The FTSE 100 slipped on renewed tensions this morning (13 April). But the real issue isn’t why it’s falling — it’s what’s suddenly become cheaper.

A contrarian opportunity?

Recent trading data from AJ Bell suggests many investors have been taking profits in BP (LSE: BP.) after its strong run. That’s understandable.

But today tells a slightly different story. While the FTSE 100 has slipped, BP shares have been pushing higher as oil prices rebound on renewed tensions.

That divergence is telling. Short-term sentiment may be shifting, but the underlying earnings story remains firmly tied to energy markets that are strengthening again.

For me, the key point isn’t whether the rally has run out of steam — but whether this is simply another pause before the next leg higher.

The bigger picture hasn’t weakened

While short-term sentiment continues to swing, the underlying investment case for BP hasn’t deteriorated — if anything, I think it has strengthened.

The company has reoriented its strategy back towards higher-return upstream oil and gas, improving the quality and visibility of future cash flows. At the same time, portfolio simplification is steadily reducing complexity and improving capital efficiency.

That matters because the oil major is no longer trying to be everything at once. It’s increasingly focused on areas where returns are structurally higher and more predictable across the cycle.

Put simply, the business is becoming more tightly aligned to the very drivers that move its earnings — not less.

For long-term investors, that shifts the debate away from short-term oil moves and towards the durability of the company’s cash-generating capacity over time.

The main short-term risk for BP is a renewed fall in oil prices if geopolitical tensions ease or global growth slows, which would quickly hit cash flow and sentiment.

On the other side of the cycle, sustained higher prices could prompt governments to impose additional taxes or windfall levies on energy companies, potentially limiting returns even as conditions strengthen.

Nevertheless, with exceptional cash generation, I’ve been adding to my position recently.

Why the market may be missing it

One interesting signal is that Aviva (LSE: AV.) hasn’t featured heavily in recent buy or sell data from AJ Bell, suggesting investor attention may be fading after a strong 2025 run.

But that may say more about sentiment than fundamentals.

What the market may be overlooking is how much the group’s earnings mix has already shifted. It’s no longer reliant on a single cyclical insurance engine, with a growing share of profits now coming from wealth, pensions, and fee-based businesses that generate more stable cash flows.

That matters because it changes the dividend story. It’s increasingly supported by recurring, capital-light earnings rather than pure insurance cycles.

Cash generation remains strong, capital returns are rising, and management continues to upgrade targets after early delivery of previous goals.

Of course, risks remain. A weaker economic backdrop or rising inflation could hit bond valuations in its portfolio, putting pressure on capital positions and returns.

Aviva has already surprised the market once. With a more capital-light model now embedded, it may not be the last time. For long-term investors, the market may still be underestimating the compounding under way. That’s why I view the stock as one to consider.

The post As the FTSE 100 dips again, here’s what I think smart investors do next appeared first on The Motley Fool UK.

More reading

• Is a £100,000 SIPP big enough to retire on?
• Forecast: in 12 months, a £5,000 investment in BP shares could be worth…
• Is it game over for the BP share price rally?
• Passive income: what most investors get wrong
• This simple Stocks and Shares ISA move could be worth thousands over time

Andrew Mackie has positions in Aviva Plc and Bp P.l.c. 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.

Passive income is often thought of as something simple: buy a high-yield stock, sit back, and collect the income.

But in reality, sustainable passive income in the stock market rarely works like that.

The strongest long-term income streams are built from owning quality businesses with growing cash flows, where dividends are supported by genuine earnings power and reinforced by compounding over time.

By contrast, chasing headline yields can be misleading, often prioritising short-term income over long-term durability.

The real ‘work’ in passive income investing isn’t effort in the day-to-day sense — it’s the discipline of selecting the right businesses and the patience to let compounding do its job over years, not months.

Blue-chip stock

One business I have long admired is Aviva (LSE: AV.). The headline many investors will focus on is that juicy 6.2% dividend yield. However, I view it less like a traditional income stock and more like a classic compounding machine hiding in plain sight.

