If an investor had put £10,000 into Lloyds (LSE: LLOY) shares at the start of this year, they’d be justified in breaking out the bubbly.

The FTSE 100 bank has bounced back nicely after being outgunned by rivals Barclays and NatWest last year.

A key factor in its underperformance was the motor finance mis-selling scandal. Lloyds is far more exposed than Barclays and NatWest via its Black Horse car loans division. The board set aside £450m for potential impairments. Some analysts reckon it could be on the hook for billions.

In its full-year 2024 results, published on 20 February, the board set aside an extra £700m to cover potential claims. That lifted the total to £1.15bn, which Lloyds called its “best estimate”.

This FTSE 100 bank is bouncing

Investors now await a Court of Appeal hearing in April about the scope of a review into the scandal. This could drag on for months or years. Yet investors decided not to panic. Why?

They were too busy celebrating the board’s bumper £1.7bn share buyback. If that was designed to show investors that Lloyds could afford to lose a billion or two in compensation, it worked. The dividend was hiked by 15%.

This also put a positive gloss on a 20% drop in pre-tax profits from £7.5bn to £5.97bn. In another disappointment, net interest margins, the difference between what Lloyds pays savers and charges borrowers, fell 16 basis points to 2.95%.

Sometimes I really don’t understand the stock market. On another day, Lloyds could’ve taken a beating. Instead, the shares are flying. Over the last 12 months, Lloyds shares have surged 46%. That’s good, but over the same time scale Barclays has rocketed 87% with NatWest up a staggering 93%.

Still, £10k invested in Lloyds at the start of the year would now be worth £12,100. The investor won’t have received any dividends yet, but they’ll get a payout on 20 May.

Dividends are on the way

Even after this rally, Lloyds shares still don’t look too expensive. They trade at a price-to-earnings (P/E) of 10.7, comfortably below the blue-chip average of around 15 times.

I’m a little concerned by the price-to-book ratio. When I bought the shares a couple of years ago, it was down to 0.4. Last year, it was around 0.6, then 0.8. Today, it’s up to 0.9. The shares are starting to look fully valued.

When I look at the income, I stop worrying. The trailing dividend yield stands at 4.75%, but analysts expect this to rise to 5.01% in 2025 and 5.73% in 2026.

If interest rates fall later this year, that could boost consumer lending (but may squeeze margins further). The motor finance scandal could drag on, as could the general downturn and cost-of-living crisis.

The 18 analysts offering one-year share price forecasts have produced a median target of just under 69p. If correct, that’s an increase of just 2.8% from today. The easy gains may have been made.

I still think the shares are well worth considering for an investor who wants long-term exposure to a FTSE 100 bank. I’m holding mine, with luck, for decades. But in the shorter run, I expect them to slow from here.

The post £10,000 invested in Lloyds shares at the start of this year is now worth… appeared first on The Motley Fool UK.

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Harvey Jones has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Barclays Plc 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.

BAE Systems (LSE: BA) shares should be soaring right now, if you ask me. The FTSE 100 company is Europe’s largest defence contractor and the continent is feeling jumpier than it has done in years. 

Europe had grown accustomed to US military protection, but under President Donald Trump it can no longer take that for granted. 

NATO members are going to have to step up their spending as the US pulls back, which should be good news for BAE.

Can this FTSE 100 stock fight back?

Yet, over the past year, BAE’s share price has climbed just 1.13%. Throw in the trailing dividend yield of 2.53% and the total return stands at a modest 3.66%. 

A £10,000 investment a year ago would be worth just £10,366 now. By contrast, a simple FTSE 100 tracker would have lifted the same amount to £11,700, including dividends.

However, the long-term picture is stronger. Over five years, BAE Systems is up 88%, more than doubling an investor’s money with dividends reinvested. 

One issue may be valuation. As the shares climbed, so did the price-to-earnings ratio, which topped 22 times last year.

There’s also uncertainty surrounding US defence policy. While Trump has expressed strong support for military spending, he’s also focused on reducing the national deficit. Some worry that could impact US weapons procurement. Trade war tariffs pose another threat.

