Investing in iShares UK Dividend UCITS ETF (LSE: IUKD) is a great way for me to generate passive income for retirement. This exchange traded fund provides diversified exposure to the higher-yielding sub-set of the FTSE 350 index. The ETF aims to invest in 50 UK companies with a focus on income.

Benefits

The fund has a 12-month trailing yield of 6.41%, which is above the current FTSE 100 yield of 3.67%. The fund pays dividends on a quarterly basis, which is ideal during retirement. As the fund invests in 50 different companies, it provides better portfolio diversification than investing in a single 6%+ dividend stock.

The fund is managed by BlackRock, which is one of the largest asset managers in the world. BlackRock is known for providing better liquidity than other asset managers due to higher trading volume in its ETFs. This ensures that I am able to cash out more easily during stress or at retirement.

The top 10 largest holdings in the fund include popular FTSE 100 stocks such as the tobacco company Imperial Brands or the asset manager Legal & General. The full list of holdings is available on the BlackRock website.

In the current inflationary environment, I believe that dividend shares remain the best hedge against inflation. Inflation can lead to higher profits and dividends if companies are able to protect their margins by passing on costs to consumers through price rises.

As the rate-hiking cycles continue globally, I believe investors will search for value and short growth stocks. High-yielding stocks are great sources of value during inflationary periods; hence the fund could benefit from capital appreciation.

Risks

Firstly, the fund is particularly exposed to ‘Financials’ and ‘Consumer Staples’, which represent nearly 50% of the fund’s market value. The Consumer Staples category refers to essential products used by consumers, which includes alcohol and tobacco.

The top two holdings of the fund are Imperial Brands and British American Tobacco. From an ESG point of view, the fund might not be the best investment for all investors.

Secondly, the fund is 100% invested in the UK, which provides no geographical diversification. As the UK is forecasted to go in recession later this year, it is important to be aware of the macroeconomic risks faced by the UK.

Conclusion

Overall, UK iShares Dividend UCITS ETF offers an above-average dividend yield and strong portfolio diversification. The fund is a great way for me to generate passive income during retirement.

The post How I’d invest in UK dividend stocks to generate passive income for retirement appeared first on The Motley Fool UK.

More reading

• 2 excellent ETFs to consider buying for an ISA in April
• How much passive income could a Stocks and Shares ISA pump out every year?

Yuven Chetty owns shares in iShares UK Dividend. 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.

In its latest trading update, we can see that Legal & General has been a beneficiary of higher interest rates, which is boosting its Solvency II coverage ratio and therefore increasing its capacity to return capital to shareholders.

This article will discuss the company’s latest trading update and a potential benefit from Brexit deregulation.

Latest trading update

Legal & General estimated its Solvency II coverage ratio at 215% (30 June 2022), up 28% since FY2021. The increase has been primarily driven by higher interest rates and a strong operational surplus generation. The company shared the key sensitivities for its Solvency II coverage ratio in the FY2021 presentation slides. We can see that the company’s coverage ratio is positively linked to higher rates, i.e. an expected increase of 19% in the coverage ratio for a 1% change in interest rates.

As the Bank of England is expected to increase the bank rate significantly to tame inflation, Legal & General is expected to be a beneficiary of higher rates. As the company’s Solvency II coverage ratio increases, the company will have more capacity to return capital to shareholders via higher dividends.

Legal & General is one of the highest dividend payers in the FTSE 100 index, and is currently yielding 7.5%+. With higher rates boosting its coverage ratio, there is a strong possibility that it will increase dividends further.

Potential catalyst

Since Brexit, there has been an increased focus by the government to reform the legacy EU Solvency II regime, which is intended to loosen capital rules for insurance companies to release cash for investment in infrastructure projects.

Brexit deregulation might be a potential catalyst for Legal & General, as lower capital requirements will allow the company to invest more and earn higher returns. Additionally, the company might be able to return some capital to shareholders via special dividends or share buybacks.

Risks

Reforms to the EU Solvency II regime have been contentious between the government and the Bank of England. The government has been lobbying to reform Solvency II to show the benefits of Brexit and to bring an investment ‘Big Bang’ to support growth and jobs in the UK economy. However, the Bank of England has been trying to balance the risks to insurance policyholders of looser capital requirements with the benefits of higher investment in the economy.

Due to the ongoing Tory leadership election in the UK, it is not clear whether reforms to the Solvency II regime will remain a priority for the new Prime Minister.

Conclusion

Overall, Legal & General is performing well and is expected to be a beneficiary of higher interest rates and potential Brexit deregulation. As a Foolish investor, I’m therefore happy to continue holding my shares in this quality company for years to come.

The post How this FTSE 100 stock might benefit from inflation and Brexit deregulation appeared first on The Motley Fool UK.

More reading

• £5,000 invested in Legal & General shares 5 years ago is now worth…
• 8.4%! Why do Legal & General shares always have such a high dividend yield?
• An 8.4% yield! A dividend growth stock to consider stashing in a SIPP for decades?
• 1 no-brainer dividend stock to buy for lifelong passive income?
• How to turn £10 a day in a Stocks & Shares ISA into £23,857 of passive income!

Yuven Chetty owns shares in Legal & General. 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.

However, the company published its latest trading update on Thursday and has recorded a strong financial performance, with a commitment to pay a total dividend of at least 5p for the full year, which is equivalent to a minimum dividend yield of 6.8% at the current share price.