The key shift over the past few years has been its move towards a more capital-light business model, driven by expansion into wealth management, insurance services, and other fee-based businesses. These areas require less balance sheet intensity, but generate more stable and scalable returns over time.

Strategic moves such as the acquisition of Direct Line have reinforced this shift, strengthening its position in the low-cost insurance segment through brands including Churchill. The deal also creates scope for meaningful cost synergies.

In simple terms, Aviva is gradually evolving from a capital-heavy insurer exposed to market cycles into a more diversified financial services group with increasingly predictable cash flows.

Compounding in action

What stands out is how clearly this transformation is already showing up in the numbers.

Operating profit rose 25% to £2.2bn, with earnings per share hitting 56p and return on equity climbing to 17.5%. Cash remittances increased to £2.1bn. With figures like these, it’s little surprise the group reached its 2026 targets a year early.

Crucially, that growth is translating into cash. Stronger capital generation has supported a 10% dividend increase, alongside a higher level of share buybacks.

That consistency matters. Over time, it is the ability to generate and return cash — year after year — that drives compounding for shareholders.

With earnings growing, cash flows strengthening, and capital returns increasing, the foundations for long-term income growth already look firmly in place.

Risks

Geopolitical instability remains a key risk for Aviva. Escalating conflicts or trade tensions could disrupt financial markets, drive inflation, and increase claims costs. Higher energy prices and supply chain pressures may squeeze margins, while cyber threats and market volatility could impact operations, capital strength, and the reliability of long-term returns.

Closing remarks

The key point is that passive income is rarely as passive as it appears.

It’s not simply about buying the highest yield and waiting. Instead, it’s about owning businesses capable of growing their cash flows over time — and having the patience to let that process play out.

That distinction matters. A high yield can disappear quickly if it’s not supported by underlying earnings. But a business that consistently generates and grows cash can increase income year after year. Aviva is one such example. But it’s far from being the last.

The post Passive income: what most investors get wrong appeared first on The Motley Fool UK.

More reading

• Is a £100,000 SIPP big enough to retire on?
• As the FTSE 100 dips again, here’s what I think smart investors do next
• What would £10,000 invested in Aviva shares 5 years ago be worth today?
• I’m targeting £15,401 in yearly dividends from £20,000 in this FTSE passive income heavyweight
• 6.3% passive income yield! A brilliant, bargain-basement dividend stock to buy?

Andrew Mackie has positions in Aviva 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.

Many investors treat their Stocks and Shares ISA as something to sort out later in the tax year. After all, as long as the money goes in before the deadline, it shouldn’t really matter — right?

In reality, that delay could quietly cost thousands over time. The difference comes down to one simple factor: how long your money is working for you. Because when it comes to investing, even a few extra months of compounding each year can add up to a surprisingly large gap over the long run.

Maximise compounding

Over 25 years, the timing of ISA contributions creates a surprisingly large gap in wealth.

In this example, two investors both contribute £5,000 a year and earn the same 8% return. The only difference is when the money is invested.

One invests at the start of each tax year. The other waits until the end. That gap may feel insignificant in any single year, but compounding quietly amplifies it over time.

As the chart below shows, the divergence gradually builds into a final portfolio value difference of roughly £26,000.

Chart created by author

Compounding in real markets

If a simple timing difference can create such a significant gap in a passive ISA portfolio, the same principle becomes even more powerful when applied to real-world stock market investing.

Unlike smooth compounding models, equity returns are uneven. A large proportion of long-term gains often comes from relatively short bursts of performance. That means being invested — and invested early — can matter far more than most investors realise.

A good example is BP (LSE: BP.). Over shorter periods, the share price can be heavily influenced by swings in oil prices, macro shocks, and shifting sentiment. This has been clearly evident recently.

But over decades, the real driver of returns has been the underlying cash-generation engine — production, cost discipline, and the ability to return capital through dividends and buybacks.

