks that tend to experience less price volatility relative to the market.

These are known as low beta stocks. In theory, anything with a beta of below one should move less in line with the index (which always has a beta of one). By contrast, stocks with a beta of over one could give investors a more bumpy ride.

FTSE 100

The essential nature of what National Grid (LSE: NG) does — “connecting millions of people to the energy they use” — makes the company a potentially great stock to hold at times like these. The Grid has a beta of just 0.3, according to data from Stockopedia. This should make it far less prone to violent market moves.

Another attraction is the dividend stream. In its current financial year, the company is expected to return 50.8p per share to its owners. Using today’s share price, that gives a yield of 4.7%. So, even if it did fall back, there’s a nice payout to compensate.

The P/E of 17 is higher than the five-year average of just under 14. However, this makes sense considering how rattled investors have been recently. One potential drawback is that the shares probably won’t fly when markets recover.

Resilient sector

As sectors go, anything to do with healthcare tends to hold its own when investors get skittish. Hence, a company like GlaxoSmithKline (LSE: GSK) may offer me some protection. In line with this, GSK has a beta of 0.6.

The shares are up slightly so far this year, although this may be more to do with Unilever sniffing around its consumer healthcare business. It will be interesting to see what under-fire CEO Emma Walmsley has to say about the rejected bid when the company reports on Wednesday.

At 3.3%, GSK stock comes with a decent dividend yield. It’s also cheaper than FTSE 100 peer AstraZeneca at less than 14 times earnings. That said, its drugs pipeline could do with a shot in the arm and remains a potential risk.

‘Buy again’ brands

Speaking of consumer goods companies, a final stock I’d consider buying to mitigate market volatility would be Reckitt (LSE: RKT).

Like the other stocks mentioned, Reckitt has a low beta (0.3). It also possesses a bursting portfolio of ‘sticky’ hygiene, health and nutrition brands. While the rising cost of living can force people to reel in their discretionary spending, products that keep things clean and safe are unlikely to be sacrificed, especially following a global pandemic.

My only concern with Reckitt is that it hasn’t learned from its horrible acquisition of the infant formula business from Mead Johnson a few years ago. This brings me to a vital point about low-beta stocks.

No guarantees

A low-beta value now does not guarantee anything about the future performance of a company’s share price. Before the Financial Crisis, FTSE 100 juggernauts like Lloyds Bank were regarded as relatively safe destinations for investors’ money. That hasn’t worked out well.

Therefore, a vital point to grasp is that beta values change over time. Nor are they a replacement for in-depth research. This is why I will continue to diversify my portfolio across all sorts of quality companies, thereby giving myself a better chance of growing my wealth slowly but surely over the long term.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline, Lloyds Banking Group, Reckitt plc, and Unilever. 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.

5 passive income ideas for £100 a month

Paul Summers — Wed, 24 Nov 2021 07:46:43 +0000

There aren’t many things in life that offer true passive income. The stock market is arguably one exception. At the very least, I believe it has the potential to offer the best return relative to the effort involved.

Moreover, it doesn’t require having a whole lot of money to get started. In fact, I think an investor could build a portfolio of solid dividend-generating shares for just £100 a month.

Passive income winners

Assuming that money is within reach, the key is buying stocks that should, bar a ‘black swan’ event, continue paying dividends whatever the weather. Utility firms are a great example, hence my first pick is power provider National Grid. In charge of much of the UK’s energy-related infrastructure, it yields a chunky 5.1% right now.

Tritax Big Box shares look expensive. Nonetheless, the demand for the sort of warehouse space this real estate investment trust (REIT) owns should continue for many years to come. After all, the popularity of online shopping looks set to only increase. I’d therefore begin building a position with the intention of adding more in moments of general market malaise. The yield is 2.8%

Online trading firm IG Group remains one of my favourite listed companies. While the threat of increased regulation is never far away, the company’s bumper levels of free cash flow should ensure there’s no danger of the dividend being cut any time soon. It’s also a potential hedge if markets get volatile. IG yields 5.7% at the moment.

Boasting bursting lists of recognisable brands that shoppers tend to buy through habit, Britvic and Unilever shares — and their respective 2.7% and 3.7% yields — also get my votes. Both have near-perfect records of growing dividends over the years.

Here’s what I might get

Based on their forecast dividends at the time of writing (and assuming I invest equal amounts into each), the above five stocks generate an average yield of 4%. In other words, I’d get £4 in dividends for every £100 I invest. That’s an awful lot more than what I’d get from even the best Cash ISA on the block.

Are there ways of generating more passive income from UK stocks? Absolutely. However, one needs to question just how secure the payouts from cyclical companies involved in, say, banking, housebuilding and mining actually are.

Of course, there’s no guarantee that even the companies I’ve picked out will always be able to return cash to their owners. However, I have made sure to diversify across sectors. So even if one encounters a setback, the level of income should still be decent.