Yet BAE’s recent results suggest demand remains robust.  Full-year 2024 figures, published on 19 February, showed the company secured £33.7bn in orders, pushing its backlog to a record £77.8bn. 

Revenues surged 14% to £28.3bn, while underlying earnings before interest and taxes rose 14% to more than £3bn. Free cash flow of £2.5bn funded a 10% dividend hike.

Despite these solid numbers, the share price dropped 11%. That reaction puzzled me. Profit-taking might explain it, but given the lacklustre short-term gains, it’s hard to see why.

One silver lining: that P/E now looks more reasonable. BAE shares trade at 18.3 times earnings, only slightly above the FTSE 100 average of around 15. Given the security of its vast order book, I expected a higher premium.

Long-term buy and hold

Some ESG-focused investors remain wary of defence stocks, but that sentiment has softened as Russia menaces.

I bought BAE shares last year and have been disappointed by their short-term performance. But I’m not worried. I view this as a long-term play. I plan to hold for at least five, 10, or even 20 years. Unless the world suddenly embraces love, peace, and understanding (it won’t), BAE should continue to thrive.

Analysts predict a one-year median target price of just over 1,512p, suggesting a potential 16% rise from here. With the dividend, that could deliver a total return of nearly 20%. No guarantees though

Achieving this depends on factors like sustained defence spending, effective order execution, and overall market conditions.

For those with a long-term view, BAE shares look well worth considering. I’m certainly not selling. At some point, BAE Systems will take off again. I want to be holding them when they do.

The post £10,000 invested in BAE Systems shares 1 year ago is now worth… appeared first on The Motley Fool UK.

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Harvey Jones has positions in BAE Systems. The Motley Fool UK has recommended BAE Systems. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Passive income is a rare and precious thing: money that comes in without demanding constant effort and labour. 

It can flow in month after month, year after year, without the recipient having to actively work for it. In an ideal world, it will steadily increase over time, to combat inflation.

All that might sound too good to be true, but it’s possible to generate this by investing in FTSE 100 stocks that distribute regular dividends. 

The average yield on UK blue-chip stocks is currently around 3.6% annually, with some offering returns as high as 7%, 8%, or in a handful of cases, even more.

Even better, as businesses grow their profits, they tend to boost their dividend payouts, meaning that income stream could expand over time.

Investing in dividend stocks

There’s another advantage. By reinvesting every dividend, investors can steadily accumulate more shares. These shares generate more dividends, compounding returns in an ongoing cycle.

And if the company’s share price rises too the investor’s capital will appreciate, increasing their overall wealth.

Stock market investments carry risks, and there’s no guarantee of profits. However, by spreading my investments across 15 to 20 different firms, my relative winners should outweigh any laggards, with luck.

Wealth manager M&G (LSE: MNG) offers one of the highest trailing yields on the entire index at 9.4%. That’s way more than any savings account pays. Plus there’s prospective share price growth on top.

Naturally, investing in shares differs from holding cash. Dividends aren’t guaranteed. Capital is at risk. The M&G share price has dropped 7% over the past year and 10% over five years. That will have eaten into the dividends. 

A potential downside for M&G is that market volatility could hit the value of the assets it manages, while lower investor confidence could reduce fund inflows.

Another risk is that M&G funds are mostly actively managed, while in recent years investors have favoured trackers. This trend could continue, hitting demand.

Share price growth too

M&G shares could benefit if interest rates continue to slide, but there’s no certainty. I hold M&G myself. I think it’s well worth considering, especially for investors who favour income over growth.

I would suggest mixing it with lower-yielding stocks that have stronger growth potential. By adopting this balanced approach, it’s possible to target an average dividend yield of around 6% per year.

If an investor generated average annual capital growth of 5% on top, this would lift their overall total return to 11%.

If someone invested £2,000 today and left it to grow for 30 years, an 11% average annual return could increase their capital to roughly £45,785.

With a 6% yield, that would generate a passive income of £2,747 a year, which hopefully rises over time. Not bad from an initial £2k.

These numbers are estimates, but they illustrate how stock investments can provide a sustainable second income. 