Dividends

This cash-generating engine is effectively compounding in action, but within BP rather than an investor’s ISA portfolio.

Even through oil price volatility, BP’s cash flows remain resilient. And it is this free cash flow that ultimately underpins dividend sustainability in a capital-intensive business.

Viewed through this lens, BP’s dividend is not a static payout, but the output of a compounding cash engine. That has enabled both sustained dividend payments and growth at a compound annual rate of around 11%, alongside ongoing buybacks.

Like all stocks, BP is not without risk. Higher oil prices can be a double-edged sword — if they rise too far, they can eventually dampen demand and tip economies into recession.

There are also execution risks around large upstream projects, as well as regulatory and political intervention in energy markets, which could affect capital allocation and long-term returns.

Bottom line

The real edge in investing is not timing the market, but time in the market. As both ISA compounding and companies like BP show, small delays compound into large long-term gaps. Most investors underestimate this. The real question is whether your money is working for you right now — or sitting on the sidelines, quietly costing you future wealth.

The post This simple Stocks and Shares ISA move could be worth thousands over time appeared first on The Motley Fool UK.

More reading

• As the FTSE 100 dips again, here’s what I think smart investors do next
• Forecast: in 12 months, a £5,000 investment in BP shares could be worth…
• Is it game over for the BP share price rally?
• £5,000 invested in cheap BP shares a month ago is now worth…
• £5,000 invested in BP shares 2 days ago is now worth…

Andrew Mackie has positions in Bp P.l.c. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The Fresnillo (LSE: FRES) is back in focus today (8 April), emerging as one of the standout movers in the FTSE 100. After a six-fold surge in 2025 followed by a bruising 30% decline in recent months, the question now is whether sentiment is beginning to turn again for one of the index’s most extreme cyclical performers.

Macro reset

Over the past few weeks, many investors have been puzzled by the lack of strength in precious metals following heightened geopolitical tensions in the Middle East. In fact, prices have been relatively subdued.

Now, with a temporary ceasefire in place, metals are beginning to move higher again. So what has actually been driving the volatility?

Part of the explanation may lie in positioning. When silver surged to around $120 before falling sharply by 30% in a single session, a significant amount of speculative excess was flushed from the market. That kind of move tends to reset positioning and remove froth.

But beneath the surface, the broader macro backdrop remains largely unchanged. US debt has continued to climb, moving beyond $39trn, while the dollar has been gradually weakening over the past year.

Historically, a softer dollar tends to be supportive for precious metals as global investors seek alternative stores of value.

Silver story

Beyond the short-term noise, the more important driver for silver is the depth and breadth of industrial demand.

This is no longer a single-sector story. Silver now sits inside a wide range of critical technologies — from advanced electronics and data infrastructure to defence systems, EVs and renewable energy components. In many of these applications, there’s no simple substitute without a loss of efficiency.

What matters more, however, is the supply side.

New production cannot respond quickly. Developing a mine is a slow, capital-intensive process that can take well over a decade from discovery to full output. Even when prices rise sharply, output does not adjust in real time.

That creates a structural imbalance: demand is increasingly diversified and growing, while supply remains rigid. In fact, the market has spent multiple recent years in deficit, with demand consistently running ahead of new supply.

This is why price volatility can look extreme in the short term, yet the underlying market can still tighten over time.

Risks

Fresnillo is not immune to structural risks, even in a strong metals environment. The most immediate pressure point is energy costs, which represent the largest component of a miner’s cost base.

Recent volatility across energy markets is likely to lead the industry to increase hedging activity in future. This could potentially lock in a higher long-term cost base.

As always, mining remains capital-intensive, cyclical, and sensitive to both input costs and operational execution.

What’s the verdict?

The key question now is whether the worst of the sell-off is over and whether gold and silver have found a level of support after recent volatility. That remains uncertain.

However, Fresnillo’s latest results highlight a very different point: even at current prices, the business is generating substantial cash flow and record dividends.

