These 2 dividend stocks look like no-brainer buys despite challenges ahead.

by Sumayya Mansoor
The Motley Fool

Two dividend stocks I feel could be savvy buys for my holdings are Impact Healthcare REIT (LSE: IHR) and Diageo (LSE: DGE).

Here’s why I’d be willing to buy some shares when I next have some investable funds, despite credible challenges to the payouts. And it is always worth remembering that dividends are never guaranteed.

Healthcare properties
Impact Healthcare is set up as a real estate investment trust (REIT), meaning it must return 90% of profits to shareholders. The firm specialises in care homes, and ties its tenants down to long-term, inflation linked contracts.

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.
At present, Impact owns and operates 138 care homes across the UK. Its potential to grow earnings and returns is exciting for me as the UK population soars and will require care in the years to come.

From a fundamental view, the shares offer a dividend yield of 7.9%. For context, the FTSE 100 average is closer to 3.5%. Furthermore, the shares look good value for money on a forward price-to-earnings ratio of 8.5.

Moving to the bear case, issues in the commercial property sector have occurred due to higher interest rates. These have hurt net asset values (NAVs). However, the bigger challenge Impact faces is potential staff shortages in the care sector. It’s all well and good growing its portfolio and owning many care homes, but they can’t operate without qualified staff. I’ll keep an eye on this, but I believe it won’t be a deal breaker when it comes to shareholder value in the longer term.

Cheers to that.
Premium alcoholic drinks giant Diageo really doesn’t need much of an introduction, in my view at least. As the owner of some of the world’s favourite tipples, with a vast presence, immense brand power, and fantastic track record, I reckon the shares are a no-brainer buy for my portfolio.

Diageo has been coming to terms with economic turbulence in recent months, and this has been reflected in its share price fall, with performance being impacted too. High inflation and interest rates have left many consumers struggling with higher essential bills. Luxuries like premium alcohol aren’t atop the priority list of most, and sales have been falling, especially in the Caribbean and Latin America, two key growth markets.

I reckon these short-term challenges may distort the view of what looks to me like an excellent stock. Firstly, there’s no denying Diageo’s brand power, and there aren’t many firms in its industry that can boast a presence of selling products in 180 countries globally. Plus, as interest rates come down, I reckon spending will increase once more. This could help boost earnings and returns.

The beauty of the recent dip is it has allowed investors like me to gain a better entry point. At present, Diageo shares trade on a price-to-earnings ratio of 16. This is lower than its recent average.

Now for the cherry on top. A dividend yield of 3.8% may not sound mammoth. However, as a Foolish investor, I’m more concerned about consistent payouts. Well, Diageo is nothing if not consistent. The firm has paid a dividend for close to 40 years in a row. It has also increased it for many of those, giving it the deserved moniker of Dividend Aristocrat. However, I do understand that the past isn’t a guarantee of the future.

The post These 2 dividend stocks look like no-brainer buys despite challenges ahead appeared first on The Motley Fool UK.

££££££££££££

Mr. Market hasn’t presented any ‘bargains,’ yet so I might have to re-invest the Snowball funds, mostly in BSIF and collect the next dividend and then re-appraise.

by Mark David Hartley

I’m not going to sugarcoat it. 

Building a lifelong passive income strategy is not easy. If you really want to retire comfortably you’ll have to put in the work — and the money — to make it happen. 

Shortcuts and get-rich-quick schemes seldom work. 

With that said, this is my three-step strategy to building a passive income stream to retire in style.

Step 1: Open a Stocks and Shares ISA

I don’t need a Stocks and Shares ISA to begin investing but it’ll certainly make my money go further.

See, with a Stocks and Shares ISA, I can invest up to £20,000 a year tax-free.

Depending on my returns, the ISA fees are likely to pale in comparison to the amount the tax break saves me. There are several options available for UK citizens to open a Stocks and Shares ISA and start investing today.

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.

Step 2: Invest in a portfolio of high-yield dividend shares

So what shares should I put in my ISA?

While it might seem attractive, it’s usually best to avoid ‘flavour of the month’ shares like booming tech stocks. These might bring short-term gains but usually lack resilience and seldom pay dividends.

Well-established companies that pay high-yield dividends offer more consistent returns even when markets are stagnant.

A good example that has served me well is Vodafone Group (LSE:VOD). The 40-year-old telecoms firm pays a huge 10% dividend yield with consistent semi-annual payments over the past 10 years.

In its latest 2023 results, the company reported an impressive net profit margin of 23.59%, with earnings per share (EPS) at 39p. Even though the share price has fallen 48% in the past five years, the dividend yield still makes Vodafone attractive. With the price now the lowest it’s been since the 90s, analysts estimate Vodafone shares are trading at almost 70% below fair value.