Patience required

Regardless of which stocks are selected, one thing worth highlighting is the time taken to generate a sizeable passive income stream. Initially, the money received will be negligible because the amount invested is small. That may not suit those with itchy trigger fingers and limited patience.

There are ways of speeding things up. Obviously, stashing more than £100 away every month is one option. Saving on fees by using a stockbroker’s regular investment scheme will also help.

If the income isn’t needed right now, an even better solution is to reinvest dividends. This boosts the accumulation of capital via compounding and could give me an even better passive income stream to draw on when I really want to put my feet up.

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Paul Summers owns shares in IG Group. The Motley Fool UK has recommended Britvic, Tritax Big Box REIT, and Unilever. 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.

Top FTSE 100 dividend stocks I’d buy for passive income

Paul Summers — Thu, 07 Oct 2021 06:23:01 +0000

Dividend stocks are one of the few true forms of passive income, in my view. Even so, investors need to be fairly confident that those selected actually have a decent chance of doing the business for holders. Today, I’ve picked out three FTSE 100 stocks that, based on their track records and market clout, I’d buy for my own dividend portfolio.

BAE Systems

For ethical reasons, defence giant BAE Systems (LSE: BA) might not be every investor’s cup of tea. Nevertheless, I continue to believe this is one of the best passive income generators in the entire index. Currently down to return 24.6p per share this year, BAE yields 4.4% at the current share price.

Could I get more elsewhere in the FTSE 100? Absolutely. However, BAE offers that combination of things I look for in a passive income stock. Namely, a decent yield, covered well by profits and increasing on an annual basis.

Some may quibble that dividend increases are pretty small (2-3% per year). I’d reply that consistency is far more important. A stagnant payout suggests a company’s treading water.

One risk that I do need to be aware of is that defence spending can prove rather lumpy. Moreover, BA looks to be rather dependent on a few select customers/nations. Having said this, the prospects for its cybersecurity arm look very positive indeed. Good business here should keep dividends increasing over the medium-to-long term.

National Grid

When looking for relatively secure ways of generating a passive income, I think it makes sense to own at least one utility. For me, National Grid (LSE: NG) has long been the go-to option here. Like BAE, the £32bn-cap power provider has been another reliable (albeit modest) dividend hiker over time. True, investors shouldn’t put too much weight on past performance. However, nor should it be discounted completely.

A 50.2p per share handout this financial year equates to an electrifying 5.6% yield. For perspective, I’d only get 0.6% from a Cash ISA right now. Considering the damaging effects of inflation, I think this makes hoarding pounds and pennies far riskier.

Some may be concerned by the fact that dividends aren’t covered all that much by profits. The ongoing costs involved in maintaining infrastructure may be similarly unappealing. Personally, I don’t see either as an issue due to the predictability of earnings National Grid generates. It’s still a solid buy for me.

Diageo

A third and final FTSE 100 stock I’d buy for passive income is drinks giant Diageo (LSE: DGE). At first glance, that may seem an odd choice. Returning ‘just’ 2.1%, Diageo is easily the lowest yielding stock discussed here. It’s also below that offered by the FTSE 100 as a whole (3.5%).

With this in mind, I’d understand why passive income hunters may not be interested. The valuation of 27 times earnings also feels well up to date with the recovery in consumer behaviour.

However, the presence of many cyclical stocks in the index (eg banks, property, mining and oil) leads me to believe the Guinness owner might actually offer a better risk/reward trade-off. Premium alcohol isn’t going out of fashion, after all. Diageo boasts a huge range of ‘sticky’ brands that drinkers pay up for even in difficult times.

Throw in a superb track record of raising the payout and the mega-cap screams ‘core holding’ to me.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo and National Grid. 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.

3 FTSE 100 stocks to buy for a stock market crash

Paul Summers — Tue, 06 Jul 2021 07:00:03 +0000

Stock market crashes and corrections are inevitable and I’m wondering whether one might come sooner rather than later. Frothy valuations and meme stocks, a fevered IPO market, a rush of new, inexperienced investors, and concerns over inflation all suggest it.

Unfortunately, I’ve no idea when this will happen. Positive news on Covid-19 could see markets lurch even higher. Nonetheless, I can plan for it by owning low-beta or defensive shares from the FTSE 100. These tend to be less volatile than the overall market.

National Grid

Utilities tend to perform better than the majority of stocks during a crash. We wouldn’t get far without water, gas and electricity. My preferred pick from the sector has long been power provider National Grid (LSE: NG). In contrast to cyclical stocks like airlines, NG’s share price recovered quicker than most after the coronavirus market crash.

Naturally, there’s a flip side to this. In more normal times, utilities are unlikely to give some investors the capital growth they’re seeking.