This is a classic high-volatility, high-leverage miner. Prices will swing sharply, but the underlying cash engine is already working. For investors willing to tolerate the volatility, it remains a stock worth considering.

The post Fresnillo share price rebounds as a FTSE 100 top mover after a 30% sell-off — what’s next? appeared first on The Motley Fool UK.

More reading

• How to invest £5,000 in the FTSE 100 today
• £60,000 invested in a SIPP on 7 April 2025 could now be worth…
• 2 FTSE 100 bargain shares to consider this ISA season!
• £5,000 invested in Fresnillo shares 5 weeks ago is now worth…
• This FTSE 100 stock soared 900% — but after a 25% crash, is the rally over?

Andrew Mackie has positions in Fresnillo Plc. The Motley Fool UK has recommended Fresnillo 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.

The BP (LSE: BP.) share price is under heavy pressure today (8 April), sliding 8% in early trading as oil markets reacted to signs of de-escalation in the Middle East and improved supply security through the Strait of Hormuz. But after such a powerful rally, is this the moment sentiment flips — or the moment long-term investors step in?

Time to sell?

A ceasefire between Iran and the US was always likely at some point. It was never realistic to assume oil tankers could be blocked indefinitely. The real question for investors is whether this changes the BP investment case.

In my view, it does not. On the surface, the 8% fall in the share price reflects a sharp unwind in oil prices as geopolitical tensions ease and the market begins to price out the ‘war premium’ that had supported crude in recent weeks.

In other words, this looks far more like a macro-driven reset in sentiment than any company-specific deterioration.

What has not changed overnight is the company’s underlying cash-generating engine. Production levels, a refocused upstream strategy, and balance sheet progress all remain intact.

In that sense, today’s move looks less like a structural warning sign and more like a volatility event layered on top of an unchanged investment case.

Cash flows

The oil major’s strategy reset remains the key investment narrative, in my view. Its renewed focus on upstream oil and gas has effectively redefined how the market should think about its financial performance.

Management is targeting a return on average capital employed of more than 16% by 2027, up from around 14% today. In simple terms, this means generating a higher percentage of profit from each pound of capital invested.

Alongside this, the group is guiding towards free cash flow growth at a compound annual rate of around 20%, highlighting the scale of the operational ambition.

At the same time, portfolio simplification is accelerating. The partial sale of Castrol and the disposal of its German refining assets point towards a leaner, more focused and ultimately more cash-generative business model.

That matters for the dividend. Despite heavy write-downs in its low-carbon portfolio and a challenging oil backdrop over recent years, the dividend has still compounded at roughly 11% annually since 2021.

Risks

The obvious near-term risk is that today’s move in oil prices proves the start of a broader reversal back towards the $50-$60 range seen over much of the past two years. That would quickly take considerable heat out of BP’s earnings momentum and temper expectations around cash flow growth.

There are also execution risks as the group leans further into upstream expansion, where project delays, cost overruns, or regulatory shifts can erode returns.

What’s the verdict?

Today’s sharp sell-off is certainly uncomfortable. But the bigger picture is what investors need to focus on.

Years of weak oil prices have meant the industry is no longer in a phase of aggressive overinvestment. In fact, some estimates suggest the sector is now underinvesting in sustaining production by $1bn–$2bn per day.

As rig counts fall and exploration budgets are cut, BP stands out with its renewed upstream strategy, supported by major recent discoveries in Brazil and a stronger production pipeline.

Ultimately, I believe the market will reward growing cash flow over time — which is why BP remains a stock to consider.

The post Has the BP share price rally just run out of steam? appeared first on The Motley Fool UK.

More reading

• As the FTSE 100 dips again, here’s what I think smart investors do next
• Forecast: in 12 months, a £5,000 investment in BP shares could be worth…
• Is it game over for the BP share price rally?
• This simple Stocks and Shares ISA move could be worth thousands over time
• £5,000 invested in cheap BP shares a month ago is now worth…

Andrew Mackie has positions in Bp P.l.c. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The new stocks and shares ISA season for 2026/27 is here — and investors have a limited window to start building £10,000 a year in passive income.