It’s important I create a diversified portfolio of shares, so I’d add some companies with lower dividends but a more stable share price. I could also add some ETFs to offset unexpected market volatility. 

Step 3: Reinvest dividends and contribute further

For the final step, it’s important to ensure I benefit from the magic of compound returns. Using a dividend reinvestment plan (DRIP), I would reinvest my dividends and maximise the value of my investment.

More importantly, I should continue to make some monthly contributions to my investment. Even just a few hundred pounds a month can make a real difference in the long term.

For example, a £10,000 portfolio with an average 5% dividend yield and 5% share price increase per year would grow to around £16,000 after 10 years.

The same investment with a DRIP and a £200 monthly contribution would net me almost £65,000 in the same period. In 30 years, it would be up to £580,000, paying me £26,770 a year in passive income.

In reality, dividend yields and share prices fluctuate regularly, so final amounts could differ vastly. However, these are conservative figures that an average investor like myself could typically expect to achieve.

The post My 3-step strategy to retire early with life-long passive income appeared first on The Motley Fool UK.

Three reasons why markets may be creaking – and three trends to watch

Russ Mould  Tuesday, August 6, 2024

AJ Bell

A market storm is emerging from a seemingly cloudless summer sky. The question now is whether this is just a tempest in a teapot, and the result of thin trading volumes as the big hitters head to the beach and leave deputies and juniors in charge, or whether it is the harbinger of a more serious – and bearish – shift in market sentiment.

Tracking the yen, the VIX index and the Dow Jones Transportation index might help investors to work out what is coming next, as the worries over the trajectory of the US economy, a rally in the yen and stretched valuations put stock markets to the test.

The NASDAQ is up 110% in the past five years and the S&P 500 by 82%, so investors are now facing the latest test of the old adage that ‘markets go up the escalator and come down in the elevator’. There are many possible reasons for why this squall has seemingly appeared from nowhere.

First, equity (and to some degree bond) markets have priced in the ‘perfect’ scenario of a cooling in inflation, a soft landing in Western economies (and thus corporate earnings) and rate cuts from the Fed, Bank of England and others. Any deviation from that path could therefore lead to trouble – either stickier inflation, economic and earnings disappointment or slower-than-expected rate cuts.

Deviations from that path can be found. Rate cuts have come more slowly than hoped (and the Fed has yet to deliver, after the market started 2024 looking for six, one-quarter point cuts from the US central bank). Inflation has proved stickier and there are signs that the US economy is slowing – unemployment is up, the housing market is a mess and the latest purchasing managers’ index for manufacturing showed weak orders and sticky prices. A US slowdown is not priced in at all – if anything markets were more concerned about it overheating earlier this year – and those with long memories will remember how frantic rate cuts in 2000-02 and 2007-08 failed to stave off a bear market in stocks, because the economy tipped over and corporate earnings fell far faster than the headline cost of money.

Second, the yen is rallying. The Japanese currency has been a major source of global liquidity, as major market players have shorted it, borrowed against it and used that money to go for long risk assets around the globe. The Bank of Japan’s belated efforts to raise rates and defend the yen may be turning off the tap, even if Western central banks are slowly cutting rates to keep liquidity flowing. The yen is rallying, as massive short positions against it are closed out, to drive the currency higher still and force yet more liquidation by the shorts, to create a circle every bit as vicious as it had previously been virtuous.

Source: LSEG Refinitiv data

Finally, US equities in particular have just gone up in a straight line, and done so much faster than GDP growth, or corporate earnings or cash flows. The result is that US equities look expensive. According to FactSet, the S&P 500 trades on 20.6 times forward earnings against a 10-year average of 17.9 and the S&P 500’s market’s capitalisation represents 160% of GDP, an all-time high. On top of that, according to Professor Robert Shiller, the US stock market trades on a cyclically adjusted price/earnings ratio (PE) of 35, a figure only exceeded in 2000 (and that did not end well).

As the old saying goes, valuation never tells you when there may be trouble (or an opportunity), but it will tell investors how far things can go (up or down) before something snaps back the other way. And those numbers suggest either prices must fall some way, or earnings must surge quickly for stock markets to regain their equilibrium – though UK equity prices are nowhere near as stretched as they are in the USA.

Ultimately, valuation will set a high and a floor and they are the best arbiters of prospective returns over the very long term. But to test near-term market sentiment, investors may like to watch three indicators.

