The Rolls-Royce (LSE: RR) share price has been one of the great comeback stories of the past three years. So after watching it drop more than 10% in the space of a month, I thought I’d dig deeper.

As I write ahead of Tuesday’s (7 April) market open, the company’s shares are sitting at 1,191.5p — down sharply from the recent highs that had made it a FTSE 100 darling.

So, what on earth’s going on?

Primed for growth?

On the surface, the investment case looks stronger than ever.

Geopolitical tensions are rising. NATO members are scrambling to hit the 2% of GDP defence spending target, with several committing to go further.

The UK government has pledged to lift defence expenditure to 2.5% of GDP by 2027. Defence contractors have rarely had a more favourable political environment.

Given the company’s strong market position as a manufacturer of engines for military jets, nuclear submarines, and power systems for naval vessels, it seems to be in a great position.

Surely the company should be riding this wave? And yet the price-to-earnings (P/E) ratio has contracted, not expanded, in recent weeks.

The civil aerospace complication

Here’s the part of the story that gets overlooked. The majority of the company’s revenue doesn’t come from defence at all.

Civil aerospace is the biggest money-maker, underpinned by long-term service agreements tied to its wide-body aircraft engines.

Under this model, the company earns fees based on the number of hours those engines fly. More flight hours mean more revenue. Fewer hours mean less.

That’s created a problem in recent weeks as conflict in the Middle East has hit the aviation industry hard.

Travel hours have been significantly reduced as airspace remains restricted. Airlines operating routes between the US, Europe, and Asia are already reassessing capacity. 

Iran’s control over the Strait of Hormuz has sent crude oil prices soaring and created uncertainty over global aviation supplies.

All of this has clearly worried investors. The Rolls-Royce share price has fallen 12.6% in the past month as investors try to price in the uncertainty and potential impact on the company’s future prospects.

My verdict

The Rolls-Royce share price has been under pressure of late. However, it’s worth zooming out from the current uncertainty to see the bigger picture. 

The company’s shares are still up nearly 1,000% in the past five years and it’s a Footsie top performer with a market cap over £100bn. The company remains on a compelling turnaround journey with a strong order book and a credible management team.

Sure, the outlook is less clear than it was a month ago. However, I think the recent turbulence and broader market uncertainty is understandable.

For patient investors with a long-term horizon, the recent pullback could be a chance to consider snapping up some shares for a cheaper entry point and it could be worth a closer look.

The post What on earth’s going on with the Rolls-Royce share price? appeared first on The Motley Fool UK.

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Ken Hall has no position in any of the shares mentioned. The Motley Fool UK has recommended Rolls-Royce 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.

Market volatility has ramped up in recent weeks and we’ve seen many penny stocks take a hit. There’s one name that has caught my eye as it’s surged 25% higher since the start of the year.

Pharos Energy (LSE: PHAR) shares are on the charge at the moment. I wanted to know if there’s more to this little-known energy stock with a £106m market cap than meets the eye.

Red-hot penny stock

The company is a small oil and gas producer with assets in Vietnam and Egypt, where its strategy is largely focused on squeezing more value from existing fields.

In a market that can swing hard on oil prices and headlines, its fortunes tend to move with both operational updates and the wider energy landscape.

The company’s share price has rocketed 25% higher in 2026 to 25.4p as I write on 23 March despite an 8% drop on Monday morning.

What’s happening in the energy sector?

The Iran war has disrupted global energy supply lines, with repeated warnings about the ongoing impact around the situation in the Strait of Hormuz.

The International Energy Agency has even called the conflict the greatest ever threat to global energy “in history”. Many analysts are tipping even higher crude oil prices, while oil and gas stocks like BP have hit all-time highs.

The company’s producing assets are in Vietnam and Egypt, so it’s not drilling in the Gulf. But higher realised prices can still mean stronger cash flows, which can swing a penny stock like Pharos quickly.

More than meets the eye?

That brings me to the company itself, which matters once the current headlines fade away.

In December, Pharos said it was running a fully funded six well infill and appraisal drilling programme in Vietnam. Management called it the most significant investment in those assets since original development.

