I’m always on the lookout for cheap-yet-quality businesses to potentially add to my portfolio. And I think FTSE 100 shares are a great place to start.

The index didn’t budge much in the first half of the year, rising by just under 1%. Yet despite this, it’s filled with high-quality stocks that have the ability to generate some healthy returns over the long run.

With that in mind, I have my eye on two FTSE 100 shares that look dirt cheap. I think investors should consider them today.

Banking stalwart

Well, the first stock I like the look of is Lloyds (LSE: LLOY). Long-term investors in the bank won’t be overly happy with its performance in recent times, with it down by over 25% in the last five years. However, right now it looks cheap, and I think this could present an opportunity to snap up a bargain.

With a current price-to-earnings (P/E) ratio of just 6.3, Lloyds shares look severely undervalued. For comparison, this sits significantly below the average of its FTSE 100 peers.

However, it’s not just its low valuation that could tempt investors toward the stock. Lloyds also provides a substantial dividend yield. And with inflation still rampant, this seems like a smart way to put cash to work that would instead be lying stagnant. The stock currently offers a yield of around 5.3%, trumping the Footsie average (around 3.5%).

With that said, I do have my concerns. Firstly, its sole focus on the UK places it at greater risk of the threat of recession. Moreover, the recent US banking crisis could also impact the performance of Lloyds shares.

However, with dividends covered around 2.7 times by earnings, Lloyds offers investors cheap access to the banking sector along with a solid source of passive income.

Mining powerhouse

The second stock I’m keeping track of is Rio Tinto (LSE: RIO). The mining giant has struggled in 2023, with its share price down over 10%.

But with that, it currently has a P/E ratio of around 8, which I think shows there’s value to be had.

It’s yielding nearly 8% and the stock, like Lloyds, also offers investors a source of passive income. However, as is always the case with dividend payouts, it could be cut at any time. This was seen back in February when falling annual profits forced the miner to more than halve its dividend.

That said, it still offers a sizeable yield. And there are other reasons to like the stock. Rio Tinto’s operations have been hampered in recent times by a fall in demand from China. However, as the country continues recovering from its Covid hangover, I expect demand to ramp up. The rising demand for copper as the global transition to greener energy continues should also see Rio Tinto benefit.

The play

Despite the fact that I already own Lloyds shares, I’d be keen to top up my position at its current price. I also like the look of Rio Tinto. If I had the spare cash to invest, I’d certainly be looking to add these stocks to my holdings.

The post These 2 FTSE 100 shares look dirt cheap! But are they a buy? appeared first on The Twelfth Magpie.

More reading

• Is there any value left in Lloyds shares now they’re over £1?
• Prediction: this UK growth stock will outperform Lloyds shares over the next 5 years
• Barclays, NatWest or Lloyds shares: which is the better pick for a UK retirement portfolio?
• Here’s how much I think Lloyds shares will be worth by the end of 2027
• How to target a tax-free passive income of £1,275 a month on top of your State Pension

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

2022 is almost over and it’s a been a good year for investors like me who love buying cheap dividend shares with sky-high yields. The FTSE 100 is jam-packed with dividend aristocrats. Deciding which to buy is like shooting fish in a barrel.

It looks like 2023 will be another good year for dividend shares, according to investment platform AJ Bell. It forecasts the index as a whole will yield a juicy 4.1% next year. That beats the majority of cash savings accounts with any share price growth and share buybacks on top of that.

I’m targeting dividend shares

However, I prefer to buy individual FTSE 100 stocks and by doing so I can get double that forecast 4.1% yield.

Housebuilder Taylor Wimpey (LSE: TW) currently yields 8.39% a year. That’s a stonking rate of passive income. Although as ever with high-yield stocks, there is a danger the payout may be unsustainable. 

This company is operating in a tough sector as interest rates rise and analysts predict a house price crash. Rival Persimmon is in the process of cutting its dividend, and Taylor Wimpey could follow suit, but I’m not convinced it will.

The Persimmon yield almost hit 20%, making Taylor Wimpey’s look quite reasonable by comparison. Especially since it is covered a solid 2.1 times by earnings.

Last month, Taylor Wimpey reported a fall in sales and spike in cancellations, as the cost-of-living crisis hits demand. Things may get worse before they get better, but I suspect the UK’s housing shortage will prevent a severe crash. Especially since mortgage rates are not expected to rise as much as recently assumed.

Taylor Wimpey is forecast to deliver annual operating profits of around £922m and has a net cash position. That makes it a buy for long-term investors like me. Especially at today’s low valuation of 5.6 times earnings.

