FTSE 100 shares are down sharply today as chancellor Kwasi Kwarteng’s mini-budget speech continues to rattle global markets. The index has fallen 1.11% to 6,940, at time of writing. That’s the lowest level of the year. It is now down 7.53% in 2022.

Sterling is in freefall as traders expect base rates to hit 5.8% next year. That’s a huge increase on today’s 2.25%, which is already the highest for 14 years.

FTSE 100 shares are falling today

There are even reports that the Bank of England may have to announce an immediate base rate hike to stop the pound’s rout. That could be as much as 2%. Panic is setting in and FTSE 100 shares are not immune.

I’ll leave others to discuss the politics of Kwarteng’s controversial budget. My focus is on the FTSE 100 and only one thing matters to me right now. Shares listed on London’s index are cheaper than they were just a few days ago.

I am building a portfolio of FTSE 100 shares for retirement and my strategy is simple. I buy when they look relatively cheap and hold them for the long term. And when I say long-term, I mean decades.

I believe the longer I invest, the better my chances of generating serious wealth from the stock market. As we have seen this year, shares are highly volatile. In the short term, nobody has any idea where prices will go.

Yet in the longer run, the trajectory has been upwards. Better still, FTSE 100 shares pay generous dividends. By reinvesting them into my portfolio to buy more stock, I can make money even if the market goes nowhere for years.

When I wrote about the FTSE 100 last week, the index was yielding an impressive 3.93% a year. After today’s dip, that has increased to an even juicier 4.14%. So already I’m getting 0.21% more income as a result of today’s drop. 

Some individual stocks on the lead index have fallen fast this morning. The housebuilding sector is selling off as investors assume that higher interest rates will drive up mortgage costs will make property even less affordable.

Taylor Wimpey is down 7.03%, at time of writing, with Persimmon down 6.07% and Berkeley Group Holdings falling 5.34%. Yet I still think this is a good sector to invest in. Property shortages should limit the chances of a full-blown house price crash.

These stocks offer amazing yields

The housebuilding sector is a happy hunting ground for dividend income. Taylor Wimpey now yields 8.95% and trades at just 5.73 times earnings. Persimmon yields an incredible 18.53% and is valued at a dirt-cheap 5.43 times earnings.

There are plenty more bargain FTSE 100 shares out there, as the market sells off through no fault of its own. Naturally, buying stocks today could be risky. The index could easily fall further tomorrow. That is a chance I am willing to take.

I accept that I will never buy at the absolute bottom of the market. Today’s low valuation is good enough for me. If FTSE 100 shares do fall further, I’ll simply buy more at the lower price. Then hold them for decades.

The post I’d buy FTSE 100 shares today as the index dips below 7,000 appeared first on The Motley Fool UK.

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Standing tall

As mortgage rates continue to rise as a result of interest rate hikes, demand for homes has cooled. This can be seen in Rightmove‘s June house price index, which shows that house price growth is slowing. As such, analysts are actually expecting prices to drop, hence the overall weakness among the FTSE 100 housebuilder stocks.

Nonetheless, Berkeley stands out as doing better than its Footsie peers year-to-date (YTD). The shares’ performance becomes even more puzzling when I consider that it’s the only developer not paying a dividend. So, what’s behind the stock’s relative strength (bearing in mind that it’s still down this year)?

Berkeley loves the south

Upon analysing the number of houses built, Berkeley’s more solid stock performance gets even more confusing. The Croydon-based developer doesn’t even rank within the top five builders in Britain for house completions.

However, there’s a metric in which Berkeley excels in — average selling price. Due to the housebuilder’s speciality in building posher, London properties, its average house price is two to three times higher than its competitors.

As a ‘luxury’ builder, Berkeley has been able to pass on most of its higher costs to its customers without impacting demand. This was evident in its FY22 results with management citing resilient demand for its properties.