It also said initial performance from the first Te Giac Trang (TGT) well was ahead of pre-drill expectations. Throw in the fact that it’s debt-free and has cash of about $16.6m and it’s easy to see why its valuation is climbing.

Valuation

After it’s recent stellar run, this red-hot penny stock doesn’t come cheap. The company’s shares trade on a price-to-earnings (P/E) ratio of around 31 with a 4.5% dividend yield.

That does feel quite punchy for a small company in a notoriously cyclical sector. However, if oil prices stay elevated, the company’s potential outsized earnings could help to support that strong yield.

That said, it pays to be cautious, particularly during these uncertain times.

Small producers can see their fortunes swing quickly with oil prices, and the current price action is heavily tied to a geopolitical shock. If the war premium falls away quickly, I wouldn’t be surprised to see a share price correction or crash.

Key takeaway

The Iran war has turbocharged interest in anything oil-linked as investors position themselves for the potential economic fallout.

Pharos has been a beneficiary as a micro-cap stock that has shown some recent signs of promise. However, big risks remain including a potential commodity price drop or operational headaches.

That said, the company’s positive Vietnamese drilling programme means it’s more than just a headline play. I think the company’s preliminary results release on Wednesday will be a must-watch for investors interested in the energy sector.

The post Up 25% YTD! Is this red-hot penny stock still ‘cheap’? appeared first on The Motley Fool UK.

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Ken Hall 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.

Tesco (LSE: TSCO) shares have looked fairly steady lately, but there’s one big risk that has me worried.

The supermarket chain is heavily exposed to rapid food price inflation, sparked by war-driven costs. My concern is that things could turn really nasty ahead of the company’s upcoming annual results release on 16 April. 

For me, the question is simple. If input costs jump, can the company effectively pass them on without scaring off shoppers?

The big risk of inflation

Recent headlines have been focused on a looming energy shock from the war in Iran. I can see why.

One-fifth of the world’s oil passes through the Strait of Hormuz, which remains effectively shut. However, it’s not just oil that should be on investors’ minds.

The risk of a food inflation shock is growing. This part of the world is vital for other key commodities including fertiliser and urea. Prices for the latter have surged as much as 50% in recent weeks.

That might sound distant from the UK weekly shop, but fertiliser and fuel costs don’t just stay on farms. Cost increases make their way through production, processing, packaging, and transport. Eventually, they turn up in everyday staples that we purchase from the likes of Tesco.

That to me creates both an opportunity and a risk for the company. The ability to pass on costs to consumers is critical given the tight profit margins in the grocery sector.

However, it’s not easy to do, particularly with consumers already feeling the pinch. Holding back price increases could help to increase market share but at the expense of profitability.

In a sector where promotions get matched fast, it’s easy to look competitive while quietly taking a hit.

Valuation

Tesco shares are currently trading on a trailing price-to-earnings (P/E) ratio of 21 ahead of the market close on 20 March.

Arch rival J Sainsbury is sitting a touch higher at around 23.7 as I write. Both sit above the FTSE 100 average of around 18, which reflects the non-cyclical nature of their businesses.

This sort of valuation is broadly in line with the long-term average. Investors have been keen to back Tesco recently with the stock up 46% in the last 12 months to 473p.

There’s also the dividend to think about which can be valuable in uncertain times. The company has a 3% dividend yield right now. That’s less attractive than the 4.3% offered by Sainsbury’s but nothing to sneeze at.

Verdict

For me, war-driven food inflation is a huge risk. If the company can’t fully pass on cost increases to consumers then margins could get squeezed.

However, it’s not all doom and gloom. The company has gone through various other supply chain shocks and managed well.

Investors interested in knowing more should be watching the Tesco results carefully for management’s views and the company’s outlook. 

And if this risk is building for Tesco, what does that say about the next earnings season across the wider UK consumer sector?

The post Tesco shares: 1 huge risk investors can’t ignore before April results appeared first on The Motley Fool UK.

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Ken Hall has no position in any of the shares mentioned. The Motley Fool UK has recommended J Sainsbury Plc and Tesco 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.