Several FTSE 100 stocks offer even higher income, including Aviva (8.4%), Vodafone (8.95%) and M&G (9.85%). I’m setting my sights even higher by opting for mining giant Rio Tinto (LSE: RIO), which yields a staggering 11.35%, the highest on the index.

I’d buy this FTSE 100 income stock too

That’s despite the fact that management halved the dividend in July, after earnings fell short of expectations. It is covered 1.6 times by earnings, which is reasonably solid and even if cut again, the yield should still be pretty high.

The Anglo-Australian miner has been hit by Covid lockdowns and property market worries in China. Those lockdowns have now been eased but now the world is waiting to see how rapidly Covid spreads without them.

The Rio Tinto share price has done surprisingly well this year, rising 15.82%. Over five years, it’s up almost 60%. Yet it still looks cheap, trading at just 5.38 times earnings. I actually bought the stock in October, and the share price around 15% up since then, so I’m happy. 

At today’s valuation, I reckon Rio Tinto is still a buy for me as a long-term investor willing to see through today’s short-term challenges. Now roll on 2023 and let the income flow.

The post FTSE 100 to yield 4.1% in 2023! These 2 dividend shares pay more than twice that appeared first on The Twelfth Magpie.

More reading

• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?
• This 7.7% yielding dividend stock trades at a 13-year low – time to consider buying?
• £10,000 in these 3 FTSE 250 stocks could generate £982 of passive income over the next 12 months!
• How much would you need in a Stocks and Shares ISA to earn £33,814 a year in dividend income?

Harvey Jones holds shares in Persimmon and Rio Tinto. 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.

This is a fascinating time to be a UK stock investor as there are some massive dividend yields available at bargain prices.

Normally, when I spot a company offering a double-digit yield, I approach with extreme caution. All too often it suggests trouble. It could well mean the yield is only flying because the share price is crashing.

So I am fascinated to see global commodity giant Rio Tinto (LSE: RIO) yielding a stonking 14.6%. You see, I don’t think the company is in particular trouble, unless I’m missing something here.

I like the look of this stock

Rio Tinto shares have fallen 13.61% in the last six months, which partly explains the high yield. Over five years, the performance is still positive, up 29.64%. That compares to a drop of 5.43% across the FTSE 100 as a whole.

Investors are worried about the impending recession, which will hit commodity demand as the economy shrinks rather than grows. China is a particular worry. For years it has been the world’s biggest consumer of metals and minerals, making up around 60% of global demand. That was in the days when the country’s GDP routinely grew by double digits. 

This year it will grow by just 2.8%, according to the World Bank. It doesn’t help that premier Xi Jinping locks down the economy every time Covid raises its head. The oversupplied property market is another concern. China’s steel production and consumption fell 9% year on year, Rio says. No country is stepping up to replace this demand.

Commodity stocks are supposed to offer protection against inflation, which is rampant right now. Prices did soar early in the war in Ukraine, but have declined steadily as interest rates rise in the US and Europe, and recession fears grow.

Last month, Rio reported that aluminium prices fell another 20% in the third quarter, with copper down 7%. The company’s shipments of bauxite, aluminium, iron ore and refined copper are all being squeezed.

Surely any sensible investor should wait for the storm to pass, and buy it next year when the outlook will hopefully be brighter? I don’t see it that way. Current problems look like a buying opportunity to me.

Rio Tinto looks like a buy to me

Rio Tinto is now incredibly cheap, trading at just 4.1 times earnings. The 14.6% yield is covered 1.7 times by earnings. It is forecast to slip to 10.7%, but that is more than today’s 10.1% inflation rate, and still boasts healthy cover of 1.7.

Better still, Rio has net cash of £1.3bn. That’s a real bonus, particularly at a time when debt servicing costs are rising. 

The long-term demand outlook looks positive as the world shifts to renewables, which should drive demand for aluminium, copper, iron ore and lithium.

I had been lining up Unilever as my next purchase, but Rio might just leapfrog it now to become my next purchase as soon as I have some cash to hand. A well-covered yield of 14.6% is going cheap. How can I say no to that?

The post This dirt-cheap UK stock yields 14% and I’ll buy it ASAP appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Harvey Jones doesn't hold any of the shares mentioned in this article. 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.

Anybody who loves top dividend stocks will struggle to resist going on a buying spree at the moment. The FTSE 100 is packed full of them.

Some of the yields on offer are astonishing. Housebuilder Persimmon currently yields 17.9%. That’s the best on the FTSE 100 but mining giant Rio Tinto isn’t that far behind, with a yield of 12.87%.

