Here’s how an investor could find shares to buy for an early retirement.

Story by Christopher Ruane

Buying shares and letting dividends or capital gains pile up can be a lucrative way to get ready to retire early. But that plan requires an investor to decide what shares to buy.

Here is one approach an investor could consider.

Starting with the end in mind

To boost the value of the portfolio in the decades leading up to retirement, so that it can produce an income through dividends, an investor could choose growth shares, income shares, or a combination of both.

But that timeframe could also allow the power of compounding to demonstrate itself. For example, compounding a portfolio of income shares at an annual rate of 7% would mean it should grow by 661% in total over a period of 30 years.

On the hunt for long-term value compounders

In that context, it could make sense for an investor to buy either growth or income shares along the way. Either could compound in value over time.

But I think a key point to ask is: what does the future look like?

In other words, investing for decades ahead is not necessarily the same as when someone with a short-term mindset looks for shares to buy.

So it can be helpful to think about what industries could be thriving decades down the road.

Still, in any large or potentially large industry, how could an investor decide from the different shares available what ones to buy?

Why a proven business model can aid investment decisions

One approach is to look for businesses that have a proven commercial model.

That could mean ruling out some real disruptors that go on to be massive successes. But it could hopefully also mean avoiding lots of early-stage companies whose number one skill is burning through cash.

A proven business model not only suggests that a firm has what it takes to make money. It can also suggest that a company is being run by real business managers, not people who confuse having a great idea with having a great business.

MotleyFool

What is the outlook for UK dividends in 2025?

Dividends from UK equities are expected to display limited growth this year, and in fact – given the precarious state of the UK economy – might underperform the yields that investors could realise from bonds.

“Over 2025 we predict equities to yield 3.8%,” says Cleland. “The top 100 is likely to yield 3.8% and the mid-caps 3.5%.”

These yields are below the returns that 10-year gilts are yielding, which increased to over 4.6% in recent weeks. Gilts are generally regarded as a safer investment than equities, and in the current climate they are also offering higher yields.

“This means UK gilts are offering a significantly better income than shares at present for a lower risk (if they are held to maturity),” says Cleland.

Computershare’s analysis predicts “dividends in 2025 to reach £92.7bn at the headline level: up just 0.7% year-on-year”.

How have share buybacks impacted UK dividends?

Dividends aren’t the only means by which companies return capital to shareholders. They also do so via share buybacks, and UK companies have ramped these up over the last year.

Computershare estimates the size of UK share buybacks in 2024 at £42-45 billion; “less than the record achieved in 2022 when companies returned cash preserved during the pandemic-inspired dividend cuts but well above the pre-2020 annual average”, says Cleland.

Buying back shares reduces the number in circulation, so increases the value of those that remain. However, it also makes less money available for dividend payments, and Cleland argues that this has been another contributing factor to the decline in dividend payments.

“The trend for companies to buy back their shares with excess cash at the expense of special dividends continues,” says Smith, while adding that “underlying dividend growth next year should be supported by international earners and banks, while dividend cover for the UK market in aggregate is healthy.”

Money Week

RBC CUTS GREENCOAT UK WIND PRICE TARGET TO 170 (180) PENCE – ‘OUTPERFORM’

But as always best to DYOR.

GREENCOAT UK WIND PLC 

(the “Company”)

Q4 Update, Net Asset Value, Dividend and Asset Divestments

Net Asset Value and Dividend Announcement

Net Asset Value / Net Asset Value per share	£3,409 million / 151.2 pence
Dividend per share	2.5 pence

The Company announces that its unaudited Net Asset Value as of 31 December 2024 is £3,409 million (151.2 pence per share), a decrease of 7.4 pence per share from NAV at 30 September 2024.

The Company declares a quarterly interim dividend of 2.5 pence per share with respect to the quarter ended 31 December 2024, taking the total FY 2024 dividend to 10 pence per share. The Company also announces an increase in the target dividend for 2025 to 10.35 pence per share in line with the Retail Prices Index for December 2024 of 3.5 per cent.

Dividend Timetable

Ex-dividend date           13 February 2025

Record date                  14 February 2025

Payment date                28 February 2025

Energy Yield Review

The movement in NAV was primarily the result of a revision to energy yield estimates across the Company’s portfolio. The Board and the Investment Manager periodically review the portfolio’s energy yield estimates (P50), and decided to harmonise the data set used in long term wind speed correlation in conjunction with an expert third party. This has also added a number of recent years to the correlation data with lower than long term average UK wind speeds and this serves to bring the long term average down.