Nevertheless, I think NG is still worth owning. This is particularly the case if I were after a solid, dependable dividend stream to keep the lights on. Right now, the shares yield of 5.5% — far more than I’d get if I kept my money in a Cash ISA.

GlaxoSmithKline

Like utility stocks, anything health-related also tends to be a good bet. We’re always susceptible to illness, regardless of what stock markets are doing.

When it comes to FTSE 100 stocks, investors have two options: AstraZeneca and GlaxoSmithKline (LSE: GSK). Despite ongoing internal issues, the latter is still my preferred pick. As well as being far cheaper to acquire than its peer, Glaxo’s soon-to-be separate consumer division gives it a string to its bow that AstraZeneca lacks.

Sure, the forthcoming cut to the annual dividend (from 80p to 55p) isn’t ideal. However, this was less than analysts had been expecting. The revised payout should also be sufficient to soothe the pain investors may feel as a result of a wider market sell-off.

Unilever

A third part of the market that tends to hold its own is the consumer goods sector. This is why FTSE 100 giant Unilever (LSE: ULVR) will always feature on my list of top shares to own for a market crash or correction. People will still eat ice cream, use deodorant and wash their clothes. And thanks to its bumper portfolio of recognisable, sticky brands, Unilever is perfectly placed to cater for this.

For me however, Unilever is a stock that can probably be held for decades without issue. In addition to its global presence, the company has shown it can make consistently excellent returns on the money it puts into the business.

There’s also a decent dividend stream that can be reinvested, allowing holders to benefit even more from compounding. Unilever currently yields 3.4%.

Stay diversified

Of course, even the most defensive shares can still fall in a crash. Practically everything tumbled in March 2020. This is why spreading my money around a group of companies, rather than just two or three, is prudent.

If I wanted to be even more diversified, I’d also own other assets, such as bonds and gold. These are unlikely to give me a better return than shares over the long term. But history has shown these tend to rise when markets fall.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline, National Grid, and Unilever. 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.

3 ways to invest £1,000 for passive income

Paul Summers — Sun, 30 May 2021 08:29:45 +0000

There’s no ‘right’ way to make money in the stock market. However, one relatively fuss-free way of doing so is to focus on generating passive income. This can be achieved through buying stocks that pay dividends. Today, I’ll be looking at three approaches I could take if I were looking to invest £1,000.

1. Invest £1,000 in dividend stocks

One way to invest £1,000 for income would be to buy individual company stocks. Fortunately, there are plenty of UK shares offering bumper yields right now. FTSE 100 power provider National Grid returns 5.3%, for example. Insurer Legal & General yields 6.4%! That’s far more than I’d get from even the best Cash ISA.

There are other positives. One of these is the lack of ongoing costs. Once shares have been purchased, the only fees are those charged by the online platform investors use for maintaining their accounts.

That said, I think this is the worst way of generating passive income with £1,000. It simply isn’t cost-effective to build a portfolio of, say, 10 stocks with this amount of cash. Too much money will be taken up in commission costs when buying the shares.

This being the case, it probably makes more sense to buy, say, two or three stocks. A consequence of this approach, however, is that my money is now overly concentrated. In other words, I’m now dependent on a small number of companies sending me dividends. It’s the equivalent of placing all my eggs in too few baskets.

Thankfully, there are other options.

2. Buy an active fund

An alternative would be to invest £1,000 in an actively managed fund. This puts my money in a larger number of income-generating shares, thereby making it significantly less risky. If a few holdings are required to cut payouts due to poor trading, the remainder should offset this.

There are additional benefits to this approach beyond diversification. Having a fund manager work on my behalf would appeal to me were I a ‘hands-off’ investor. Theoretically, this person should be more skilled at selecting the best income stocks thanks to their knowledge and experience. Popular picks include the Threadneedle UK Equity Income (2.7% yield) and Jupiter Income (2.9% yield).

Unfortunately, a big drawback to this approach is the management fees. The more I have to pay out to the manager, the less income I’m able to enjoy (or reinvest).

3. Buy an exchange-traded fund

A final option for generating passive income — and my personal favourite for a pot of £1,000 — is to buy an exchange-traded fund. In contrast to those above, this kind of investment vehicle doesn’t require active stock-picking. Here, we simply track an index of stocks, such as the FTSE 100.

An exchange-traded fund doesn’t aim to beat the market. Instead, it provides the same return, minus fees. Importantly, it can also provide a dividend stream to investors. A drawback of this is that the yield won’t be as high as I might get from individual stocks (currently around 2.8%). However, the lower fees and ‘safety in numbers’ approach help to make up for this.

Of course, investment is never completely passive. This approach still requires me to select which fund to buy and which index to track. That index could also go through a rough time, temporarily reducing the value of my holding. Even so, I do believe this offers the best risk/reward trade-off if I were looking to invest £1,000.

The post 3 ways to invest £1,000 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 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.