Fund manager Abrdn yields 9.37%, insurer Phoenix Group Holdings yields 9.07%, and builder Taylor Wimpey yields 9.05%. Wow.

I’m buying dividend stocks today

There are plenty more where those came from. In fact, I can hardly remember a time when yields were so high. But can I trust them?

A yield is calculated by dividing a company’s dividend by its share price. So if the dividend is 5p and the share trades at £1, the yield is 5%. This means that if the share price halves, say, to 50p, the yield doubles to 10%. 

As this basic example shows, a high yield is often the sign of a company in trouble. It signals both an opportunity, and a threat.

If stock markets are down generally and my chosen dividend stock has got caught up in the wider malaise, then I’ll see that as an opportunity. Loads of stocks fits the bill right now, thanks to this year’s global political and economic turmoil. 

But I would also work through its reports, statements, and updates, to see whether there are problems specific to that company. In particular, I would look to see whether management can afford to continue paying its dividend. The easiest way of doing this is to check dividend cover. This is calculated by dividing shareholder payouts by company earnings, but it can also be found easily online. 

Ideally, it will be covered twice or more. This figure is often lower with utilities, where earnings are typically more reliable, allowing companies to hand more of them to shareholders. A healthy level of cover is no guarantee, but it’s a promising sign that the company will be able to continue paying me passive income in future.

I would also look at other company numbers, such as the size of its net debt and of course the reliability of its free cash flows, which fund shareholder payouts. Similarly, I would prioritise firms with a lengthy track record of making dividend payments. Especially those who maintained them through thick and thin (and the pandemic, too). 

FTSE 100 offers amazing yields

Any company that increases its dividends year after year would be high on my list, as this gives me a rising passive income. While past performance is no guide to the future, it does offer reassurance.

As a general rule, I would prefer a company with a lower dividend that looks more reliable, than a higher dividend that is likely to be cut. When a dividend is cut for being unaffordable, the company’s share price tends to bleed, too.

Naturally, a host of other factors will determine whether the dividend is sustainable. A strong balance sheet, loyal customer base, unique brand, or popular products can all help secure those all-important cash flows. 

While I’m thrilled by all the top FTSE 100 dividend stocks out there right now, I’m doing some careful sums before buying them.

The post Can we really trust today’s high-yielding dividend stocks? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Harvey Jones holds shares in Persimmon. 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’m no longer 40 years old but if I was and had no retirement savings, I’d follow the same strategy as I do in my 50s, and invest in FTSE 100 stocks.

Although the first thing I would do is kick myself, for leaving it so long to take investing seriously. That’s because I have learned that the longer my money sits in the market, the more time it has to compound in value. That is particularly important when investing in the FTSE 100, as it is packed full of top dividend stocks paying mighty yields.

I’d pile into FTSE 100 stocks

Some of my favourite companies on the index haven’t delivered much share price growth over the last five years or so. Many have fallen sharply over the last 12 months. That doesn’t put me off, because they now look dirt cheap and their yields are huge. Many of my favourite FTSE 100 stocks yield between 5% and 8%. Some pay even more than that.

If I was 40, I would reinvest all my dividends straight back into my portfolio, again, exactly as I do today. My reinvested dividends would pick up more stock, which would pay more dividends, which I would reinvest to buy yet more stock.

This is a virtuous circle and even I started from scratch at 40, I would still expect to build a decent pot of money by the time I reached state pension age.

Let’s say my FTSE 100 shares delivered a total return of 7% a year, which is roughly the long-term average across the index. If I invested a lump sum of £10,000, that would grow to £62,139 by age 67 years. That’s a pretty decent return.

If I followed that up by investing £300 a month, which is £3,600 a year, I would end up with a thumping £349,050. Again, this assumes 7% a year growth.

I’d buy cheap value stocks

Here’s another thing I would do. I would increase the amount I invested each year, to keep up with inflation. Let’s say I increased that £300 monthly contribution by 3% a year. By the time I hit 67, I would have £446,624 in total. 

Of this, £290,069 would have been pure profit from compound growth. That’s an impressive two-thirds of my total portfolio.

I think now is a tempting time to start buying FTSE 100 stocks because the index is packed full of bargains. I can scarcely believe my eyes when I see dividend aristocrat Legal & General Group trading at 6.87 times earnings and yielding 7.94%. Or housebuilder Taylor Wimpey, whose valuation has tumbled to just 5.28 times earnings, while it yields 8.91% a year.