As a result, the long term generation forecast is expected to be 2.4% lower, with a resulting NAV decrease of 6.5 pence per share.

Since IPO, the Company has delivered 1.8x dividend cover and, with its revised generating budget, remains on course to generate (on average) dividend cover of 1.9x over the next 5 years.  This would deliver over £1 billion in excess cashflow over the next 5 years for allocation to the advantage of its shareholders.

Strong stock selection and a pickup in M&A activity has driven AEI’s outperformance over 12 months…

Kepler

Overview

Thomas Moore, manager of abrdn Equity Income (AEI), employs an index-agnostic approach to investing in UK equities, aiming to deliver above-average and growing income to investors, alongside capital growth. His strategy centres on stock selection, targeting companies based on their individual merits and alignment with the trust’s objectives, rather than their weighting in an index. This flexible approach enables him to uncover value across the market, including opportunities in areas often overlooked by traditional equity income strategies.

Over the past year, Thomas has capitalised on market volatility by making a number of adjustments to the Portfolio on valuation grounds. This included investing in well-established, high-yielding large-cap names such as M&G and Imperial Brands, whilst also identifying compelling prospects in the small- and mid-cap space, adding Petershill and Galliford Try, which offer attractive yields and greater growth potential, to the portfolio.

Focussing on higher-yielding companies has allowed Thomas to maintain AEI’s competitive yield of 7.0%. This is a significant premium to the market and the second highest in the AIC UK equity income sector. In addition to yield, Thomas screens for companies with dividend growth potential, helping the trust maintain its consistent dividend growth record, despite difficult economic conditions, with 2024 marking the 24th consecutive year of dividend increases.

The market backdrop has not been supportive to the investment process – given the outperformance of larger-cap growth stocks – resulting in the trust underperforming its benchmark over a five-year period. However, the trust has seen a marked improvement in Performance over the past 12 months, delivering NAV total returns of 24.3%, outpacing the FTSE All-Share Index’s return of 17.6%. Outperformance stemmed from strong stock selection and heightened M&A activity. Defensive mega-cap names like Imperial Brands, which continues to thrive under new management, and financial holdings such as NatWest, Barclays, and HSBC, which benefitted from the ‘higher for longer’ interest rate environment, were key contributors to returns.

Analyst’s View

We think the UK market, despite recent challenges, presents an intriguing opportunity for investors, given the current divergence in equity valuations. The UK plays host to a range of well-established, operationally strong and attractively valued companies. The key is identifying undervalued opportunities with genuine upside potential.

Thomas brings years of UK market experience, with expertise in spotting valuation mispricings. His index-agnostic approach allows him to explore the entire market, beyond traditional equity income constraints, for attractively valued companies with latent recovery potential. AEI has faced headwinds over the past five years, as Thomas’s focus on smaller companies and more value-oriented stocks, which have been largely out of favour, led to underperformance versus the benchmark., AEI’s Performance has rebounded more recently, outperforming its benchmark as market conditions have turned more favourable for Thomas’s strategy. Easing UK-specific headwinds have triggered portfolio re-ratings, whilst historically low valuations for smaller companies – in cases due to prolonged economic pressures rather than weak fundamentals – have driven heightened M&A activity. Several smaller portfolio holdings have been sold at large premiums following private bids.

With a 7.0% yield, a premium to the market, and a 24-year track record of consistent dividend growth, we think AEI offers a compelling proposition for income-focussed investors seeking differentiated exposure to the UK. As interest rates fall and the appeal of high-yielding bonds and bank accounts diminishes, AEI could be a well-positioned destination for investors seeking higher-yielding opportunities with potential for capital growth.

Bull

• Offers one of the highest yields in the sector, supported by strong reserves
• Differentiated portfolio including a bias to UK small- and mid-caps
• Trust has recently reduced its charges

Bear

• Exposure to small and medium-sized companies may bring more sensitivity to the UK economy
• Use of gearing could magnify the gains but also the losses
• Value-tilted portfolio has seen the trust struggle when growth style outperforms

Bluefield Solar Income Fund Limited

(‘Bluefield Solar’ or the ‘Company’)

First Interim Dividend Announcement

Bluefield Solar (LON: BSIF), the London listed UK income fund focused primarily on acquiring and managing solar energy assets, is pleased to announce the Company’s first interim dividend for the financial year ending 30 June 2025 (the ‘First Interim Dividend’).