The first is the VIX index, the so-called fear index, which measures expectation of US stock market volatility in the month ahead. The long-run average reading since 1994 is 19. It is usually a good counter-cyclical indicator. Sustained periods of low readings, down toward 12 or lower, speak of investor complacency and likely trouble ahead (because it won’t take much to frighten everyone). A sustained run above, say, 30 suggests there is panic around and there may be bargains appearing, but the shake-out in this case could be violent. (This simply distils Buffett’s maxim about being fearful when others are greedy and greedy when others are fearful).

Source: LSEG Refinitiv data

The second is again the yen, given its pivotal role in global market liquidity. If the Bank of Japan backtracks on its promise of more rate hikes that might help, although whether that stokes global inflation expectations is another challenge, and rapid cuts from the Fed and other central banks might stoke money supply and liquidity in the West, but they might fuel inflation fears too – which may be why gold is holding firm.

And for those looking for an indicator that looks at both US markets and the US economy (and we are focusing on those are they are the biggest in the world on both counts) then nothing is usually more helpful than the Dow Jones Transportation index. It has lagged the Dow Jones Industrials and lost momentum. That is usually a bad sign, as it speaks of economic weakness. That indicator needs to start trucking again, or a summer squall could turn more serious.

Source: LSEG Refinitiv data

These articles are for information purposes only and are not a personal recommendation or advice.

Mr. jp-dolls. I thankyou for taking the time to post your kind comments but with the best will in the world I cannot approve your comments for publication. Good luck with what u do as u clearly believe in your project.

The Results Round-Up – The Week’s Investment Trust Results

By Frank Buhagiar•02 Aug, 2024•

Among this week’s results

CT Global Managed Portfolio (CMPI/CMPG) waiting for sentiment to improve

CMPI/CMPG’s Annual Report presumably includes twice as many numbers as most other funds. That’s because the trust, which invests in other investment companies, is comprised of two share categories: Income (CMPI) and Growth (CMPG). NAV total return for CMPI came in at +7.0%; CMPG +12.7%. Neither could match the FTSE All-Share’s +15.4%. But over the longer term, CMPG has returned +271.5% over the 15 years to 31 May 2024 (+9.1% compound per year). That beats the FTSE All-Share’s +242.5% (+8.6% compound per year).

Alternative investment companies partly to blame for the underperformance over the latest full year. As Chairman, David Warnock, writes “Discounts remained wide and interest rates which stayed ‘higher for longer’ led to reduced NAVs and share prices.” Good job then, interest rates have peaked, although Warnock believes “It may require actual cuts to be delivered for sentiment to improve; however, it does appear a more favourable environment for equity markets is a distinct possibility.” Right on cue, CMPG’s share price rose on 01 August 2024, the day of the BoE’s first UK rate cut.

Winterflood: “Negative performance in both portfolios largely attributed to widened discounts over FY and the valuation impact from higher discount rates. Annual dividend +2.9% to 7.40p per share, representing 13th consecutive year of dividend growth.”

Smithson (SSON) painting a positive picture

SSON’s -1.8% NAV per share total return for the latest half year couldn’t match the MSCI World SMID Index’s +3.4%. Chair, Diana Dyer Bartlett, describes the performance as “frustrating”. The investment managers describe it as “like watching paint dry”. As the Chair explains “The performance of the MSCI World Index, which is driven by the performance of a small number of very large technology stocks, has been very strong. The MSCI SMID Index has returned 12.8% over that period, whilst the MSCI World Index has returned 31.6%.”

Bartlett still believes good returns can be delivered by investing in small and mid-cap stocks. And the numbers back this up: SSON’s +8.2% annualised NAV per share performance since inception nearly six years ago is 0.5 percentage points higher than the MSCI World SMID Index. As for the paint-watching, the investment managers add “While we may have to remain patient a little longer while the paint dries, we remain very optimistic that the picture will be worth it.” Seems the market agreed. Shares were in demand on the day of the results.

Numis: “We believe that the portfolio has sound fundamentals that place it in a strong position to outperform over the long run and that the shares offer value on a c.11% discount to NAV.”

Scottish American (SAIN), steady as she goes

SAIN posted a +5.5% NAV total return for the latest half year, a little off the benchmark’s +12.2%. Three reasons cited for the underperformance: “market sentiment”; “not owning certain non-yielding or deeply cyclical companies which have benefitted from the current environment”; and “SAINTS’ diversifying investments in property and other areas have underperformed equities”

The Interim Management Report puts the performance into context by drawing on the fable of the race between the hare and the tortoise – hare bounds ahead at the start but becomes so over-confident stops to take a nap. This allows the tortoise, who has maintained a steady pace, to overtake the hare and finish first. “We firmly believe that all is well: perseverance remains the name of the game. The underlying growth of the portfolio remains strong, if a little more ‘tortoise’ than the market’s ‘hare’. We remain staunch believers that focusing on companies which steadily compound their earnings and dividends ever-higher will stand SAINTS’ shareholders in good stead in the long-term.” Shares definitely a tortoise on results day, barely moved.