Moreover, Berkeley’s exposure to London and the South East has allowed it to benefit from higher house prices, with the average house price in the capital costing £530,000. This is almost double of the UK average. More importantly, the lack of supply in these regions will most probably protect Berkeley’s top line from declining house prices.

Built like bricks

Aside from its solid stock performance, Berkeley also boasts a solid balance sheet. Although its debt-to-equity ratio of 21% is slightly higher than that of its FTSE 100 peers, its cash position covers its debt comfortably. Additionally, it’s got the second highest profit margin in the industry, at 20.5%, which is also higher than the industry’s average.

Having said that, it mentioned free cash flow of -£131m in its latest results. This would normally alarm me, but this was down to the company’s recent acquisition of St. William. This free cash flow impact should be a one-off and the board expects positive cash flow ahead. The company sold 42% more homes last year after all, and has an order backlog worth £2.2bn, which is an increase from £1.7bn a year ago.

I think Berkeley could be a lucrative housebuilder for me to invest in, if not for one thing. A great deal of uncertainty lies ahead for the housing market, with a potential recession on the cards, the company may be vulnerable, even with its London exposure. For that reason, I’m not ready to buy Berkeley shares at the moment. Instead, I’ll be scouting for potential winners in the event of a stock market crash.

The post Is this FTSE 100 stock the best housebuilder to invest in? appeared first on The Motley Fool UK.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow. 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.

Lloyds

Lloyds (LSE: LLOY) is one of Britain’s biggest financial institutions. It earns the bulk of its revenue from mortgage loans. This week, a large number of director dealings occurred with Lloyds shares going both ways.

• Name: Charlie Nunn
• Position of director: Chief Executive Officer
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 312,313 @ £0.43
• Total value: £135,843.66

• Name: William Chalmers
• Position of director: Chief Financial Officer
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 149,910 @ £0.43
• Total value: £65,204.85

• Name: Antonio Lorenzo
• Position of director: Chief Executive Officer (Scottish Widows)
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 148,661 @ £0.43
• Total value: £64,661.59

• Name: Antonio Lorenzo
• Position of director: Chief Executive Officer (Scottish Widows)
• Nature of transaction: Disposal of shares
• Date of transaction: 22 June 2022
• Amount sold: 150,000 @ £0.44
• Total value: £65,457.30

• Name: Vim Maru
• Position of director: Retail Group Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 148,661 @ £0.43
• Total value: £64,661.59

• Name: David Oldfield
• Position of director: Commercial Banking Group Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 145,746 @ £0.43
• Total value: £63,393.68

• Name: Janet Pope
• Position of director: Chief of Staff and Sustainable Business Group Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 104,104 @ £0.43
• Total value: £45,281.08

• Name: Stephen Shelley
• Position of director: Chief Risk Officer
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 147,828 @ £0.43
• Total value: £64,299.27

• Name: Andrew Walton
• Position of director: Group Corporate Affairs Director
• Nature of transaction: Free shares
• Date of transaction: 22 June 2022
• Amount purchased: 104,104 @ £0.43
• Total value: £45,281.08

Taylor Wimpey

Taylor Wimpey (LSE: TW) is one of the UK’s biggest residential developers. Both the Taylor Wimpey CEO and Chairman bought a large sum of Taylor Wimpey shares this week. This course of action hopes to shore up investor sentiment amid slowing house price growth.

• Name: Irene Dorner
• Position of director: Chairman
• Nature of transaction: Purchase of shares
• Date of transaction: 22 June 2022
• Amount purchased: 21,750 @ £1.15
• Total value: £25,016.20

• Name: Jennie Daly
• Position of director: Chief Executive Officer
• Nature of transaction: Purchase of shares
• Date of transaction: 22 June 2022
• Amount purchased: 21,509 @ £1.15
• Total value: £24,812.57

Berkeley

Berkeley (LSE: BKG)  is another one of Britain’s biggest housebuilders. The FTSE 100 firm reported a decent set of results this week. However, this wasn’t enough, as the Berkeley share price slid downwards. Nonetheless, a large set of director dealings and institutional buying amounted to millions of pounds in Berkeley shares. This should boost investor sentiment in the long-term, despite slowing house price growth.