In its latest trading update, we can see that ITV recorded its highest digital viewing with 814m streams in H1 2022 on ITV Hub, up 8% year on year. I believe that ITV’s offering, a free ad-funded streaming service, is best placed in the current inflationary environment compared to its competitors. Inflation is projected to reach double digits this year, creating a horrendous cost-of-living crisis in the UK.

Potential catalysts

The first potential catalyst for ITV is the effect of inflation on viewing habits in the UK. The squeeze on real disposable income has changed viewing habits as more people cancel their video-streaming subscriptions to save money.

New research from Kantar, a market research firm, shows that a total of 1.66m video streaming subscriptions were cancelled in the second quarter of 2022. ITV is likely to be a beneficiary of this trend as its ad-funded business model is more adequate for the current environment.

The second potential catalyst for ITV is the 2022 FIFA World Cup in Qatar this year. The BBC and ITV have announced their coverage schedule for the tournament. ITV will be showing England and Wales group games against the USA as well as games involving tournament favourites such as Brazil, France, Argentina, Spain and the Netherlands.

The World Cup promises to be huge event for the channel, with a strong potential upside in advertising revenue for Q4. The further England advances in the tournament, the better it will be for ITV. Shareholders will be hoping that it’s coming home!

Risks

ITV competes for consumer attention and has been struggling from a lot of competition, for example, Netflix and Amazon Prime Video have gained a large share of commercial viewing in the UK. With bigger budgets than ITV, Netflix and Amazon Prime Video are able to attract viewers with better quality content.

ITV’s latest trading update also showed a weak balance sheet with a net debt position of £615m as at 30 June 2022. A net debt position might limit ITV’s capacity to invest further and fight off competition from other video streaming services.

Conclusion

Overall, ITV is performing well and is expected to be a beneficiary of the current inflationary environment and the upcoming 2022 FIFA World Cup in Qatar. The company also pays a strong forward dividend yield of 6.8%, which is above the FTSE 100 index average.

The post ITV shares plummet 40% this year. Is this a buying opportunity? appeared first on The Motley Fool UK.

More reading

• Here’s how investors can aim for £11,363 a year in passive income from £20,000 in this overlooked FTSE media gem
• Here’s how a 35-year-old putting £15 a day into an ISA could end up earning £18k+ of passive income annually!
• With its 6.5% dividend yield, is ITV a buy for my Stocks and Shares ISA?
• £20,000 in savings? Here’s how it could realistically be used to target £633 of passive income each month
• 2 bargain-basement income stocks to consider in an ISA

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Yuven Chetty owns shares in ITV. The Motley Fool UK has recommended Amazon and ITV. 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.

TP ICAP (LSE:TCAP) has not been popular among investors since the Brexit vote and the share price has fallen nearly 50% in the last 12 months due to the pandemic and the Russia-Ukraine war. However, the company has been a beneficiary of higher levels of volatility and trading activity, as seen in the company’s Q1 trading update on 11 May. TP ICAP has currently a market capitalisation of £820m, though this article will demonstrate why it is significantly undervalued and is worth buying for my portfolio.

Firstly, the business has a book value of £1.9bn and is therefore trading at a discount to its book value, i.e. the sum of all its assets minus liabilities. If we look more closely at TP ICAP’s assets, we can use a sum-of-the-parts analysis to understand the undervaluation.

1. As of 31 December 2021, the company had £784m of cash and cash equivalents on its balance sheet, which is equivalent to 95% of the market valuation.
2. TP ICAP recently purchased Liquidnet, a leading electronic block crossing platform, for $700m (approximately £590m at today’s exchange rate)
3. Lastly, TP ICAP is itself a cash-generative business. The company has been free cash flow positive and has produced on average £110m free cash flow over the last three years despite a pandemic.

Potential catalyst

A US activist, Phase 2 Partners, wrote to TP ICAP earlier this year to explore strategic alternatives to unlock value for existing investors who have suffered from a dramatic share-price underperformance over the last five years. Hence, there is a potential to benefit from a large capital appreciation if the company is sold.

City analysts have assigned an average target price of £2.63, representing a near 160% upside from the current share price. As compensation for waiting until the company is sold off or a turnaround happens, TP ICAP has a dividend yield of 9%+ which is above the FTSE 100 market average and provides protection against further share-price falls.

Risks

There are numerous risks to the above thesis. Firstly, there is no guarantee that a merger or acquisition will happen so I would have to bear this risk in mind.

Secondly, there has been some criticism on the wisdom of TP ICAP’s board decisions. With hindsight, the purchase of Liquidnet did not stop the long-term decline in the share price and the board should have opted for a different approach, for example through share repurchases, which has been lacking for a company trading at a steep discount to its book value.

Conclusion

Overall, TP ICAP offers quality assets trading at a discount, a strong potential for capital appreciation due to M&A, and a dividend yield providing protection against the share price falling further.

The post Why TP ICAP is a buy despite share-price underperformance appeared first on The Motley Fool UK.

More reading

• What size ISA do you need for £250-a-week retirement income?
• £5,000 invested in Legal & General shares 5 years ago is now worth…
• Just check out the latest bumper forecasts for Lloyds, NatWest and Barclays shares
• Meet the skyrocketing FTSE 250 stocks up by more than 300% in five years!
• Down 7%! Why on earth are Imperial Brands shares plummeting today?

Yuven Chetty owns shares in TP ICAP. 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.