That urgency isn’t about a closing door, but about time: the earlier money is put to work in a Stocks and Shares ISA, the longer it has to compound and grow towards that goal.

What it really takes to earn £10,000 a year

A £10,000 annual income would typically require a Stocks and Shares ISA worth somewhere in the region of £150,000 to £200,000, depending on the dividend yield achieved.

For example, a 5% yield would require a £200,000 portfolio, while a more ambitious 7% yield would reduce that figure to around £143,000. But higher yields often come with higher risks, so striking the right balance is key.

Using a more balanced 6% annual return as a planning assumption, the next question is how long it might take to build an ISA of that size.

The chart below illustrates how consistent monthly investing can compound over time at this rate.

What it highlights is simple. Even with a relatively healthy return, lower levels of investing may still fall short of the portfolio needed to generate £10,000 a year. That means contributions, time, and investment choices all matter.

Chart generated by author

Energy play

One stock I think investors should consider is BP (LSE: BP.). The oil major currently offers a dividend yield of 4.1%, and strong recent share price performance reflects the scale of cash being generated across the business.

While profits can be cyclical, BP has consistently produced strong free cash flow in recent years. That has supported its growing dividend, alongside additional shareholder returns through buybacks.

This combination of income and cash generation is exactly what I look for in today’s volatile markets.

The main risk, however, is that earnings remain tied to energy prices and capital allocation decisions. If conditions weaken or investment spending rises too quickly, returns to shareholders could come under pressure.

Portfolio stabiliser

To balance that, I suggest considering a very different type of energy exposure in National Grid (LSE: NG.). The business currently offers a dividend yield of around 4%, supported by a recent pullback in the share price that has pushed income levels higher for new investors.

Unlike BP, the company is not driven by commodity prices. Instead, it operates regulated electricity and gas transmission networks, meaning returns are largely set by agreed frameworks with regulators. That gives the business far greater visibility over future cash flows.

The key attraction here is less about high income today, and more about steady, inflation-linked dividend growth over time. That makes it a useful stabiliser within an income-focused ISA portfolio, particularly when combined with more cyclical holdings like BP.

Risks remain — including regulatory changes, higher interest rates, and the capital demands of maintaining and upgrading grid infrastructure. However, the underlying income stream is typically far more predictable than most equity investments.

Bottom line

For me, building a £10,000-a-year income from a Stocks and Shares ISA is about combining different types of dividend payers and staying invested through market cycles. BP and National Grid are just two examples of how I approach that balance. But they are far from the only opportunities I’m currently watching.

The post How to aim for a £10,000-a-year passive income from a Stocks and Shares ISA appeared first on The Motley Fool UK.

More reading

• As the FTSE 100 dips again, here’s what I think smart investors do next
• Forecast: in 12 months, a £5,000 investment in BP shares could be worth…
• £20,000 invested in the stock market a year ago is now worth…
• Is it game over for the BP share price rally?
• Is now a great time to start aiming for a £1m Stocks and Shares ISA?

Andrew Mackie has positions in Bp P.l.c. and National Grid. The Motley Fool UK has recommended National Grid 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.

Many investors aim to build a second income, and a £20,000 Stocks and Shares ISA is often seen as a way to get there.

On paper, targeting £2,400 a year in income from that amount implies a 12% yield.

The problem is that a 12% sustainable income return is extremely rare in today’s market. Where it does exist, it usually comes with significantly higher risk than most long-term investors would accept.

So while the £2,400 figure can be a useful goal, it is not something that can realistically be generated from £20,000 in a single year. Not without taking on considerable risk.

A more practical approach is to treat it as a compounding target. One built over time through reinvested dividends, capital growth, and gradual portfolio expansion.

In that context, the question isn’t whether £20,000 can generate £2,400 immediately, but how it can be structured so that income steadily grows towards that level in a sustainable way.

With that in mind, here’s how a £20,000 ISA portfolio could be structured to focus on building sustainable long-term income.