• Name: William and Jane Jackson
• Position of director: Non-Executive Director and Person Closely Associated to Non-Executive Director
• Nature of transaction: Purchase of shares
• Date of transaction: 22 June 2022
• Amount purchased: 16,148 @ £36.57
• Total value: £590,566.42

• Name: Robert Perrins and Vanessa Perrins as Trustees of the Robert Perrins Discretionary Settlement
• Position of director: Person(s) Closely Associated to Rob Perrins (Berkeley Chief Executive Officer)
• Nature of transaction: Purchase of shares
• Date of transaction: 22 June 2022
• Amount purchased: 50,000 @ £36.57
• Total value: £1,847,644.75

• Name: Michael Dobson
• Position of director: Non-Executive Director
• Nature of transaction: Purchase of shares
• Date of transaction: 22 June 2022
• Amount purchased: 4,000 @ £36.17
• Total value: £144,686.56

• Name: Julia Barker
• Position of director: Person Closely Associated with Glyn Barker (Berkeley Chairman)
• Nature of transaction: Purchase of shares
• Date of transaction: 22 June 2022
• Amount purchased: 1,950 @ £37.27
• Total value: £72,669.37

Types of shares in a SIP

To provide context, there are a few types of shares within a company’s share incentive plan (SIP). A SIP is an employee plan for companies within the UK to flexibly award equity to employees. Publicly listed companies normally exercise this option because it’s tax-efficient for both the employer and its employees.

In this instance, most of the director dealings at Lloyds occurred with free shares. These shares were acquired by directors under the Lloyds fixed share award scheme. Share award schemes give employees actual shares rather than share options. The value of shares given to directors here are treated as employment income. This means that they may be subject to tax and national insurance contributions. That is unless they opt for an HMRC-approved share scheme, which has its own rules and requirements.

The post Director dealings: Lloyds, Taylor Wimpey, Berkeley appeared first on The Motley Fool UK.

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John Choong has no position in any of the shares mentioned at the time of writing. The Motley Fool UK has recommended Lloyds Banking Group. 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.

Berkeley (FY22 earnings)

Berkeley (LSE: BKG) is a British property developer and housebuilder. It mainly builds homes and neighbourhoods across London, Birmingham, and the South of England. The company is expected to release its FY22 earnings results for the year ending April 2022 on Wednesday 22 June.

The FTSE earnings preview indicates slight growth, as the housebuilder is expected to have capitalised on higher house prices. Nonetheless, analysts are predicting that if the outlook for FY23 comes in below consensus expectations, Berkeley shares may be in for a tough time.

DS Smith (FY22 earnings)

DS Smith (LSE: SMDS) is a British multinational packaging business. It offers sustainable, plastic-free packaging, integrated recycling services, and sustainable paper products. The firm is expecting to report earnings for the year ending April 2022 on Wednesday 21 June.

Analysts at Jefferies Financial Group recently reduced their EPS estimates for DS Smith. Morgan Stanley, Credit Suisse, and JP Morgan all reduced their price targets as well. So, if DS Smith can beat its earnings estimates and provide a positive outlook, its share price could recover. Otherwise, a further drop in its stock is to be expected.

Safestore (H1 22 update)

Safestore (LSE: SAFE) is the UK’s largest and Europe’s second-largest provider of self-storage. It has over 120 locations in the UK. The FTSE 250 firm is forecasted to report its earnings results for the six-month period ending April 2022, on Tuesday 21 June.

However, Safestore’s first-half earnings results are yet to be officially announced on its earnings calendar. Nonetheless, these are the figures to look out for. Analysts in the UK don’t normally publish earnings previews for six-month periods, so it’s best to compare the firm’s upcoming 2022 first-half numbers to the ones from a year before. The H1 22 figures can also be useful to determine whether it’ll outperform its FY21 numbers, or even beat analysts’ FY22 forecasts.