The post How an investor could target a passive income of £2,747 a year from just £2k of savings! appeared first on The Motley Fool UK.

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Harvey Jones has positions in M&g Plc. The Motley Fool UK has recommended M&g 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.

It’s the dream of every serious ISA investor to build a million-pound portfolio, and it’s possible, too.

Government figures shows the UK has 4,850 Stocks and Shares ISA millionaires, and their numbers will only grow over time.

That’s impressive, given that the ISA contribution limit is just £20,000 a year. But clearly, it can be done. The key ingredient is time. It won’t happen overnight.

Now here’s the twist. Once you’ve made your first million, building the second one is a much faster job.

Making big money from FTSE shares

Online investment platform AJ Bell has put a figure on how much an ISA investor needs to tuck away each month to make £1m within 25 years. The magic number is £1,433 a month. Or £17,196 a year.

This assumes an average annual compound total return of 6%. That’s actually below the average long-term return on the FTSE 100, which is just under 7%. If an investor managed that, they’d blast through the £1m mark by investing £1,250 a month over a 25-year stretch.

So what about that second million? If the investor continued to put away £1,433 a month, that would take them just 10 years — less than half the time. That’s because our investor is also getting growth on the £1m they’ve already accumulated.

Laith Khalaf, head of investment analysis at AJ Bell, said your first million is the hardest. “Hitting new milestones becomes increasingly easy because you have a huge tailwind from growth on the money you’ve already stashed away.”

Compound growth is a formidable force, but you have to be diligent and patient to harness its power, he added. “Clearly, the higher the return you achieve on your investments, the more powerful the effect.”

In an attempt to maximise my own returns, I buy individual stocks rather than investment funds. I don’t put any of my long-term savings into cash. While savings accounts offer security, equities should deliver a superior return over time.

Imperial Brands offers both income and growth

FTSE 100 tobacco maker Imperial Brands (LSE: IMB) has shown how well stocks can do, with a fair wind. Its shares are up a mighty 50% over the last year. Over five years, they’re up an impressive 75%.

The total return will be much higher, as investors will have had bountiful dividends on top. Today, the trailing yield is a generous 5.6%.

Smoking is a declining market but Imperial Brands has fought hard to maintain its share through strong brands and diversification into vaping and heated tobacco. The board has also focused on reducing debt and returning capital to shareholders, to maintain its financial stability.

Cigarette manufacturers remain under constant regulatory attack, while health concerns may eventually hit sales in emerging markets too. Plus there’s stiff competition in the next-gen market, from larger rivals such as Philip Morris and British American Tobacco. I don’t expect Imperial Brands shares to maintain recent stellar growth, but they’re worth considering for a long-term buy and hold.

Every company has risks, which is why I’ve built a balanced portfolio of around 20, so if one or two underperform others will hopefully make up for it.

Sadly, I can’t afford to put away £1,433 a month, so I won’t be making my million. But as AJ Bell figures show, it can be done. Given time.

The post Here’s how much an ISA investor needs to put away to aim for a million appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands 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.

There’s no question about it, my favourite FTSE 100 stock is private equity specialist 3i Group (LSE: III).

How could it be anything else? It’s the first UK blue-chip to double my money since I started populating my self-invested personal pension (SIPP) two years ago.

I bought 3i Group shares in August, September, and October 2023 at an average entry price of 2,051p. I’ve been thrilled to see them steadily climb to 4,103p.

However, now I’ve got a decision to make. I took a relatively big position in 3i Group, and today it’s even bigger. Almost 9% of my entire SIPP. If the 3i share price takes a hit at some point, I’ll feel it.

Should I cash in my 3i Group shares?

There’s an argument that no one should invest more than 5% of their entire portfolio in one single stock. So I guess I should sell for the sake of diversification. Yet I’m reluctant to wave this one goodbye.

However, I do have one concern. 3i’s impressive performance can be largely attributed to its significant stake in just one company: European discount retailer Action.

More than 72% of 3i’s portfolio is now in Action. Which means that around 6% of mine is. And it’s not a company and I know that much about.

