That level of income equates to £7,200 a year. Not huge, but tax-free and it would likely make a difference to most people in the UK.

So, how large a portfolio is needed to generate it sustainably?

The answer obviously depends heavily on the income yield produced by the investments held inside the ISA. For example, a portfolio yielding 4% annually would require around £180,000 to generate £7,200 per year. A higher 5% yield reduces the requirement to roughly £144,000. Meanwhile, a more cautious 3% yield would mean needing closer to £240,000.

And whether those yields are achievable depends on risk appetite and the market. Today, there are fewer companies with large yields than there were a fewer years ago. This is because the market is hotter and yields are inversely correlated with share prices.

Moreover, higher yields reduce the amount of money required upfront, but they often come with greater risk, less dependable payouts, or lower long-term growth. Chasing the highest income available can backfire if dividends are cut or capital values fall.

A big yield and growth potential

One stock that ticks a lot of boxes is Arbuthnot Banking Group (LSE:ARBB). The small-cap bank trades on a modest forward price-to-earnings (P/E) of 8.8 and just 0.53 times book value, suggesting a significant valuation discount. By comparison, its FTSE 100 peers trade around 20% higher on a P/E ratio and 100% higher on a book-value basis.

A price-to-sales of 0.8 and strong free cash flow valuation metrics also point to a business the market may be undervaluing. Meanwhile, the forecast dividend yield of 6.59% stands out as particularly attractive for income seekers.

However, risks remain. Forecast earnings per share growth is negative as interest rate fall. What’s more, as a smaller lender, performance may also be more cyclical and sensitive to economic conditions. Nonetheless, it’s worth recognising that its clients are higher wealth individuals and likely more resilient to economic change than most of the population.

It’s certainly worth considering.

Building the portfolio

However, many people will be reading this and thinking “that’s great, but I don’t have £144k invested in an ISA“.

And that’s fine, because it doesn’t have to happen overnight. In fact, it can’t happen overnight. If someone were to put £200 into a Stocks and Shares ISA each month and achieve an annualised return of 10% — that’s marginally above the average ISA return over the past few years — they’d have £144k in 19.5 years.

That’s the long game most investors have to play. Not everyone can top up their portfolio by a grand or two each month.

Of course, it all comes down to making the right investment decisions.

The post How much do I need in an ISA to earn a £600 monthly second income? appeared first on The Motley Fool UK.

For many investors, the idea of covering a meaningful portion of living costs through investment income is the dream. A £500 monthly stream — or £6,000 a year — could help fund bills, travel, or simply provide greater financial security.

And thanks to the tax advantages of an ISA, every penny of eligible dividends or withdrawals can be kept out of the taxman’s reach.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Dream to reality

Turning that goal into reality requires more than simply picking a handful of dividend-paying companies. The size of the ISA portfolio, the average yield it produces, and the reliability of those income streams all play an important role.

Higher yields may reduce the capital required, but they often come with greater risk. Meanwhile, more conservative income strategies typically demand a larger starting pot.

So what does the maths actually say?

By working through a few realistic yield scenarios, it’s possible to estimate how large a stocks and shares ISA might need to be to deliver that £500 monthly target — and whether the goal looks comfortably achievable or still some way off.

At a 3% yield, an investor would need about £200,000 invested.
At 4%, that falls to roughly £150,000.
At 5%, around £120,000 could do the job.
And at 6%, the target drops to about £100,000.

Higher yields reduce the capital required, but they often come with greater risk and less dependable dividends. For many investors, aiming for a balanced yield with reliable long-term income growth may be the more sustainable approach.

Growth and dividends

Knowing where to invest can be the hard part.

One stock that offers both growth potential and dividends is Arbuthnot (LSE:ARBB).

The stock trades around 8.2 times forward earnings. That’s a big discount to FTSE 100 peers and it’s trading 71% below the average share price target. Admittedly there are only two institutional analysts covering this stock. And because it’s such a small-cap stock, they may not be the most talented of analysts.

Then there’s the dividend. On a forward basis it sits around 6.1%, potentially rising to around 6.6% in FY26. The forecast suggests this will be covered two times by earnings, inferring a level of stability.