The post FTSE earnings preview: Berkeley, DS Smith, Safestore appeared first on The Motley Fool UK.

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John Choong has no position in any of the shares mentioned at the time of writing. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool UK has recommended DS Smith. 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, since September of last year, investors have started to cool on the company. After reaching a high of nearly 3,800p, the stock has since slumped to 1,758p. 

Slowing growth

Investors have been selling the stock as the City has downgraded its growth forecasts for the business. Analysts are now expecting earnings growth for the full year of just 7%, a significant drop from the 100%+ growth rates Fevertree has been able to achieve in the past. 

But I think this could be an excellent opportunity to snap up shares in the business at a relatively attractive valuation. 

Historically, the market has been willing to pay around 50 times earnings for shares in Fevertree. At the time of writing, the stock is trading at a forward earnings multiple of 30, falling to 27 next year based on current City estimates. That’s not too cheap, but it’s not too expensive either.

For example, shares in the US drinks giant Coca-Cola are dealing at a forward P/E of 25. Fevertree has higher profit margins and a stronger balance sheet than Coke. In my opinion, that goes some way to justifying the high multiple.  

Recovery under way

If you’re not interested in Fevertree, Aggreko (LSE: AGK) offers a global growth platform at a lower price. 

The company provides power generators around the world, and business has been mixed over the past five years. Earnings per share have declined by around 40% since 2013. 

Nevertheless, the business is expected to return to growth in 2019. City analysts have pencilled in earnings growth of 7% for the year, marking the first improvement since 2016. According to a trading update published by Aggreko today, the company is on track to hit this target. 

Analysts are forecasting earnings growth of 26%, which puts the stock on a 2020 P/E of 12.5. For a company that has demanded a multiple of as much as 20 times earnings in the past, this looks too cheap to pass up.

On top of the discount valuation, shares in Aggreko also support a dividend yield of 3.4%. The distribution is covered 1.8 times by earnings per share, so investors will be paid to wait, even if the company’s turnaround takes longer than expected. 

Cash cow

The final company I would buy with £3,000 today is homebuilder Berkeley Group (LSE: BKG). The UK’s housing market is booming, and a structural undersupply of properties across the country suggests homebuilders will be kept busy for years to come.

Berkeley predominately builds luxury property in London and the south east, so it’s not exposed to the same kind political risks as its peers that have leaned heavily on the government’s Help to Buy scheme in recent years. In its financial year to the end of April 2019, Berkeley built 3,698 new homes at an average selling price of £748,000.

What I like about it is its cash generation. At the end of its 2019 financial year, the group had nearly £1bn of cash on the balance sheet. A large percentage of this total is earmarked to be returned to investors.

The stock currently supports a dividend yield of 4.4% and the current level of cash on the balance sheet is enough to support this dividend for up to four years, according to my calculations. 

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Rupert Hargreaves owns no share 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.

Most importantly, markets now rate the likelihood of a no-deal departure at just 5%. Some top FTSE 100 stocks have started rising in anticipation of some kind of resolution. Particularly in the housebuilding sector, which is plugged into the domestic economy, and therefore more exposed to Brexit mood swings. Here are two that could have further to go.

Persimmon 

Persimmon, the UK’s second largest housebuilder, is hardly the most loved company on the index, after paying out that controversial £75m bonus to former CEO Jeff Fairburn, who was driven out by the scandal. People were particularly upset given its profits have been underpinned by the government-funded Help to Buy scheme, which was designed to support first-time buyers, not super-rich FTSE 100 bosses.

Persimmon has also been slammed for poor quality builds and, in August’s interims, set aside £140m to put things right. Half-year profits dropped from £516m to £509m, but Persimmon still generated more than £67,000 profit from every house completed.

Despite these issues, its share price is up almost 15% in the last three months, amid signs that Brexit clouds will clear, bringing happy days for housebuilders.