Winterflood: “A third of underperformance comes from cyclicals, and another third from not owning Nvidia. Infrastructure (-4.4%) and fixed income (-4.4%) portfolios showed negative returns while property (+3.1%) portfolio made a positive yet modest contribution through income generation.”

Pantheon International (PIN), busting myths

PIN reported a +6.1% increase in NAV per share for the full year. Growth was down to valuation gains but also from the private equity group’s £200 million buyback programme which added +4.7% to NAV. Over ten years, annualised NAV per share growth stands at +13.5%. The portfolio continues to perform well with underlying investments clocking up +17% EBITDA growth and +14% revenue growth. Growth just half the story. Avoiding losses the other and, here too, PIN has a strong track record. The fund’s realised and unrealised loss ratio for all its investments over the last 10 years is just 2.3%.

Chair, John Singer CBE, explains that, as well as the corporate objective to deliver an attractive risk-return over the long term, the fund is on a mission “to dispel the myths that have surrounded the private equity sector for so long”. So, PIN is increasing its marketing efforts to widen its appeal “And we will continue to do this in the spirit of transparency and communication”. That’s the spirit. Market liked what it heard too, share price ticked higher.

Numis: “PIN’s shares currently trade on a c.33% discount, which we believe offers significant value”.

JPMorgan: “Overall we like PIN’s approach to capital allocation and it remains one of our top picks among the diversified listed private equity companies. We remain Overweight.”

RIT Capital Partners (RCP), a fund built for the times

RCP Chairman, Sir James Leigh-Pemberton, described the flexible investor’s half-year investment performance as solid with the NAV per share increasing by 4.2% (including dividends). All three strategic investment pillars – Quoted Equities, Private Investments and Uncorrelated Strategies – performed positively. RCP’s objective is to grow shareholder wealth meaningfully over time, through a diversified and resilient global portfolio. And the numbers show the fund has delivered. “Since inception in 1988, our NAV has averaged an increase of 10.5% per annum (including dividends), with lower volatility than stock markets.”

Looking ahead, the investment managers are not worried about current geopolitical and economic uncertainty, as “Our portfolio is built for times like this – focused on capturing long-term growth opportunities while being resilient through diversification.” Shares showed resilience on results day, closing marginally higher.

Numis: “The discount remains wide at 26% and we believe this offers significant value given improved disclosure and communication, and evidence for progress with realisations in the private portfolio.”

JPMorgan: “We are Overweight RCP which is a constituent of our investment companies model portfolio.”

Henderson Smaller Companies’ (HSL) year of two halves

HSL reported above average NAV growth for the full year: +14.5% NAV total return compares favourably to the AIC UK Smaller Companies sector’s average of +14.1%. The full-year number does not tell the whole story, however. At the half-way stage, NAV total return was a negative 7.7%, meaning NAV put on +24.0% in the second half. Not enough to keep pace with the Deutsche Numis Smaller Companies Index (ex-investment companies). The 3.7% shortfall was put down to stock-specific issues, but fund manager Neil Hermon is not losing much sleep over it thanks to the robust operating performance of the portfolio companies, their sound finances and attractive valuations. Nor is the market it seems, shares only fractionally lower following the results.

Numis: “Henderson Smaller Companies remains one of our top picks within the UK smaller companies sector. We continue to rate the management team highly and believe that following a period of poor performance over the last 2-3 years, the manager is starting to reap the rewards of sticking to the Growth at a Reasonable Price investment approach.”

F&C Investment Trust (FCIT) maintaining balance

FCIT’s +13.2% NAV total return for the half year beat the FTSE All-World Index’s +12.0%. The Fund Manager’s Report highlights the performance of the Magnificent Seven tech giants – Alphabet +31.8%, Microsoft +20.4%, Amazon +28.4%, Apple +10.7%, Nvidia +151.9%, Meta +44.1% and Tesla -20.4% – not just because they have been driving markets, but because FCIT holds every single one of them with all but Tesla featuring in the global fund’s top-ten holdings.

Not that FCIT is putting all its eggs in the technology basket. For “the Company is well positioned to benefit from a broadening of the rally driven by improving economic momentum outside of the US. Our balanced approach within our portfolio across recognised styles, including value, growth/quality and momentum, provides our shareholders with a well-diversified, global equity investment portfolio”. Shares finished the day marginally lower.