Passive income can look especially appealing when a stock market correction puts investors on edge. After all, watching the value of a share portfolio fall is never easy.

But for long-term investors, weaker markets can create a rare chance to pick up solid businesses at lower valuations, and potentially lock in stronger dividend yields.

Opportunity during a correction

Let’s be clear here: not every falling stock becomes a bargain. Some shares drop for good reason, and a correction can still turn into something uglier.

I think the real opportunity lies in cutting through the noise, staying diversified, and focusing on businesses built to handle tougher conditions.

Of course, income investing during a correction is not about chasing the biggest yield on the screen. A chunky payout can be a warning sign if earnings are weakening or debt is rising.

In my view, the better approach is to focus on dividend durability, balance sheet strength, and whether a company is likely to remain relevant.

Events hit markets all the time and the stock market does tend to move in cycles. The key is picking companies that can battle through inflation, weaker confidence, and fiercer competition to still deliver strong returns over time.

Why Sainsbury stands out

One place I keep coming back to is the less cyclical end of the market. These are businesses that sell everyday essentials, which tend to hold up better when the economy wobbles.

Supermarkets are not immune to pressure, but demand for food and household basics tends to hold up better than demand for holidays, luxury goods, or other discretionary spending.

A good example is J Sainsbury (LSE: SBRY). In its 2025 annual report, the company said retail sales excluding fuel rose 3.1% and retail underlying operating profit climbed to £1.036bn, up 7.2% year on year.

It holds around a 16% UK grocery market share and has a dividend yield of around 4.3% as I write on 20 March. 

There is a simple reason this matters in a correction. If a steady dividend payer falls with the wider market, the yield can rise, assuming the payout remains intact.

That can improve the passive income equation without requiring heroic growth assumptions. It also helps explain why many investors look again at dividend shares and diversification when markets turn shaky.

Of course, there are still risks. Grocery retail is brutally competitive and margins are thin.

A sharp increase in essentials like fertiliser and urea amid the Iran war could impact food prices and pressure the company’s margins.

However, a combination of a strong dividend, solid market position, and provision of essential goods is a nice place for passive income investors to start their research.

Building a steady passive income

A stock market correction could be good news for passive income investors with the right approach.

Investors looking to establish a strong financial future should cut through the noise and focus on long-term returns. Snapping up durable businesses with steady demand and cash flow can be a powerful strategy.

J Sainsbury is just one example. If market nerves get worse from here, the most interesting passive income opportunities may come from the shares many investors stop watching at exactly the wrong moment.

The post Could a stock market correction be good news for passive income? appeared first on The Motley Fool UK.

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Ken Hall has no position in any of the shares mentioned. The Motley Fool UK has recommended J Sainsbury 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.

Barclays (LSE: BARC) shares look remarkably cheap compared to many UK banking stocks right now.

The company’s shares trade on a price-to-book (P/B) ratio of 0.7 as I write on 17 March. Meanwhile, HSBC shares are sitting at roughly 1.4 by the same metric.

It’s a similar story for the likes of Lloyds and NatWest, both trading at multiples of around 1.2. 

So on paper, Barclays shares look to be an absolute bargain in the sector. But is there a reason behind the steep discount or is it a bargain hiding in plain sight?

Recent stock price fall

Barclays shares have been on an impressive run of late. The stock price is still up 33% in the last 12 months and 115% in the last five years.

However, it’s clear that some doubts are starting to creep in. The stock has been hit hard despite strong profitability and returns to shareholders.

Recent worries about what might be lurking in its loan book seem to be the problem. Investors have been spooked by the company’s exposure to failed lender Market Financial Solutions (MFS).

One reason for the steep discount could be concern about the actual book value of its assets.

Are the concerns overblown?

While the stock has been under pressure, it’s not all doom and gloom for investors. In fact, the headline numbers remain strong.

The company reported a 12% increase in 2025 profits, with an 11.3% return on tangible equity (ROTE) and 14.3% Common Equity Tier 1 (CET1) ratio.

Compare those key ratios to HSBC. That bank reported an average 13.3% ROTE for 2025, with a 14.9% CET1 ratio. Both ratios look stronger, which could justify a premium relative to Barclays, but the discount on a P/B basis looks steep.