The First Interim Dividend of 2.20 pence per Ordinary Share (January 2024: 2.20 pence per Ordinary Share) will be payable to Shareholders on the register as at 7 February 2025, with an associated ex-dividend date of 6 February 2025 and a payment date on or around 7 March 2025.

The Board is pleased to reaffirm its guidance of a full year dividend of not less than 8.90 pence per Ordinary Share for the financial year ending 30 June 2025 (2024: 8.80 pence). This is expected to be covered by earnings post debt amortisation.

Thursday 30 January

CC Japan Income & Growth Trust PLC ex-dividend date
CQS Natural Resources Growth & Income PLC ex-dividend date
Edinburgh Investment Trust PLC ex-dividend date
Henderson Far East Income Ltd ex-dividend date
JPMorgan Claverhouse Investment Trust PLC ex-dividend date
M&G Credit Income Investment Trust PLC ex-dividend date
Residential Secure Income PLC ex-dividend date
Schroder Oriental Income Fund Ltd ex-dividend date
Schroder UK Mid Cap Fund PLC ex-dividend date
Sequoia Economic Infrastructure Income Fund Ltd ex-dividend date
Supermarket Income REIT PLC ex-dividend date

Story by Stephen Wright

The companies known as the Magnificent Seven make up over 20% of the global stock market. And a lot of this is based on their perceived advantage when it comes to artificial intelligence (AI).

The big US tech firms hold all the aces when it comes to cash and computing power. But Deepseek – a Chinese AI lab – seems to be showing this isn’t the advantage investors once thought it was.

What is DeepSeek?
DeepSeek doesn’t have access to the most advanced chips from Nvidia (NASDAQ:NVDA). Despite this, it has built a reasoning model that is outperforming its US counterparts – at a fraction of the cost.

Investors might be wondering about how seriously to take this. But Microsoft (NASDAQ:MSFT) CEO Satya Nadella is treating DeepSeek as the real deal at the World Economic Forum in Davos:

“It’s super impressive how effectively they’ve built a compute-efficient, open-source model. Developments like DeepSeek’s should be taken very seriously.”

Whatever happens with share prices, I think investors should take one thing away from the emergence of DeepSeek. When it comes to AI, competitive advantages just aren’t as robust as they might initially look.

US AI
Microsoft is set to spend $80bn on AI in 2025. Very few other companies are able to do anything like this and that gives the company a huge advantage — at least, at first sight.

Investors should be careful though, in thinking about what that means. While it puts the firm in a strong position against its competitors, DeepSeek’s latest model indicates it’s not insurmountable.

Equally, Nvidia is the leader when it comes to AI chips. But while the threat from a rival catching up might be limited, the risk of demand falling as customers do more with its earlier products also needs considering.

The emergence of DeepSeek has highlighted both of these challenges. And for the biggest US tech stocks trading at high prices, I expect this to have a meaningful impact on share prices sooner or later.

Is this an opportunity?
The biggest question for investors is whether a drop in share prices is a buying opportunity. From my own perspective, I think it’s reason to be careful, but I’m also wary about overreacting.

If there’s one thing I think investors should take from the emergence of DeepSeek, it’s that a competitive advantage in this area is harder to maintain than it might initially seem. And that cuts both ways.

The US hyperscalers might have just seen their lead cut — or even eliminated entirely — by DeepSeek. But I think counting them out when it’s just been shown how hard it is to stay ahead in this industry is very reckless.

I don’t expect them to stay behind for long, but the question is whether they can ever establish a long-term lead. Apparently, big advantages in cash and computing power don’t guarantee this.

Warren Buffett has been staying away from AI – and tech in general – following his misjudged investment in IBM. And I think a lot of investors would be wise to consider following his example.

It turns out, assessing who has a durable edge when it comes to AI is harder than it looks. So even if the Magnificent Seven pulls the stock market lower, investors should be careful.

The post Is DeepSeek about to cause a stock market crash ? appeared first on The Motley Fool UK.

£££££££££££££££

Whilst all days including weekends and holidays are good days to have a dividend re-investment plan, some days are better than others.

You would like to add a high yielding IT to your portfolio but are concerned about the risk.

Let’s use NESF as the working example but as always best to DYOR

Whilst no dividend is 100% safe, you think the divided is fairly secure.

The recommended yield for the Snowball is 7% as this doubles every ten years when re-invested at or above 7%.