Numis: “The fund has a reasonable track record, with NAV total returns broadly in line with the index over one, three and five years.”

JPMorgan: “FCIT also benefits from low fees and is one of the highest quality large cap global investment trusts. We are Overweight FCIT.”

The 2024 Snowball fcast for dividends earned is 8k.

This should be achieved by the end of September, if the fcast dividends are declared. If there are any misses the fcast will be achieved in October. It’s still too early to make a fcast for 2025 but a yield of around 9% is more likely than not.

GRS

Thursday 8 August

Aberforth Smaller Cos Trust PLC ex-dividend payment date
Atrato Onsite Energy PLC ex-dividend payment date
Chenavari Toro Income Fund Ltd ex-dividend payment date
CVC Income & Growth Ltd GBP ex-dividend payment date
GCP Asset Backed Income Fund Ltd ex-dividend payment date
GCP Infrastructure Investments Ltd ex-dividend payment date
Lindsell Train Investment Trust PLC ex-dividend payment date
Marwyn Value Investors Ltd ex-dividend payment date
Monks Investment Trust PLC ex-dividend payment date
New Star Investment Trust PLC dividend payment date
Picton Property Income Ltd ex-dividend payment date
PRS REIT PLC ex-dividend payment date
Residential Secure Income PLC ex-dividend payment date
Rockwood Strategic PLC ex-dividend payment date
Schroder Real Estate Investment Trust Ltd ex-dividend payment date
Scottish American Investment Co PLC ex-dividend payment date
Taylor Maritime Investments Ltd ex-dividend payment date

With £20k, here’s how I’d target a £23,800 passive income every year.

Fact one, if u intend to use the 4% rule (see below) it’s not strictly passive income, because u are relying on the market not to crash and we all know it does on a regular basis.

If u invest 20k at 7% compounded after 40 years your dividends would equate to £23,800 a year.

Of the course over 40 years there may be some years u will not be able to re-invest at 7%, currently u can beat the target income but the total is not in doubt just the time frame.

GetRichSlow

With £20k, here’s how I’d target a £15,919 passive income every year

Story by Royston Wild

Share investing can provide a wealth of opportunity for individuals to create a lifelong passive income. Few asset classes have provided the sort of return that equities have since the second half of the 20th century.

However, there are a few golden tips investors can follow to try and build long-term wealth. If I had a £20,000 lump sum to invest, here’s what I’d do to try and achieve a near-£16k passive income for the rest of my life.

Topple tax

My first act would be to buy assets using a tax-efficient financial product. In the UK, we’re talking about an Individual Savings Account (ISA) or a Self-Invested Personal Pension (SIPP).

The annual allowances for these products are pretty generous at current levels. The limit for ISA investments is £20,000. For the SIPP, it is typically an individual’s annual earnings, or £60,000, whatever is highest.

A major SIPP drawback is that individuals can’t make withdrawals until their late 50s. However, for those saving for retirement this may not necessarily be a problem. What’s more, pension holders also receive a healthy dose of tax relief.

Tax on capital gains and/or dividends is the biggest investing-related expense any of us will pay. So investing in an ISA or SIPP can save each of us a huge wad of cash over the long term.

Spread out

The other thing I’d do is create a balanced portfolio of investments.

One way to achieve this is by investing in an exchange-traded fund (ETF) that spreads capital across a wide range of instruments. These can include stocks, bonds, commodities, and cash.

The iShares Growth Portfolio UCITS ETF (LSE:MAGG) is one multi-asset fund I’d happily buy today. More than 85% of its capital is currently invested in shares, the majority of which are listed in the US. Major underlying holdings here include Nvidia, Microsoft, Apple, and Amazon.

The remainder of the ETF’s money is locked into fixed income securities like government bonds. This 85-15 split across asset classes — combined with its strategy of investing in shares across the world — has helped investors achieve supreme capital appreciation, while also building in a level of risk management.

A ~16k passive income

Since its inception in 2020, the product has delivered an annualised return of 7.5%. If this were to continue, a £20,000 investment today would — excluding trading and management fees — turn into £397,978 after 40 years.

This could then provide a regular passive income of £15,919 if I drew down 4% each year.

Of course, future returns are never guaranteed. And in the case of this ETF, a slowdown in the US stock market could impact the passive income I make. But on balance, I think diversifying like this is an important and valuable strategy.

The post With £20k, here’s how I’d target a £15,919 passive income every year appeared first on The Motley Fool UK.

2008

History doesn’t always repeat but it often rhymes.