Of course, HSBC is not risk-free either. The company’s 2025 results showed an uptick in expected credit losses, and management is embarking on its own operational restructure.

The question for investors to consider is whether the perceived stability of HSBC is worth the significant premium relative to Barclays.

Shareholder returns

Then there’s the shareholder-friendly policies. Barclays is targeting more than £15bn in capital distributions by 2028.

Those types of figures aren’t what I would expect from a company under pressure and with a weak balance sheet.

A 0.7 P/B multiple as I write means that investors are valuing the company at a steep discount to its peers as well as the book value of its net assets.

If there are no further issues with the loan book, this could represent a huge opportunity for investors to capture that value.

However, discounts often exist for a reason and deteriorating asset quality could create more headaches.

My verdict

Barclays shares are trading at a steep relative discount to other banking stocks including HSBC.

However, the price-to-book multiple is not the only metric to consider. Investors are clearly spooked by the MFS exposure and worried about asset quality. I certainly think the stock is one for investors to consider further given the valuation gap.

Should further credit quality issues emerge that would justify a discount to peers. However, if the loan book does hold up, the company could be temporarily cheap, which makes it an interesting potential opportunity.

The post Are Barclays shares really 50% cheaper than HSBC right now? appeared first on The Motley Fool UK.

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Ken Hall has no position in any of the shares mentioned. HSBC Holdings is an advertising partner of Motley Fool Money. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, and 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.

The escalating Iran war is naturally raising fears worldwide. It also has many investors worrying about a stock market crash. The crisis has caused global markets to wobble in recent weeks.

Iran has closed the vital Strait of Hormuz to the US and its allies. That has wreaked havoc in global oil markets, as the passageway is responsible for about 20% of the global oil trade.

There’s no doubt this could hit the global economy hard if the deadlock persists. However, I think there is another hidden risk that is looming large in the shadows of the conflict.

What’s happening with oil prices?

The closure of the Strait of Hormuz has rattled markets. Governments around the world are scrambling to find a solution to unblock this arterial trade route that carries about 20% of the world’s oil supplies.

The impact on oil prices has been immediate and large. As I write on 17 March, Brent crude is trading at over $100 a barrel. That’s a fair cry from the pre-conflict price of $66 a barrel just one month ago.

A hidden danger?

Oil isn’t the only important commodity that could be impacted by the conflict. More than 30% of the world’s nitrogen fertiliser exports and components like sulphur ordinarily pass through the Strait.

The knock-on effects from the closure to global economies could be massive. Hormuz is responsible for around 45% of global sulphur exports, while neighbouring Qatar accounts for nearly one-third of global helium output.

A protracted conflict could seriously impact fertiliser availability. In turn, that could impact food production and food prices. The economic and humanitarian impacts of such a situation could be enormous.

Sulphur is vital for fertilisers, chemicals, and chipmaking, while helium matters for medical imaging, semiconductors, and aerospace. In other words, the conflict isn’t just about oil.

Large-scale supply chain disruption could squeeze earnings across multiple sectors at once. That sort of scenario could feasibly create the risk of a stock market crash in 2026. 

One fertiliser stock to watch

One stock I am keeping an eye on here is Wynnstay Group (LSE: WYN).

That’s because this AIM-listed company with an £86m market cap could give investors more direct exposure to the fertiliser industry than many other UK shares.

The company is by no means a global commodities giant. However, it is a well-established agricultural supplies business with a dedicated Fertiliser & Seed division and its own fertiliser blending operations.

Its latest results suggest it is in decent shape. It reported revenue of £583.4m, adjusted profit before tax of £9.2m, and net cash of £25.7m, while also extending its long record of dividend growth.

There are still big risks. The company is small, and the impact of the conflict on the company’s fortunes is not immediately clear.

If costs rise too far, for example, farmers could cut or delay spending and actually hurt the company’s earnings.

My verdict

While markets are worried, none of this means a stock market crash is inevitable.

As always, it helps to take a long-term view. Investors who are fixated on just oil prices may be missing the bigger commodity picture and supply chain story here.

