Income stocks were like precious metal last year amid a crunch in equities, as UK shares felt the heat of high inflation and rising interest rates in the form of share price stagnation. 

But even as the FTSE 100 index enjoys a resurgence this year, I think it always pays to hedge my portfolio with passive income, namely through dividend-paying income shares. I’m eyeing a couple that could benefit from both a dividend windfall and a rebound in share value this year.

British American Tobacco

British American Tobacco (LSE:BATS) shares have been subdued this year, with investors largely unresponsive to the stock’s recent earnings. 

Earlier this month, the company released annual earnings that saw its dividend swell from a year by 6% to £2.31. Moving forward, the group continues to aim to pay out 65% of its earnings per share as dividends. 

Upgraded price targets have been flooding in for the tobacco company from the likes of Barclays, JPMorgan and Deutsche Bank, giving the stock upside as high as 28%.  

A downside to British American’s appeal is obviously the steady decline of cigarette demand, and the group’s unprofitable non-tobacco arm. 

But these are existential threats rather than imminent ones, and it’s hard to ignore that dividend in the meantime.

I would consider adding the company to my portfolio for the next financial year while it ropes in more dividend-hunters.

Legal & General

Legal & General (LSE: LGEN) has been something of a problem child in the FTSE 100 in recent years. The company’s value is largely unchanged since 2015 while displaying volatility that would be anathema to my portfolio. 

But as a result, from a price-to-earnings perspective, L&G now looks dirt cheap. The company’s 7.6 multiple is nearly half the FTSE 100 average. Also, according to analysts, the stock is bound to pop soon.

Barclays recently lowered its price target for the insurer from 397p to 390p. But that still represents more than 50% upside for the stock. Jefferies, JPMorgan and Berenberg have all projected strong upside for the stock over the next year.

There is the issue of regulatory changes, which have spooked investors under the perception that IFRS17 — a global accounting standard implemented by the sector on 1 January 2023 — could affect cash flow and drop profits by 20-25%.

Last month, though, Barclays addressed this issue by saying the changes pose a much smaller risk to its asset value than reported, as it called L&G “one of the most preferred stocks in the European Insurance sector”.

I could probably be convinced to invest in L&G with that seal of approval. And ignoring its share price performance, it’s evident that L&G has been a reliable asset for dividend investors, and this year’s forecast 8.1% return is no different.

The post 2 UK shares I’m considering for March to build up passive income appeared first on The Motley Fool UK.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Ryan Hogg has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc and British American Tobacco P.l.c. 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.

We’re about two weeks into February, and the FTSE 100 has scarcely been in better health. The UK has so far avoided a recession and price pressures are easing. I’m personally wondering how long that bull rally will last as the US turns hawkish. But based on analyst ratings and company fundamentals, I think these three FTSE 100 stocks still stand a decent chance at returning big share-price gains this year.

Lloyds 

It might seem overly bullish to back Lloyds (LSE:LLOY) shares. Bank stocks have enjoyed a good 12 months on the back of rising interest rates and relatively resilient demand, and Lloyds is no different, with shares jumping nearly 14% since the start of 2022. 

Still, things look good for Lloyds to press ahead. A higher, longer peak for interest rates looks likely, improving interest-linked revenues for banks like Lloyds. And when they start to fall, demand for housing should return as mortgage rates drop too. 

Barclays recently gave the bank 40% upside at 75p, Jeffries just upgraded its price target even higher at 77p, and it’s also Credit Suisse’s top pick. 

It should be noted that conditions could easily worsen for the bank, particularly if house prices come down, or rising interest rates combined with worsening economic conditions mean firms and households struggle to repay their loans.

But a forecast dividend yield this year of 5.9% is well above the Footsie average forecast of 3.5%, increasing my chances of a happy return. 

Tesco

Shares in Tesco (LSE:TSCO) are up 7.5% in the first six weeks of the year amid surprisingly good earnings.

But thanks to a disappointing 2022 where its shares fell 25%, the stock still looks cheap. A price-to-earnings (P/E) ratio of 11.3 is low for the retailer, which has trended around an average of 14, and below a FTSE 100 average of 13.9 in December. 

The FTSE 100 retail giant saw sales growth last year even as the volume of purchases dipped. The group looks like it’s been able to pass cost increases onto customers, who may be over the worst of their stinginess.

That’s because inflation looks like it’s peaking, and the UK potentially dodging a recession may keep households from feeling quite as tight a pinch as expected. That said, if household income falls further, then this could weigh on Tesco’s shares.

AstraZeneca

Even as the rest of the FTSE 100 barrels ahead to record highs, it’s been an unusually sanguine start to the year for pharmaceutical titan AstraZeneca (LSE:AZN).

The FTSE 100’s second-largest company has nearly tripled its price in the last five years, but is down 0.3% in the year to date.

Disappointing test results in the future would present a risk to the share price, however. And while the group has a mammoth P/E multiple of 20, its fundamentals still make it look appealing. The company expects strong top-line growth through 2025, which could return a nice boost around earnings season and bump up dividends, forecast at $3.06 per share this year.

Bank of America meanwhile said it expects the healthcare group to return meaningful sales growth for the first time in a decade.

As investors look closer to find weak spots in the market, these giants of the FTSE 100 stand a decent chance of barrelling on. For my own portfolio, I’d consider Lloyds above all, and bide my time on Tesco and AstraZeneca.

The post These three FTSE 100 stocks have huge upside appeared first on The Motley Fool UK.

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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Ryan Hogg has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays Plc, Lloyds Banking Group 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.