To lessen the risk you could pair trade it by buying a Government Gilt.

If held inside a tax free wrapper, the yield would be around 4%, making a blended yield of 9%, with a lower risk profile.

If held outside a tax free wrapper TN28 would return £100 on the 31/01/28

There would be tax to pay on the coupon if you exceeded your yearly allowance, and it wouldn’t give you cash to re-invest in the Snowball.

Gilts bought at around £100, the capital is guaranteed if held to maturity.

This is not advice but for educational purposes only.

Discount Watch
We estimate the number of funds trading at year-high discounts to net assets dropped by 12 to 16 last week. Alternatives still dominate with 12 names but among the four non-alternatives – wealth preserver Ruffer (RICA). Share price hit a year-high discount on Monday 13 January but after releasing an update a few days later the discount almost halved. Was it something the investment managers said ?

By
Frank Buhagiar

We estimate there to be 16 investment companies which saw their share prices trade at 52-week high discounts to net assets over the course of the week ended Friday 17 January 2025 – 12 less than the previous week’s 28. Usual graph below but, as it’s still early days for 2025, the number of year-high discounters is shown on a rolling rather than year-to-date basis.

Big drop in the number of investment companies trading at 52-week high discounts to net assets maybe, but same old story of alternative funds dominating the list on concerns higher bond yields will lead to higher discount rates and lower asset valuations. Alternatives account for 12 of the 16 on the list, 10 of which are renewables while infrastructure and property both chip in with one fund each.

In the interests of writing about something different this week, mention in despatches goes to Ruffer (RICA). Not because the capital preservation trust traded at a year-high discount to net assets of -7.59% on Monday 13 January, but because the discount had practically halved to -4.5% just a few days later on 16 January 2024. That was the day RICA released its investment managers’ performance review.

Not that the numbers were spectacular: over the six-month period to end of December, NAV total return came in at -0.4%, share price total return +0.2%; while NAV total return for the 12 months to end of December 2024 was unchanged at 0.0% and share price total return down -0.7%. Something the investment managers said then ? Perhaps, the comment, “We currently see the elastic band which tethers prices and fundamentals as stretched taut, with the potential for an aggressive snap back” resonated with investors, especially as this could result in “a redemptive performance moment” for the fund. Or was it talk of the fund’s protective armoury ? “We do not attempt to time every market turn, but we do seek to ensure the portfolio’s protective armoury is in place when we sense moments of danger” ? Investors maybe sensing danger too.

Top five

Fund

Discount

Sector

Ceiba Investments CBA

-74.95%

Property

Ecofin US Renewables RNEW

-53.19%

Renewables

Gore Street Energy Storage GSF

-52.31%

Renewables

Aquila Energy Efficiency AEET

-46.99%

Renewables

US Solar Fund USF

-46.35%

Renewables

The full list

Fund

Discount

Sector

Ruffer RICA

-7.59%

Flexible

Biotech Growth BIOG

-15.10%

Healthcare

BBGI Global Infrastructure BBGI

-19.52%

Infrastructure

Ceiba Investments CBA

-74.95%

Property

Octopus Renewables Infrastructure ORIT

-38.96%

Renewables

Gore Street Energy Storage GSF

-52.31%

Renewables

Aquila Energy Efficiency AEET

-46.99%

Renewables

Bluefield Solar Income BSIF

-33.20%

Renewables

Ecofin US Renewables RNEW

-53.19%

Renewables

Foresight Environmental Infrastructure FGEN

-38.07%

Renewables

Foresight Solar FSFL

-38.00%

Renewables

Greencoat Renewables GRP

-30.16%

Renewables

Greencoat UK wind UKW

-23.10%

Renewables

US Solar Fund USF

-46.35%

Renewables

Oryx International OIG

-35.60%

UK Smaller Companies

Vietnam Enterprise VEIL

-24.46%

Vietnam

Funds mentioned in this article:
Ruffer Investment Company
Biotech Growth Ord
Oryx International Growth Ord
Vietnam Enterprise Ord
BBGI Global Infrastructure Ord
Aquila Energy Efficiency Trust Ord
Gore Street Energy Storage Fund Ord
Foresight Environmental Infra Ord
Foresight Solar Ord
US Solar Fund Ord
Ecofin US Renewables Infrastructure Ord
Greencoat Renewables
Greencoat UK Wind
Bluefield Solar Income Fund
Octopus Renewables Infrastructure Ord