While 3i invests in a spread of companies, they’re on a much smaller scale. The latest update was dominated by Action, with the board merely noting that “the majority of our remaining Private Equity portfolio companies are performing resiliently, despite a difficult macroeconomic environment”. 

On 30 January, 3i Group reported that the retailer had “produced another outstanding result” with net sales up 22% to €13.78bn for the year to 29 December. Operating EBITDA jumped 29% to €2.08bn. It also paid 3i a £215m dividend.

And it expanded its footprint by adding 352 new stores during the year, bringing its total to 2,918.

This strong showing didn’t do much for 3i shares though, which barely shifted. This suggests investors have already priced in the positive performance, or maybe they share my concerns over concentration risk.

Can I find more Action elsewhere?

Analyst perspectives seem to reflect that. The nine brokers offering one-year share price forecasts have produced a median target of 4,253p. If correct, that’s a modest increase of just over 3.5% from today.

CEO Simon Borrows expects a strong full year and highlighted the group’s “well-funded balance sheet” with gross cash of £792m and an undrawn revolving credit facility of £99m. Gearing is a mere 2%. All seems well.

3i hasn’t just done well on my watch. It’s up 250% over the last five years, the best performer on the entire index, ahead of second-placed Rolls-Royce which grew 176% over the same timescale (Rolls is the easy winner over two and three years though).

The shares are up 68% over 12 months and 30% over three months, so it’s still rolling along.

I’m a long-term buy-and-hold investor but common sense dictates I take some of my winnings, to bring my stake back to 5% of my SIPP. I don’t really want to though. There are plenty of FTSE 100 stocks I’d love to buy right now, but they’ll have to go some to live up to my favourite.

The post My favourite FTSE 100 stock has just doubled my money! What do I do? appeared first on The Motley Fool UK.

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Harvey Jones has positions in 3i Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Value stocks can go nowhere for years. But when they take off, it’s action stations. That’s certainly the case with two FTSE 100 recovery plays that have been falling for years, despite looking incredibly cheap for most of that time.

Investors in Prudential (LSE: PRU) and Schroders (LSE: SDR) have had a miserable time of it. Until now. Any investor lucky enough to take the plunge just one month ago will have seen remarkable gains. Both are up just over 20% in that time.

If they’d split a £20,000 Stocks and Shares ISA evenly between these two struggling blue-chips in mid-January, they’d now be sitting on around £24,000. When value stocks go, they go.

Prudential’s shares are fighting back

Given that they’re both in the financials sector, it may not be a coincidence that they’re behaving in a very similar way.

But what went wrong for these two in the first place, and is this recovery sustainable?

Both have faced long-term structural and macroeconomic challenges. Prudential, a heavyweight in insurance and financial services, was supposed to fly after making the pivot to booming Asia.

While there’s a brilliant opportunity in the emerging middle class, this also exposed the company to Chinese economic volatility. Investor confidence wavered as China’s property crisis and sluggish growth hit earnings hopes.

Half-year adjusted operating profits still climbed 9% to $1.5bn, but investors had hoped for more.

Schroders meanwhile, has been hit by volatile stock markets and the shift towards passive investing. This has hit demand for active fund managers and squeezed fees too. Q3 outflows hit £2.3bn.

So why the sudden change? Prudential was lifted by improving sentiment towards China, although the recovery still looks fragile to me, and trade wars loom.

News that Prudential is evaluating a potential listing of ICICI Prudential Asset Management, its joint venture with Indian financial services group ICICI Bank, gave the shares another helpful kick.

Schroders has benefitted from the rally in UK and global markets. With interest rates potentially peaking and the outlook for assets that have some risk improving, investors have rotated back into shares. This could lift inflows and assets under management.

Broker RBC Capital Markets upgraded Schroders to Outperform, which gave it another lift. With the price-to-earnings ratio near a 10-year low of just 10 times, there’s an opportunity to consider here. Prudential looks pricier at 15.5 times earnings.

Schroders has a stellar yield

Companies that have underperformed for years can seem like they’re going nowhere – until the market suddenly re-evaluates them. When that happens, share prices can climb rapidly as investors rush to reprice the business in line with improved expectations.