If the war rages on, I think other areas like fertiliser, sulphur, and helium could present some real opportunities for investors.

The post Why I’m worried about this hidden risk causing a stock market crash appeared first on The Motley Fool UK.

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Ken Hall 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.

It’s hard to find cheap shares. For one thing, it’s often only in hindsight that a company can look ‘cheap’.

There’s no doubt 2026 has been a bumpy ride for shareholders. Whether it’s trade tariffs, oil prices, or war, there are plenty of things to keep investors up at night.

However, uncertainty also creates opportunity. As Warren Buffett said: “Be greedy when others are fearful, and be fearful when others are greedy”.

Two FTSE 100 names have been smashed lately. Here’s why I think the market could be wrong about both of them.

Barclays bargain?

The first stock on my list is Barclays (LSE: BARC). I think the current risks are overblown, and the bank’s growth trajectory remains on track.

The worry around it is easy to understand. The shares were knocked after reports linked it to potential losses from the collapse of UK mortgage provider Market Financial Solutions.

Investors are clearly worried about hidden credit problems. Still, I think the sell-off has gone too far. After all, the price-to-book (P/B) ratio of 0.7 is a steep discount to the likes of HSBC (1.4) and NatWest (1.2).

In its full-year 2025 results, Barclays reported an 11.3% return on tangible equity, a 14.3% capital ratio, and said it aims to deliver more than £15bn of capital returns to shareholders between 2026 and 2028.

In other words, it remains profitable, well-capitalised, and willing to return cash to investors.

That doesn’t make it risk-free. If the economy weakens, bad debts rise, or the private credit story worsens, it could spell trouble. But when a large bank is still producing solid numbers, I think a 20% year-to-date drop looks harsh.

Even after the recent wobble, the stock is still up 114% over five years as I write, ahead of the market open on 16 March.

Is Sage oversold?

The other Footsie stock I’ve been watching is Sage (LSE: SGE). The recent weakness looks like a different kind of opportunity.

The concern is that advances in artificial intelligence could undercut existing software providers and impact future earnings.

The Sage share price has been under pressure, falling 20% year-to-date to 840p as I write on Sunday (15 March). It’s not alone. AI concerns have weighed on software stocks around the world in recent months.

However, Sage’s underlying business still looks strong to me. Its full-year 2025 results showed 11% growth in annual recurring revenue, 10% revenue growth, and a 17% rise in underlying operating profit. Management also reiterated guidance for 9% or more organic growth in FY26. That’s not what I’d expect from a business in imminent trouble.

Of course, there are risks. If AI tools put pressure on pricing, or if customers move faster than expected towards newer software options, the shares could still fall further.

But with recurring revenue, healthy margins, and steady growth, I think the market may be panicking unnecessarily.

Why the market could be wrong

I think both of these companies are cheap shares right now. The recent repricing, amid wider uncertainty in the market, could be overdone.

Both companies are facing genuine risks. But neither business looks fundamentally broken to me and so could be worth considering.

That doesn’t mean either stock will bounce back quickly. It just means that when fear causes a sharp 20% decline, it makes me wonder about a potential buying opportunity.

The post Down 20%! I think the market’s got these 2 cheap shares all wrong appeared first on The Motley Fool UK.

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Ken Hall has no position in any of the shares mentioned. HSBC Holdings is an advertising partner of Motley Fool Money. The Motley Fool UK has recommended Barclays Plc, HSBC Holdings, and Sage 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.

Building a reliable second income from the stock market is more achievable than many people think. And using a Stocks and Shares ISA wisely can also make the whole endeavour beautifully tax-free.

By directing regular monthly savings into high-yield dividend shares, investors can steadily build a nest egg that pays out without HMRC taking a slice.

One of the toughest things for investors to wrap their heads around is how to actually get started. So, I thought I’d dive into some of the numbers and mechanics behind the passive income dream.

Running the numbers

To generate £5,200 a year, or the equivalent of £100 a week, an investor needs a portfolio yielding roughly 7% to be worth £74,285. That sounds like a tall order, but it doesn’t need to arrive all at once.