Core holding

One of the longest-held positions in my ISA portfolio is insurance group Aviva (LSE: AV.). The recent market sell-off has pushed its dividend yield up to around 6.6%, but that isn’t the main reason I hold it.

As the UK’s largest general insurer and a growing wealth business, Aviva generates relatively stable cash flows from premiums and long-term savings products, which supports its ability to return capital to shareholders.

The attraction here isn’t just income, but the durability of the business model. Insurance companies don’t rely on rapid growth. Instead, they depend on disciplined underwriting, cost control, and consistent capital generation over time.

The key risk remains exposure to economic cycles and investment market volatility, which can affect returns. However, over the long term, it is precisely those investment returns that underpin both dividend growth and shareholder payouts.

Dividend workhorse

To complement individual equities, I also own a number of investment trusts, including The City of London Investment Trust (LSE: CTY), one of the UK’s longest-running dividend-focused investment trusts.

Its strategy is straightforward: invest in a diversified portfolio of established UK companies and prioritise consistent, growing income over time. That includes major dividend payers such as HSBC, Shell, Tesco, and Legal & General, alongside financials like Lloyds and NatWest.

What makes it attractive is its track record of increasing dividends through multiple market cycles, which helps smooth income generation inside an ISA.

The trade-off is that it remains exposed to the UK market and broader economic conditions, meaning capital values can fluctuate even if income stays relatively resilient.

Building a second income over time

Together, these two holdings show how I’d approach building a second income within a Stocks and Shares ISA. Aviva provides a core source of relatively stable cash generation, while the City of London Investment Trust adds diversification and a long track record of growing dividends.

Importantly, this isn’t about generating £2,400 overnight. It’s about building a portfolio that can steadily increase its income over time through reinvestment and disciplined stock selection.

In that sense, the ISA becomes less about chasing yield and more about creating a resilient income stream that can grow year after year.

The post Turning a £20k ISA into a £2,400-a-year second income appeared first on The Motley Fool UK.

More reading

• Is a £100,000 SIPP big enough to retire on?
• As the FTSE 100 dips again, here’s what I think smart investors do next
• Passive income: what most investors get wrong
• Want to aim for a £500 second income each month? Here’s how much it takes
• What would £10,000 invested in Aviva shares 5 years ago be worth today?

Andrew Mackie has positions in Aviva and The City of London Investment Trust. 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.

You don’t need to pick a single stock today to start building passive income — but you do need to use your ISA allowance before the deadline.

That’s because once the window closes, this year’s £20,000 contribution room is gone forever. No catch-up. No second chances.

And the real advantage isn’t just the tax-free wrapper — it’s starting the compounding clock as early as possible.

From there, you can gradually build a portfolio designed to generate growing passive income over time, without rushing into decisions 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. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Working toward a £2,000-a-year income target

At first glance, £20,000 producing £2,000 a year in passive income implies a 10% yield — something I wouldn’t try to achieve upfront.

Instead, I see the ISA as the starting point of an income engine, not the finished product.

A sensible starting portfolio might yield 4%–6%, generating around £800–£1,200 a year in income. But the real power comes from what happens next: reinvesting those dividends and allowing companies to increase payouts over time.

That combination — reinvestment plus dividend growth — is what can gradually turn a modest starting income into something closer to £2,000 a year.

Steady compounder

If I were putting that ISA to work today, I wouldn’t start with speculation — I’d start with income visibility. And one of the first names I’d consider is Aviva (LSE: AV.).

At a yield of around 6%, it already does a large part of the job for you. On a £20,000 ISA, that’s roughly £1,200 a year in income before reinvestment or dividend growth is even considered.

But the real attraction isn’t just the headline yield. It’s the improving quality of that income stream. The insurer’s shift towards a more capital-light business mix and stronger cash generation means dividends are better supported than in the past.

Of course, this is still a financial stock. Bond markets, credit conditions, and economic downturns can all pressure capital strength and earnings in the short term.