But can it continue?

If China’s rebound is sustained, Prudential could have further to run. If financial markets continue to stabilise and fund inflows return, so could Schroders.

I’m wary of buying any stock straight after a spike. But I think both stocks are worth considering for investors who want wider exposure to FTSE 100 financials. Schroders’ bumper 5.8% yield tempts more than Prudential’s 2.3%.

For investors willing to ride out volatility, there may still be value to unlock. But as ever when considering value stocks, patience is required

The post £20k split between these 2 FTSE value stocks 1 month ago is now worth… appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential Plc and Schroders 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 NatWest (LSE: NWG) share price had a stellar year, rising 113% in 12 months. Yet that followed years of stagnation, as the FTSE 100 bank struggled under the weight of past scandals and government ownership.

That’s often the case with recovery stocks. Buying them can be lucrative, but turnarounds take time. Investors often have to sit back and watch their holdings drift lower before any rebound materialises. 

Yet, when the recovery comes, the rewards can be spectacular. For NatWest shares, the turning point came almost overnight last February, as earnings and margins picked up, impairments fell, and investors celebrated handsome stock buybacks.

Is Croda the next big FTSE 100 recovery play?

Investors who bought in early and waited were handsomely rewarded. Even better, dividends helped them accumulate more shares while prices were low.

Today, NatWest still looks decent value with a price-to-earnings (P/E) ratio of less than 12, and the shares could continue to climb. But I can’t see them doubling again. 

Investors who fancy investing in recovery stocks need to find them before they take off rather than afterwards. These two FTSE 100 firms are still down in the dumps. Could they do a NatWest?

Shares in specialist chemicals firm Croda (LSE: CRDA) and gaming giant Entain (LSE: ENT) have plunged 56% and 59%, respectively, over three years. Over the last year, they’re down 33% and 28%. That’s a dire run.

Croda was once a FTSE 100 darling, producing high-performance chemicals for industries ranging from cosmetics to pharmaceuticals. However, slowing demand, rising costs, and post-pandemic stocking issues have hammered its share price.

The stock still isn’t cheap, trading at 19 times earnings, well above the average FTSE 100 P/E of 15. I expected it to be lower, but earnings have taken a beating too.

With 27 years of consecutive dividend hikes, Croda is a true Dividend Aristocrat. Yet today’s 3.4% yield is relatively modest. So can it deliver some growth?

With inflation easing and economic conditions stabilising, demand for Croda’s products could rebound. But the recovery is in the balance. As inflation and trade worries hit sentiment, demand in key markets may remain weak.

Or does Entain offer better value?

Entain, owner of betting brands like Ladbrokes and Coral, has been hit by concerns over tightening regulations in key markets, alongside intense competition. An acquisition made for growth hasn’t paid off yet. Give it time.

Entain shares trade at 15.8 times earnings, roughly in line with the FTSE 100 average. Its 2.5% dividend yield isn’t exactly to die for. Like Croda, investors need to believe in future growth rather than banking on income.

Entain is looking to expand into new markets and strengthen its digital offerings, but progress has been slow. The industry remains highly competitive. Stricter gambling laws, affordability checks, and increased compliance costs could hit profit growth, and the Entain share price could remain bumpy.

Croda and Entain have potential for recovery. Both stocks require catalysts to reignite growth. NatWest shows how quickly a turnaround can happen – but only after years of underperformance.

For now, neither Croda nor Entain looks like a screaming buy to me. Brave investors might consider them though. If they’re willing to hold through the turbulence, the rewards could suddenly be worth it. As NatWest was.

The post Down 55% but can these 2 UK blue chips now double like the NatWest share price? appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Croda International 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.

Legal & General (LSE: LGEN) shares have only given me a modest capital return since I started buying them in 2023. So why do I like them so much?

According to my online trading account, I’m up just 7.1%. Hardly spectacular. But when I factor in dividends, my total return jumps to 19.9%. That’s a far more satisfying number. And I think it’s only the start.