I always thought the sector was unduly punished in the wake of the EU referendum The UK has a massive shortage of homes, and nothing I can see is set to change that, especially with the population on course to hit 70m by 2031. Demand simply isn’t going to dry up.

Despite the recent share price recovery, Persimmon still trades at a bargain 8.9 times forward earnings, and offers a massive yield of 10%. Cover is still at 1.1 but with cash reserves of £832.8m, the payout looks safe. Return on capital employed (ROCE) is a healthy 36.3% too. It looks a Brexit buy to me.

Berkeley Group Holdings

By rights, fellow FTSE 100 housebuilder Berkeley Group (LSE: BKG) should be struggling, given its primary focus is London and the South East, where prices have been under pressure. Balancing that, it also operates in Birmingham, which has been more buoyant.

Yet its share price is also up 15% in the last three months, and 35% over the last year. Investors have been buoyed by management optimism, with the board targeting total pre-tax profits of £3.3bn over the six years to 2025.

Last month, it announced the extension of its £280m annual shareholder returns programme to 2025, worth £2.22 per share, with a targeted pre-tax return on equity of at least 15%. The current forecast yield is 4.1%, nicely covered 1.8 times. Berkeley’s ROCE isn’t quite as thumping as Persimmon’s, but at 23.5% is nothing to beef about. The group also has low reliance on Help to Buy.

The Berkeley share price is more expensive than Persimmon’s, trading at 13.5 times forecast earnings, but it has been much less controversial. With stable pricing and a forward sales position above £1.8bn, it looks a buy if you need more exposure to this sector.

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Harvey Jones 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.

Overvalued

Back at the beginning of 2018, Shore Capital was advising clients to buy Barratt Developments (LSE: BDEV). However, in the middle of last week, the broker decided to reverse its decision and downgraded the stock from ‘buy’ to ‘sell’.

This is a big move and it seems to be based on the company’s growth prospects. Shore downgraded the stock after the homebuilder published its results for the year ended 30 July.

While the number of properties sold increased 1.6% year-on-year, management warned the number of homes sold by Barratt would come in below expectations in the current financial year. They’d promised growth of 5%, but this is now expected to be just 3%.

The lack of growth is disappointing considering the stock’s valuation. As Peel Hunt noted after the publication of the results, Barratt is now trading at a price to net asset value of 1.45 for 2020, slightly above the sector average of 1.35. Although a dividend yield of 7.4% for 2019 does sweeten the appeal.

Sector laggard

Meanwhile, Deutsche Bank is a seller of Berkeley (LSE: BKG). The investment bank believes the company is worth just 3,428p, around 11% below the current share price. Interestingly, analysts at the German bank are overwhelmingly positive on the home building sector in general. They believe “another powerful wave” of government support could be on the cards as politicians try and win over voters.

Still, Berkeley seems to be out of favour because of its valuation. Analysts are expecting earnings per share to decline by around 29% this year. Even after factoring in this decline, the stock is trading as a forward P/E of 11.6, a premium of 30% to the broader homebuilding sector average. The company’s dividend yield of 5.2% is also below average.

Berkeley’s price to net asset value ratio sits at 1.65, which makes it even more expensive than Barratt on this metric. Looking at these figures, it’s clear why analysts at Deutsche Bank believe Berkeley is overvalued at current levels

Risky investment

Analysts at Deutsche Bank also downgraded their outlook for mining group Antofagasta (LSE: ANTO) last week. After awarding the company a ‘hold’ rating and 930p and price target back in April, analysts have now downgraded Antofagasta to ‘sell’.

This appears to be another valuation call. Over the past 12 months, the outlook for the mining group has steadily deteriorated and analysts across the City have downgraded their prospects for the business. This time last year, analysts were expecting Antofagasta to earn $0.91 per share for full-year 2019. Now they’re forecasting just $0.62, a 29% year-on-year decline.

As analyst as expectations have deteriorated, the share price has remained constant. As a result, its shares are now dealing at a forward P/E of 16, making the company by far the most expensive in the mining sector. The rest of the industry is dealing as a forward P/E of just 8.