But as a starting point for an income portfolio, it gives you something crucial: immediate yield today, with the potential for that income to compound over time.

Diversify the income engine

But Aviva alone isn’t the portfolio — it’s one type of steady compounder, where income is supported by financial markets and balance sheet strength.

National Grid (LSE: NG.) sits in a different category. It’s still a long-term income compounder, but with far greater earnings visibility thanks to its regulated structure.

As a regulated utility, returns are linked to inflation, with allowed revenues adjusting over time. That creates a built-in mechanism for steady income growth.

More importantly, earnings expand as the business invests in its network. With more than £60bn committed to upgrading infrastructure across the UK and US, the regulated asset base continues to grow — and with it, future income potential.

On top of that, electricity demand is structurally rising. Electrification and AI-driven data centres are increasing long-term grid usage, reinforcing the need for ongoing investment.

The result is not just a defensive yield stock, but a long-duration compounding asset with embedded growth potential that many income investors overlook.

These are just two quality dividend compounders I’d consider for a diversified portfolio — but they’re far from the only income opportunities on my watchlist.

The post Last chance ISA: I’d aim to turn £20K into £2,000 a year in passive income appeared first on The Motley Fool UK.

More reading

• Is a £100,000 SIPP big enough to retire on?
• As the FTSE 100 dips again, here’s what I think smart investors do next
• £20,000 invested in the stock market a year ago is now worth…
• Is now a great time to start aiming for a £1m Stocks and Shares ISA?
• Passive income: what most investors get wrong

Andrew Mackie has positions in Aviva Plc and National Grid. The Motley Fool UK has recommended National Grid 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.

National Grid (LSE: NG.) shares are often seen as a slow-moving utility play. Recent share price weakness has reinforced that view.

A rising debt burden and higher bond yields have helped fuel the narrative that the sector may not be the most attractive place to park capital right now.

But that view may miss one of the most important structural shifts across electricity grids since they were first built in the 1960s.

And it may be far bigger than the market realises.

A traditional utility under pressure

Higher interest rates have changed how investors value income assets, and utilities have not been immune. As bond yields have risen, they now offer a more direct alternative for income, increasing competition for traditionally defensive sectors.

At the same time, higher financing costs have brought the company’s leverage into sharper focus, reinforcing concerns about balance sheet strength in a higher-rate environment.

Together, these forces have weighed on sentiment, shaping a market narrative that positions the group as a defensive but low-growth utility. Stability is still valued, but long-term upside is increasingly being discounted.

Inflation-linked compounding

This is not the typical equity income story the market often assumes. Operating within a regulated framework provides high earnings visibility and predictable cash generation over time.

Crucially, much of that framework is linked to inflation, with returns and allowed revenues typically adjusted in line with measures such as CPIH. That creates a built-in mechanism for income growth, rather than reliance on cyclical pricing or timing.

This is reinforced by a multi-decade investment cycle, with more than £60bn committed to upgrading and expanding UK and US networks. As the regulated asset base grows, so too does the earnings base, creating a compounding effect over time.

The result is a business that looks less like a static yield vehicle, and more like a long-duration, inflation-linked growth engine.

AI arms race

What is increasingly being overlooked in the National Grid investment case is not cost or regulation, but demand. Electricity demand is no longer a steady, mature-market story — it’s entering a new structural growth phase driven by electrification and AI.

AI data centres are emerging as the fastest-growing sources of power consumption in developed economies.

The direction of travel is clear. Compute-intensive infrastructure requires vast and rising amounts of electricity, much of it concentrated around grid networks.

At the same time, electrification of transport and heating is accelerating. EV adoption, heat pump rollout, and industrial decarbonisation are all shifting energy demand from fossil fuels onto the electricity system.

In that environment, grid capacity becomes the constraint, not the commodity. That is a critical shift. The company sits at the centre of this bottleneck, effectively becoming an enabler of every major energy transition trend.

Rather than diminishing visibility, this extends it. The investment cycle required to expand and reinforce grid networks points to decades of asset base growth, not years. Demand is no longer stable — it is structurally accelerating.