I started building my position in the FTSE 100 insurer and asset manager in April 2023, adding to it in July and August that year. My average entry price was 226p. At today’s 242p, my capital gain is fine, but it’s not exactly Rolls-Royce. In fairness, I never expected it to be.

This FTSE 100 stock offers more income than growth

However, I’ve also received three dividend payments, in September 2023, and June and September 2024. All of which I reinvested to buy more Legal & General shares.

That income has helped turned my initial £4,000 into £4,796, after charges. Not a bad return, given I’ve only been fully invested for 18 months. It’s not brilliant either, but this is just the beginning.

Another juicy dividend will hit my account on 5 June, and another should follow in early September. Given Legal & General’s current trailing yield of 8.8%, I estimate they’ll total around £352. That will lift my holding up to £5,148, even if the share price doesn’t rise at all. If it does, my stake will be worth even more.

Of course, the shares might fall. My capital’s at risk, and while dividends are attractive, they’re never guaranteed. The Legal & General share price is up 5% in the last year. Over five years it’s down 25%.

It’s showing signs of life at the moment, up almost 10% in the last month. Shares tend to be cyclical, and a combination of falling interest rates and declining bond yields could drive fresh demand for UK dividend-paying stocks. 

Especially with US growth shares looking expensive. As a services company, Legal & General may also escape the worst of Donald Trump’s trade wars. We’ll see. Defensive stocks like this could be coming back into fashion.

Today, the stock currently trades at 32 times earnings, more than double the FTSE 100 average price-to-earnings ratio of 15. That reflects some bumpiness in earnings, and it’s something to keep an eye on.

Some analysts think we could get a market crash, as Trumpian volatility kills Wall Street’s bull run. Legal & General has £1.2trn of assets under management, and they’ll plunge if that happens. That won’t help the share price. If sustained, it could imperil the dividend. Time will tell. Short-term market volatility is always a threat, but it’s the long run that matters.

Even when capital growth is unexciting, dividend stocks like Legal & General can generate serious wealth. The real rewards come after five, 10, or 20 years. That’s why I’m happy to sit back, collect my income, and let compounding do the work while making sure I understand my total return – including income – and not just share price growth.

The post My Legal & General shares have climbed just 7% — so how come I’m sitting on a 20% gain? appeared first on The Motley Fool UK.

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Harvey Jones has positions in Legal & General Group Plc and Rolls-Royce Plc. 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.

With interest rates starting to fall, building a second income through dividends looks more attractive than ever. 

Banks and building societies are slashing rates on deposits, following the third Bank of England base rate cut on 6 February. Two or three more rate cuts could follow this year, and if they do, cash returns will fall further. So will bonds yields. With luck, dividend income will continue to rise.

Many FTSE 100 stocks offer solid value and sky-high yields, making them ideal for investors seeking passive income.

Can Phoenix dividends keep rising?

Dividends aren’t guaranteed though. Companies need to generate cash to fund them. This makes important to focus on companies with strong fundamentals. That means looking at revenue growth, customer retention cash flow and debt levels to assess whether the dividend is sustainable in the long run. 

While a high yield is tempting, it’s important to ensure the company can continue to pay – and hopefully increase – it in the years ahead.

One standout dividend stock to consider is Phoenix Group Holdings (LSE: PHNX), which currently boasts the highest yield on the FTSE 100 at a staggering 10.21%. 

For an investor who puts a full £20,000 Stocks and Shares ISA into Phoenix shares, that translates into an annual income of £2,040. Or £170 per month. 

Even better, forecasts suggest the yield will rise to 10.5% this year and 10.8% next, potentially boosting that income further.

So by 2026 our investor could be getting income of £2,160 a year, or £180 a month. And more thereafter, if the dividend holds. Plus any share price growth on top.

Phoenix is a specialist in managing closed life insurance funds, meaning it buys up policies from other providers and runs them efficiently using its economies of scale. 

This generates steady cash flow, crucial for maintaining that dividend. The board remains confident about its sustainability, recently reiterating its commitment to long-term shareholder returns. 