Looking at this evaluation, it’s clear to me why analysts think now could be an excellent time to move away from the stock.

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I wouldn’t invest in property via a buy-to-let, though. Being an amateur landlord is too taxing, and will get worse if Jeremy Corbyn’s Labour Party takes power. Why fill the Treasury’s coffers when you can buy housebuilding stocks tax-free inside a Stocks and Shares ISA?

Berkeley Group

FTSE 100 housebuilder Berkeley Group (LSE: BKG) is up almost 2.5% after setting itself a healthy annual pre-tax profit target of £500m-£700m a year, or £3.3bn in total over the six years to 30 April 2025.

This is particularly encouraging given that the group operates principally in London and the South East, where prices have been slowing faster than the rest of the country. Berkeley is keeping the faith with London, even while rivals have backed away, and is reaping the rewards, reporting that “pricing has remained stable and the group’s forward sales position remains above £1.8bn”.

It is approaching today’s market with caution, and is keen to maintain half-year cash levels close to the full-year position of £975m, subject to share buy-backs and investment in new land.

Like many housebuilders, Berkeley is an attractive dividend stock, with a current forecast yield of 5.4%, covered 1.6 times by earnings. It has returned £139.2m to shareholders over the six months to 30 September, including share buybacks, and plans to share a similar-sized pot over the next six months.

Berkeley isn’t your average housebuilder, it tends to to take on more complex projects, but it’s longer-term focus may see it through difficult times like today. A lot will depend on Brexit, but trading at 11.7 times forward earnings, it looks difficult to resist, and a downturn could be the right time to buy it.

Barrett Developments

The UK’s largest housebuilder Barratt Developments (LSE: BDEV) took a major Brexit hit but it has fought back, its share price rising 12% over the last year. It is up 65% over five years, 10 times the return across the FTSE 100 as a whole.

Earlier this week, it posted a 9% increase in annual profit before tax to £909.8m, but did warn that volume growth would be at the lower end.

Improved operating margins have offset lower sales prices, allowing Barratt to increase its final dividend from 17.9p per share to 19.5p, with a special payment lifting the total 6% to 46.4p. The forecast yield is now a generous 7.5%, with cover of 1.6.

Analysts at Shore Capital recently warned that the Barratt share price has been overbought following an overly bullish July update. You may beg to differ with the stock trading at 8.8 times forward earnings, although the PEG signals less of a bargain, standing at 1.2.

So much depends on Brexit. The scaling back of the Help to Buy scheme from 2021 is another long-term challenge. That aside, housebuilders will continue to be underpinned by low interest rates and a hugely competitive mortgage market.

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In my opinion, there’s plenty to like about this global defence contractor, particularly when it comes to dividends. For a start, the stock supports a dividend yield of 4.3% and for 2019, City analysts estimate the distribution will be covered twice by earnings per share. This implies that even if earnings per share fall by 50%, the company should still be able to maintain its distribution to investors.  

I don’t think it is likely earnings will fall 50% any time soon. At the end of 2018, the company’s order book was worth £48.4bn, up an impressive 25% year-on-year following the signing of some substantial contracts during the year. These include what’s been labelled the “biggest maritime defence deal of the decade,” the Hunter Class nine-frigate programme from the Australian government. 

As the company capitalises on these opportunities, analysts believe earnings will jump 25% this year. That’ll leave the stock trading at a forward P/E of 12 according to the City, which looks to me to be a low price for a fast-growing global defence business.

Plenty of cash 

Homebuilder Berkeley Group Holdings (LSE: BKG) is another FTSE 100 income stock that I think can help you generate a second income.

Unlike some of its other homebuilding peers, Berkeley doesn’t pay out the majority of its earnings in dividends every year. Instead, the company has adopted a more conservative dividend policy. According to City estimates, the business will distribute around two-thirds of earnings to shareholders this year, giving a still-high dividend yield of 5.2%. 