Operationally, Arbuthnot appears to be thriving by leveraging its relationship-led model. With a £4.42bn deposit base fueling £2.32bn in customer loans, its liquidity is robust. Diversified growth in specialist lending (£895.9m) and wealth management (£2.38bn) complements its expanding regional footprint, exemplified by the Bristol office’s trajectory toward a £1bn balance sheet.

One risk, however, is the bank’s high sensitivity to interest rate fluctuations, as falling rates can compress net interest margins when deposit costs reprice more slowly than loan yields.

Nonetheless, I certainly believe it’s worth considering.

The post How much do I need in a Stocks and Shares ISA to earn a £500 monthly passive income? appeared first on The Motley Fool UK.

Rewind three years ago, and there were a lot of companies trading below their intrinsic values. The one caveat I’d add is that the target prices weren’t always significantly above the price at the time.

Because the majority of stocks were depressed — think Liz Truss era — there was less of an argument that some stocks were relatively undervalued. That benchmarking wasn’t possible.

So, what’s my argument?

Well, I don’t believe all UK stocks are undervalued. But I believe there’s a good argument that some stocks have never been so undervalued on a relative basis.

In turn, this could be a once-in-a-decade opportunity.

Jet2

One of the most obvious undervaluations on my radar is Jet2 (LSE:JET2).

There’s a very simple way to view this undervaluation on a quantitive basis. Below I’ve adjusted the price-to-earnings (P/E) ratio for net debt / net cash.

So, as Jet2 has £800m in net cash, and that’s a sizeable proportion of the market cap, I times the P/E by 0.68 to reach an adjusted P/E ratio of 4.1.

How do its peers fare using the same formula? IAG is at 8.9 times. Ryanair at 14.2 times. And easyJet at 6.1 times.

The average of these peers (excluding Jet2) is 9.7. This very crude metrics tells us that the stock could be trading at more than double the current valuation.

Of course, there are caveats. Ryanair is US-listed and IAG is more diversified. What’s more, Jet2’s earnings are expected to pause for the next 18 months while it invests in its new Gatwick hub.

However, I’m very optimistic about the long-term prospects. Institutional analysts agree. The stock trades 49% below the average share price target.

Arbuthnot

FTSE 100 banks have stormed higher in recent years, but small cap bank Arbuthnot (LSE:ARBB) hasn’t.

It is, however, a fundamentally different business. While the retail giants rely on massive loan books and high-volume consumer banking, Arbuthnot operates as a high-touch private and commercial bank focused on bespoke relationships.

This niche positioning allows it to maintain a conservative balance sheet and a diversified revenue stream that is less sensitive to the volatile swings of the broader retail market.

The group has pointed to continued operational growth across deposits, specialist lending, and funds under management, despite earnings falling as interest rates decline.

Once again, it’s the valuation that stands out. It trades at 7.8 times forward earnings — much lower than all FTSE 100 banks — and has a 6.1% dividend yield — higher than all FTSE 100 banks.

However, it’s the price-to-book ratio that highlights the steepest discount. At 0.53, it’s potentially undervalued by 50%. The one institutional analysts covering this stock believes its undervalued by 79%.

Risks? Well, I’m acutely aware that the government’s policies don’t support Arbuthnot’s clientele — some of whom must be emigrating. After all, Rachel Reeves has been jokingly voted the UAE’s top real estate agent for 2025.

Nonetheless, I think both of these stocks represent an excellent opportunity to get richer. Both are absolutely worth considering.

The post UK shares: a once-in-a-decade chance to grow rich? appeared first on The Motley Fool UK.

For me, the Silicon Valley Bank fiasco in 2023, which took place almost three years ago now, was one of the most obvious opportunities to buy UK banks at discounted levels.

Yet, while the largest lenders recovered quickly and then pushed on from inflation-linked concerns, some smaller and mid-sized banks remained underappreciated, offering compelling value for patient investors.

These institutions often benefit from niche exposures, leaner cost structures, and more flexible balance sheets. This can translate into stronger returns once market confidence returns.