Assuming a total return of 9% a year, an investor putting in £500 a month would reach that threshold in around eight and a half years. That timeline could shrink further if markets cooperate or contributions increase.

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.

A high-yielder to consider

One stock that income-seekers may want to research is FTSE 100 stalwart Legal & General (LSE: LGEN). Most investors will have a passing familiarity with the brand as it’s one of Britain’s biggest financial services companies.

The company has a strong market position in the sector across everything from workplace pensions and annuities to asset management. What may be less widely appreciated, however, is its dividend yield. As I write on 13 March, it’s sitting at a tidy 8.8%.

That kind of yield goes a long way towards chipping away at that £74,285 target. It also means the company is paying out considerably more than the Footsie average, which is hovering nearer to 3.5%.

That said, abnormal figures always deserve scrutiny. Legal & General’s yield is head and shoulders above many in the market. Partly, this is driven by the sector and strong cash flow. However, investors banking on a long-term second income would want to dig into this further.

There isn’t much in the way of capital gains, either. The stock is down 7% in the last five years and 1.3% since the start of the year.

Putting all the eggs in one basket

A concentrated portfolio can take a painful hit when markets get choppy. Spreading investments across a range of sectors and companies can help smooth out stock-specific risks considerably.

A well-diversified basket of dividend payers, built up gradually inside a Stocks and Shares ISA, tends to be a more resilient approach than chasing the highest yield on offer at any given moment.

Legal & General is a high-yield dividend stock that might be worth a closer look for investors. But that’s just one component of a broader portfolio rather than the silver bullet to deliver a steady second income.

The post How to use an ISA to target a £100-a-week second income appeared first on The Motley Fool UK.

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Ken Hall 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.

For many people, the idea of a comfortable pension feels out of reach. But saving for retirement doesn’t have to mean squirrelling away enormous sums every month into a Self-Invested Personal Pension (SIPP).

The maths doesn’t lie. Simply putting £5 a day into a tax-advantaged SIPP could go a long way towards changing an investor’s financial future.

Talking numbers

Five pounds a day works out at roughly £150 a month, or £1,825 a year. Modest, certainly. But over time, the magic of compounding can really do some heavy lifting.

Assuming a total annual return of 8% from a diversified portfolio of stocks and starting from zero, that £5 a day habit could grow to approximately £325,000 over 35 years.

Starting at age 30, a meaningful pension pot could be waiting at retirement age for the price of a daily coffee.

Of course, markets don’t move in a straight line over that sort of timeline. But the benefits of discipline, patience, and steady returns are plain to see.

The SIPP advantage

What makes a SIPP particularly powerful is the tax relief on contributions. A basic-rate taxpayer contributing £80 effectively puts £100 into their pension, because HMRC tops it up automatically.

Investments inside a SIPP also grow free of capital gains tax and income tax, meaning compounding works harder over the long term.

That said, SIPPs aren’t without drawbacks. Funds are locked away until the age of 57 (rising to 58 in 2028), so they’re not suitable for money that might be needed sooner.

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.

A stock to consider

One name that investors may want to consider further is Rolls-Royce (LSE: RR). The FTSE 100 stock has been on a remarkable run of late, with its shares hitting an all-time high of 1,420p in February following an impressive set of full-year results.

Underlying operating profit soared 41% year on year to £3.46bn in 2025, with revenue jumping 13% to £20.1bn.

That was underpinned by stronger large-engine aftermarket activity and improved Civil Aerospace profitability. While there is some uncertainty created by the escalating Middle East conflict, the company is also positioning itself well in the UK nuclear sector.

Management announced a £7bn-£9bn share buyback programme covering 2026 to 2028, with its dividend now reinstated for the first time in over five years. 

The growth story looks credible on paper, but the stock doesn’t come cheap. It has a price-to-earnings (P/E) ratio of 18.2 as I write ahead of the market close on 13 March.

At current valuations, a lot of good news is already priced in. For a long-term SIPP holder, that’s a risk worth weighing carefully.

Diversification is key

In the long run, I’m a big believer that diversifying across stocks and sectors is key. Spreading risk across a number of high-quality stocks can help reduce risk and create a more steady return profile over the long term.