Rather than return all of its earnings to shareholders, the company has been holding cash back to grow profits and strengthen the balance sheet. Income has risen at a compound annual growth rate of 17% during the past six years, and at the end of its last reported fiscal year, Berkeley had a net cash balance of nearly £1bn. 

It is the strong balance sheet that makes the company such an attractive income play in my view. With the payout costing around £300m a year, this homebuilder could maintain its payout for at least three years even if profits evaporate overnight. In other words, Berkeley can continue to pay its shareholders whatever the weather.

Market consolidator

Finally, as well as Berkeley and BAE, if you’re looking to generate a second income from stocks, I think Phoenix Group (LSE: PHNX) might be worth considering. 

Phoenix specialises in the acquisition and management of closed life insurance and pension funds, which is a relatively specialist business. The company has been buying up books of policies from other insurers that have been put off by the high capital requirements and admin costs of operating in this line of business. However, Phoenix has been able to achieve unrivalled economies of scale, and this is helping the group dominate the market.

I think Phoenix can continue to grow for many decades as it buys up new books of business from other companies exiting the life insurance and pension management business. This is excellent news for the dividend. The stock currently supports a dividend yield of 6.6%, which is already a market-beating level of income, but there is scope for further growth as management completes more bolt-on acquisitions.

The post 3 FTSE 100 dividend stocks I’d buy today for a passive income appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share 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.

Luckily, there are plenty of stocks out there that I think can achieve the same return in a much shorter time frame. Today I’m going to profile three of these companies.

Shareholder favourite

My first pick is the packaging giant DS Smith (LSE: SMDS). What I like about this business is the fact that it has proven over the past 10 years it is a well-run enterprise with the shares returning 22.9% per annum since 2009.

However, recently, doubts have started to surface about the company’s ability to continue this track record. As a result, the stock has lost around 30% over the past 12 months. The decline has left the stock trading at a forward P/E of just 9.4, which, with analysts predicting earnings growth of 43% for 2018, makes it look exceptionally cheap. It is currently dealing at a PEG ratio of 0.8 and supports a dividend yield of 5%.

Historically, shares in DS Smith have commanded a valuation of more than 20 times forward earnings. When confidence returns, I don’t think it is unrealistic to assume that the stock could double from current levels.

Booming demand

The second company I am going to look at today is homebuilder Berkeley Group (LSE: BKG). Once again, it seems as if the market is overlooking the opportunity here. Over the past 12 months, the City has been steadily increasing its figures. It now believes Berkeley will earn 419p per share in 2019, up around 10% from last year’s estimates. Despite this positive development, the stock still trades below where it was this time last year, and a multiple of just 8.7 times forward earnings does not seem to me to reflect Berkeley’s true potential.

Stripping out cash, the stock is dealing as a forward P/E of just 7.4 compared to its five-year average of around 11. Even if the share price does not return to this historical valuation, a prospective dividend yield of 5.6% implies investors could double their money on dividends alone within 14 years.

Dramatic recovery

Mining group Anglo American (LSE: AAL) is my last FTSE 100 pick here. Once again, this investment offers an attractive combination of both a low valuation and market-beating income. The stock currently supports a dividend yield of 4.8% and is changing hands at a forward P/E ratio of 8.3.

However, it is the group’s long-term potential that really interests me. Anglo is one of the world’s largest mining companies, producing significant amounts of essential commodities such as copper, nickel and platinum. All of these are vital commodities in the ever-connected world that we live in and demand should only increase over the long term.

Anglo is well positioned to profit from this trend and earnings should rise at least in line with inflation for the foreseeable future, implying average annual earnings growth of around 3%, which when coupled with the current 4.8% dividend yield, suggests that the stock could return nearly 8% per annum over the long term — a steady return that could double an investment within a decade.

The post Forget the Cash ISA. I reckon these 3 FTSE 100 stocks could double your money appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended DS Smith. 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.