Mining giant Rio Tinto is currently valued at just 4.09 times earnings and yields a staggering 12.09%.

Of course, dividends are not guaranteed, and share prices can always fall. No stock is ever totally safe. That’s why I would invest in a balanced spread of FTSE 100 stocks, to spread my risk. I would also pay in as much as I could afford today, to ensure a comfortable retirement tomorrow. That would apply whether I was 30, 40, 50, or older.

The post No savings at 40? I’d buy FTSE 100 stocks at today’s dirt-cheap prices appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Harvey Jones doesn't hold any of the shares mentioned in this article. 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.

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.

The post How I’d invest £10k in a Stocks and Shares ISA today appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

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.

This week’s meltdown has put yet another nail in the coffin of buy-to-let, which now looks like a costly way of generating passive income in retirement. I have favoured shares for some time, and this only confirms my view.

Buy-to-let was once a glorious investment, as property prices and rental income rolled ever higher. It has slowly been destroyed by higher taxes, reduced allowances, tougher regulations, and now rising interest rates.

I’m buying stocks for passive income

Stock markets have also taken a beating this year, but they still look like a far better way of building a steady stream of passive income to me.

A portfolio of shares seems much easier to manage than a buy-to-let property. I can buy and sell shares in seconds, take all my returns free of tax inside a Stocks and Shares ISA, then basically ignore them, if I choose. By contrast, buying property takes months, has high upfront and ongoing costs, and involves a lot of bother in finding tenants, completing tax returns, and paying tax to HMRC.

I wouldn’t buy a property right now even if I could get a mortgage, but I am happy to go hunting for bargain UK shares. The FTSE 100 has fallen this year, by 8.73%. That means I can buy top companies on the index at low prices.

Barclays now trades at just four times earnings and yields 3.97%. Tobacco maker Imperial Brands Group trades at 7.6 times earnings and yields 7.37%. Mining giant Rio Tinto is valued at just four times earnings, and its yield is a staggering 15.08%.

The FTSE 100 can even give me exposure to the property market through a housebuilder such as Barratt Developments. It trades at 4.5 times earnings and would give me a passive income of 9.95% a year. 

Tax-free returns inside a Stocks and Shares ISA

Of course, buy-to-let could bounce back. If house prices fall sharply, there could be some real bargains around. Mortgage rates may only see a temporary spike. Good property is still in short supply, and that drives tenant demand.

Shares can be risky. Global markets are in meltdown right now. Dividends can be cut, at any time. Profits could fall, and share prices follow. 

Barratt, as a house builder, is exposed to a house price crash. Its share price is down 11.51% in the last week alone. Over five years, it has fallen 38.93%. If the Bank of England hikes interest rates to 6% as many predict, demand for new builds will fall because buyers will no longer be able to afford them.

Yet I think UK shares are a much better way to build the passive income I’m after. My strategy would be to buy them at today’s dirt-cheap prices, and hold them for years and years.

I will build a balanced blend of a dozen FTSE 100 stocks or so, to spread my risk. When I retire, the passive income they pay will underpin my pensions. It all seems a lot more straightforward than buy-to-let.

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.

The post Buy-to-let is in trouble so I’ll generate passive income from shares instead appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Harvey Jones doesn't hold any of the shares mentioned in this article. 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.

Income stocks are a great way for me to put my money to work. Not only do they provide a passive-income stream, but they also require minimal effort.

With inflation sitting at the near-10% mark in the UK for August, this means my stagnant cash is losing value every day. And as such, I’m on the lookout for some cheap income stocks that can help me protect my money.

Here are two I’m strongly considering.

Rio Tinto

First on my list is Rio Tinto (LSE: RIO). The stock has fallen by over 5% across the last year, with it also down by just over 1% in 2022. However, in the last month the Rio Tinto share price has jumped 3%.  

At its current price, the stock offers an attractive dividend yield of 10.8%. While inflation is predicted to peak potentially above 20%, this yield is currently above the UK figure. This is a great way for me to mitigate the possibility of my cash eroding.

Despite cutting its interim dividend to $2.67 per share, the firm’s total payout for the first half still equated to its second highest ever!

On top of this, the stock looks cheap. It trades on a price-to-earnings ratio of 5.3, comfortably below the ‘value’ benchmark of 10. This is also below the average of its FTSE 100 peers.  

With a focus on iron ore, what could pose an issue for the business is the falling demand from China. The country accounts for half of the world’s steel output, so with ongoing Covid struggles alongside a weakening economy, this could spell trouble for Rio Tinto.