Saving for retirement is no easy feat. However, a bit of hard work, discipline, and good fortune could help investors unlock an entirely different financial future.

The post What £5 a day invested in a SIPP could be worth at retirement appeared first on The Motley Fool UK.

More reading

• Up 1,119% in 65 months, is there anything left to say about Rolls-Royce shares?
• Could this cheap FTSE 100 stock be the next Rolls-Royce?
• Should investors snap up Rolls-Royce shares on the dips?
• Are Rolls-Royce shares’ best days behind them?
• Here’s what £5,000 invested in Rolls-Royce shares at the start of 2023 is worth today

Ken Hall has no position in any of the shares mentioned. The Motley Fool UK has recommended Rolls-Royce 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.

Building £1,000 a month in passive income is a goal many investors have, yet few understand how much they need in a Stocks and Shares ISA to achieve it.

An ISA is a useful tool because both capital gains and dividends are tax-free. Over time, those tax benefits can be truly powerful.

I thought I’d dig into the numbers to look at how big a nest egg needs to be to deliver a sizeable £1,000 passive income. 

Working out the numbers

Generating £1,000 a month in passive income with dividend shares works out to £12,000 a year.

Assuming a 3.5% average dividend yield, that works out to be about £342,000 worth of shares in an ISA. That’s a big chunk of change. However, there could be ways to reduce this further.

For example, NatWest (LSE: NWG) shares are yielding 5.5% as I write on 6 March. Applying that same maths, the required portfolio value with an average 5.5% yield would drop to around £218,000.

This is where picking the right stocks, being patient, and diversifying becomes critical. A good spread of high-quality dividend stocks delivering an above-average yield, combined with steady contributions, can quickly accelerate investors’ passive income goals.

How long will it take me to save?

Very few investors will have a lazy £200,000 or more just lying around. However, it’s unlikely that you’re not starting from zero on day one.

Let’s say you could save £500 a month and put it into high-yield dividend shares in an ISA with an average 5.5% yield. That £218,000 portfolio is achievable in around 20 years’ time.

Higher-yielding stocks, higher contributions, or some additional share price gains could help to get there even sooner. Markets are uncertain, however, so it’s unlikely to be a smooth and linear journey.

Why NatWest stands out

NatWest has rebuilt itself following the financial crisis and now operates with a strong balance sheet. It returned to full private ownership in 2024 after the UK government sold its final stake, and management has signalled an aggressive capital return programme for shareholders.

I also like that the price-to-earnings (P/E) ratio sits at a modest 8.7 times, well below the FTSE 100 average.

Then there’s the yield. Its dividend has been growing steadily. In February, the company announced a final dividend of 23p per share, up from 15.5p the previous year. It also committed to buying back a further £750m of shares in the latest return of capital to shareholders.

Risks to consider

What about the risks? No dividend is ever guaranteed, which is a risk with relying on dividend shares in general.

For NatWest, UK banks remain sensitive to economic cycles, and a sharp downturn in mortgage lending or rising loan defaults could force management to scale back payouts. NatWest’s profitability is also closely tied to interest rates, the outlook of which remains unclear.

My verdict

For investors targeting £1,000 a month in passive income, the maths are clear. Steady investment into a portfolio with a high average yield can fast track those second income goals.

In my mind, NatWest offers a combination of yield, valuation, and capital return potential right now. While this stock might not suit everyone, there are plenty of opportunities across the Footsie worth exploring for those building an income-focused ISA today.

The post How much do I need in an ISA to earn £1,000 a month in passive income? appeared first on The Motley Fool UK.

More reading

• Here’s how FTSE 100 stocks could help an investor double their State Pension with a £25,150 annual income
• Is the stock market correction a once-in-a-decade chance to target a million-pound SIPP?
• Check out today’s eye-popping Barclays, Lloyds and NatWest share price and dividend forecasts 
• Investors are rushing to buy these before the Stocks and Shares ISA deadline. Should we join in?
• Lists of income stocks to buy almost never include this one — but with a forecast 8.2% yield, I think they should!

Ken Hall 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.