I see National Grid less as a utility and more as critical infrastructure for an electrifying world. If that view proves right, today’s pricing may understate its long-term growth and income potential, which could make it worth considering.

The post National Grid shares and the hidden AI electricity boom investors are missing appeared first on The Motley Fool UK.

More reading

• £20,000 invested in the stock market a year ago is now worth…
• Is now a great time to start aiming for a £1m Stocks and Shares ISA?
• 5 dividend shares that ISA millionaires love
• Is National Grid one of the best stocks to buy for an ISA right now?
• How to aim for a £10,000-a-year passive income from a Stocks and Shares ISA

Andrew Mackie owns shares in National Grid. The Motley Fool UK has recommended National Grid 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.

The stock market feels increasingly volatile right now. News is developing fast, sentiment is shifting quickly, and investors are reacting to every new development.

But beneath the surface, something more important is happening. This doesn’t look like a market breaking down — it looks like one that’s changing.

Volatility is driving the narrative

Right now, the stock market narrative is being shaped by volatility.

Geopolitics is back in focus, from conflict in the Middle East to uncertainty around global trade. At the same time, inflation remains sticky and interest rate expectations continue to shift.

It’s an uncomfortable mix. Rising oil prices, stubborn inflation, and higher-for-longer rates all feed one central fear: that something is about to break.

That’s why sentiment has turned so quickly. Short-term moves are being treated as signals of deeper problems, rather than noise within a functioning system.

The result is a market that feels fragile, even if the underlying picture is more stable than headlines suggest.

A shift in what the stock market rewards

What’s easy to miss is that the stock market isn’t breaking down — it’s changing what it rewards.

For much of the past decade, investors chased growth. Long-duration stories dominated. That worked in a world of ultra-low rates.

But today, the market is placing a higher value on businesses that generate cash now. Balance sheets matter more. Capital discipline matters more.

You can see it in sectors still dismissed as ‘old economy’. Companies like BP (LSE: BP.) continue to generate strong cash flows, even in volatile conditions. That cash is being returned to shareholders, not promised years into the future.

The same pattern is emerging elsewhere. Glencore is being valued less as a pure commodities cycle play. HSBC is increasingly seen as an income engine. Aviva is shifting towards more predictable earnings.

Individually, these stories differ. Together, they point to the same conclusion.

The market is no longer paying a premium for distant growth. It’s rewarding cash flow, resilience, and visibility.

A real-world example of the shift

One company that captures this shift particularly well is BP.

The headlines remain focused on oil prices and geopolitics. But that misses the bigger point.

BP can generate significant cash flow even at much lower oil prices. It’s proved that in recent years.

Write-downs in renewables have distorted traditional metrics. But the underlying picture is clearer. The dividend has grown at a compound annual growth rate of 11% over five years. Cash flow cover has remained strong, even when oil prices fell sharply.

There are risks. Earnings remain tied to commodity prices, and a global slowdown would weigh on profits.

But the key point is simple. Investors are no longer valuing BP purely on oil. They’re valuing the cash it can generate today.

Bottom line

This doesn’t look like a stock market breakdown. It looks like a reset in what investors value.

That shift won’t happen overnight. But it’s already under way. For investors willing to look past the noise, the opportunity may lie in businesses the market is only just starting to re-price.

This may prove to be the start of a golden period for the FTSE 100.

The post The stock market is changing fundamentally — and most investors haven’t noticed appeared first on The Motley Fool UK.

More reading

• As the FTSE 100 dips again, here’s what I think smart investors do next
• Forecast: in 12 months, a £5,000 investment in BP shares could be worth…
• Is it game over for the BP share price rally?
• This simple Stocks and Shares ISA move could be worth thousands over time
• £5,000 invested in cheap BP shares a month ago is now worth…

Andrew Mackie has positions in Aviva, Bp, Glencore and HSBC. The Motley Fool UK has recommended HSBC. 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.