However, with a positive long-term outlook for commodities, I think Rio Tinto shares would be a solid buy for me today.

Taylor Wimpey

Another stock I have my eye on is homebuilder Taylor Wimpey (LSE: TW). Unlike Rio Tinto, it’s been a dire 12 months for the stock, as its share price has fallen around 36%. This year alone, it’s down nearly 40%.

With its demise, Taylor Wimpey’s shares offer a meaty 8.5% dividend yield. This isn’t above the UK inflation rate, of course. But the passive-income stream it will create will be valuable to my portfolio in the months ahead.

It’s been a turbulent few years for homebuilders. After making solid recoveries following the pandemic as the housing market boomed, 2022 has seen them suffer as a bleak economic outlook has seen market sentiment plummet.

Despite this, Taylor Wimpey’s half-year results were strong. The business managed to grow its operating profit on top of the impressive 2021 it had. It also saw its operating margin rise from 19.3% to 20.4%.

The biggest challenge the business is set to face in the months ahead is rising material costs as inflation continues to spike. Supply chain issues may also hinder its operations. However, with these as short-term concerns, I’d strongly consider buying Taylor Wimpey shares today.

The post 2 cheap income stocks to help fight back against inflation! appeared first on The Twelfth Magpie.

More reading

• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• This 7.5% yielding passive income share is at a 13-year low! Time to consider buying?
• This 7.7% yielding dividend stock trades at a 13-year low – time to consider buying?
• £10,000 in these 3 FTSE 250 stocks could generate £982 of passive income over the next 12 months!
• How much would you need in a Stocks and Shares ISA to earn £33,814 a year in dividend income?

Charlie Keough 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.

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.

I know, I know. After the Twitter debacle, it can be hard to take some things seriously that Elon Musk says about investing these days. So can I take his recent talk about lithium shares seriously?

He was quoted (tweeted?!) bemoaning the high lithium price and the cost impact on his Tesla car production. He went on to encourage entrepreneurs to invest in the “printing money business of lithium mining”.

Now, owning shares in a money-printing machine sounds awesome. But is it really a good time for me to buy any of the top lithium shares?

Why have lithium shares skyrocketed?

I can easily understand where Musk is coming from with his comments. Underlying lithium prices have skyrocketed by 600% this year, driving (pun intended) a 20% price rise for Tesla cars.

That price rise is not going to make it any easier to sell a luxury product into a likely upcoming recession. Hence Musk’s encouragement for more investment.

Potential investors may be further encouraged by seeing rocketing share prices of existing lithium companies. Take Atlantic Lithium (LSE: ALL) for example. It’s up over 75% in the last year alone, despite its recent falls.

Atlantic, along with others, has benefited from that eye-watering price rise, driven by demand vastly outweighing supply.

But can that meteoric rise really continue?

Where’s next for lithium share prices?

There’s a split of opinion (as ever) in terms of where next for lithium share prices. Largely driven by the supply/demand balance for the material, a lot hangs on the timing of new supplies.

On the one side – perhaps unsurprisingly – are the lithium miners. They’re confidently pointing to expected demand growth of electric vehicles continuing to rise rapidly.

But both CitiGroup and Goldman Sachs see extra supply coming through in the next couple of years, which will meet that demand.

Goldman stated: “We forecast all three metals to shift into sustained surplus over the next 1-2 years, which means materially lower price levels, in our view.“

Long-term though, despite tight budgets, it’s hard to see governments turning away from supporting the push for electric cars. So, as a long-term investor, I can see a case for lithium exposure in my portfolio.

Yet are higher-risk small lithium mining shares really my only choice for that?

Spreading the lithium price risk

Before I retired early, one of my many hats was as an energy risk manager. It’s second nature to me to want to diversify.

That’s why I’d prefer to buy Rio Tinto (LSE: RIO) shares than pure lithium miners. As a global mining giant, Rio has both the balance sheet and mining experience that could see it become a major player in this space. Especially if it can sort out the political wrangling over its new lithium mine in Jadar.  

Best though is its natural diversification across other commodities. That makes it a less risky way for me to invest in lithium mining. The roughly 10% dividend yield doesn’t hurt either.

It’s also fallen almost 20% over the last year. That means I don’t feel like I’m buying at the top of the market.

It may not satisfy Elon Musk’s immediate demand, but as a long-term play it’s one I’m far happier to hold.

The post Is Elon Musk on the money about lithium shares? appeared first on The Twelfth Magpie.

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Michelle Freeman owns shares in Rio Tinto Plc. 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.