As with any high-yield stock, risks remain. While buying up life insurance books has worked well so far, any misstep in integrating new assets could strain cash flow and threaten dividends. Plus it needs to keep finding new books to buy. While making a success of diversifying into other areas.

Falling interest rates won’t necessarily work in its favour. Lower returns on cash and bonds could hit its investment portfolios, impacting profitability.

The FTSE 100 offers capital growth too

As with any stock, even a £5bn blue-chip, capital is at risk. Phoenix shares climbed 5% in the past year but are down 35% over five years. Long-term holders have seen much of their dividend income wiped out by capital losses.

Its shares now look decent value today, trading at a price-to-earnings (P/E) ratio of around 15, roughly in line with the FTSE 100 average.

Recent momentum has been positive, with the stock up 7% in the last month as falling interest rates revive investor interest. With US markets looking expensive, UK dividend stocks like Phoenix are attracting more attention.

No investor should put all their ISA into one stock, no matter how attractive the yield. A diversified portfolio is essential to spreading risk. While Phoenix offers a high income, a broader mix of stocks can provide a balance between dividend yield and capital growth, offering investors the best of both worlds.

The post Considering a £20k ISA in this FTSE dividend star could mean a £170 monthly second income appeared first on The Motley Fool UK.

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

My Taylor Wimpey (LSE: TW) shares have taken a beating, plunging 22% over the past year. Yet when I crunch the numbers, they still look like they’re worth considering to me. But are they?

A word of warning. I first bought shares in the FTSE 100 housebuilder in 2023. In that relatively short period, they’ve been highly volatile. At one point, I was sitting on a 40% paper gain. Now I’m down 5%.

Higher interest rates have hit buyer confidence and made mortgages more expensive, hitting demand. And that’s on top of long-term affordability issues, not to mention the slowing economy. Higher inflation’s driven up labour and material costs, further squeezing margins. It’s a lot to take on.

Is this FTSE 100 stock truly a bargain?

Like many of its rivals, Taylor Wimpey reported a drop in property completions last year. The board responded by offering incentives and discounts to buyers, again shrinking margins.

Yet the balance sheet remains strong. Taylor Wimpey boasts a robust land bank, low debt and a disciplined approach to managing costs. 

With a price-to-earnings ratio of 11.6 times, the stock looks cheap compared to its historical average and peers. That’s a key reason why I see an opportunity here.

The UK still faces a chronic housing shortage, supporting demand. The Bank of England’s expected to cut interest rates two or three times this year. If it does, mortgage costs could fall and buyers return, boosting sales volumes and profitability.

None of this is guaranteed. Markets expected six interest rate cuts last year. We got just two. Inflation remains sticky. Donald Trump’s tax cuts and trade tariffs could keep it that way.

In its trading update on 16 January, Taylor Wimpey said full-year UK completions were towards the upper end of its guidance range, with operating profit in line with expectations. We’ll know more when final results published on 27 February.

The group ended 2025 with a solid £2bn order book, representing 7,312 homes. However, the board also cautioned that Budget hikes to employer’s National Insurance and the Minimum Wage will push up costs from April.

A brilliant dividend yield

I haven’t mentioned the dividend yet. That’s a huge selling point. The forecast yield for 2025 is 8.5%. The board policy is to pay 7.5% of net assets each year, typically around £250m. 

I don’t expect rapid growth. Last February, the board lifted the dividend by a fraction of a penny, from 4.78p to 4.79p. Given the sky-high yield, it’s hard to complain.

Taylor Wimpey remains cash generative. It’s weathered previous downturns while maintaining attractive shareholder returns. But if things get really bad, it could be cut.

The 16 analysts offering one-year share price forecasts have produced a median target of just over 148p. If correct, that’s an increase of around 27% from today. Combined with that yield, this would give me a total return of 35%. Fingers crossed!

For now, Taylor Wimpey remains a well-managed business with long-term growth potential. While risks remain, particularly around interest rates and consumer sentiment, its valuation looks compelling. I won’t buy though as I already have a big stake. But I feel the shares are worth investors considering.

The post With an 8% yield and a P/E below 12, Taylor Wimpey looks in deep value territory appeared first on The Motley Fool UK.

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