With interest rates now moderating and credit conditions stabilising, smaller lenders could see their earnings power re-rated, particularly if they avoid headline-making crises and maintain disciplined lending.

For investors looking beyond the megabanks, the question is not whether UK banks can perform, but which ones remain overlooked and undervalued.

So, who do I have in mind?

Arbuthnot Banking Group

I believe Arbuthnot Banking Group (LSE:ARBB) is worth considering for both long‑term growth and income‑oriented investors after a decade of steady expansion.

Revenue climbed from £74.7m in 2019 to around £181m in 2024, underpinning a progressive dividend policy.

The forward yield currently sits at 6.6% with cover comfortably above 2 times. Deposits and wealth inflows have remained resilient, reflecting the group’s niche private banking and wealth management franchise.

At current levels, Arbuthnot trades on a modest forward price-to-earnings (P/E) of 7.8 times, signalling cheapness relative to larger peers.

The valuation looks even more stark on price‑to‑book. At around 0.53 times, the market is pricing the shares at barely half reported equity.

That discount suggests either a compelling opportunity or lingering scepticism about future earnings momentum.

A key risk is economic sensitivity. This includes weaker lending margins, slower credit growth, or softer wealth management inflows could weigh on profits and dividends.

However, for investors focused on yield and value, Arbuthnot’s track record, attractive multiples, and sizeable dividend make it a name worth a closer look.

TBC Group

TBC Group (LSE:TBCG) is another attractive and more niche opportunity. This FTSE 250 bank operates in two of Eurasia’s fastest growing economies — Georgia and Uzbekistan.

Analysts forecast revenue growth around 17% on average over the next two years making it one of the fastest growing companies listed on the UK exchange.

Earnings growth also looks strong — around 11% on average.

Profitability is high, with return on equity above 23%-24%, driven by Georgia’s underbanked, high-margin market and an improving Uzbek franchise.

The shares trade on just 4.9 times forward earnings while offering a dividend yield of 6.9% on a forward basis. The yield is covered nearly three times by earnings.

The main risk lies in Uzbekistan, where regulatory tightening, including loan growth limits and higher capital requirements, could constrain expansion and compress margins.

However, TBC’s strategic adaptations and resilient Georgian core franchise remain intact. Personally, I’m very bullish. It’s certainly worth considering very strongly.

The post Move over FTSE 100 banks, there’s value in smaller lenders appeared first on The Motley Fool UK.

So, out of curiosity, I asked ChatGPT to identify three income stocks that could deliver strong and reliable dividends in the year ahead.

Here’s what it said.

First up was Legal & General. It said the insurer currently offers a forward yield close to 9%, but sadly that’s not quite right. The real figure is closer to 8.2%. It said dividend appears well supported by strong capital generation, but it’s also worth noting that the coverage ratio — how many times net income covers dividends — actually falls below one based on forecasts. Typically we’d look for a coverage ratio above two. However, it’s true that the retirement, asset management, and insurance businesses produce long-term contractual cash flows.

Next was Phoenix Group. “With a yield of around 10%“… oops, wrong again. The forward yield is actually around 7.5%. ChatGPT also recognised Phoenix’s cash flows through insurance and retirement businesses, but failed to realise the coverage ratio was just 1.02.

Finally, the “National Grid adds stability to the mix“. But the yield is wrong again. It current sits at 4.1% on a forward basis and not the 5%-6% the AI bot claims. ChatGPT notes that it benefits from regulated, inflation-linked revenues across the UK and US. That I can’t argue with.

Obviously, I’m not that impressed. These companies would be fine if headline data (or, it’s version of the headline data) was all that counted. But that’s not the case. Unsurprisingly, these aren’t stocks I’d be considering for reliable dividends right now, despite the obvious allure of the insurance sector.

What would I choose instead?

One stock on my income radar is Arbuthnot Banking Group (LSE:ARBB).

The stock is trading around 8.2 times forward earnings. That makes it cheaper than all the blue-chip banking stocks out there. Its price-to-book ratio is also well below peers at 0.54, indicating the market is valuing the bank at a discount to the net assets on its balance sheet.

But it’s not exactly the same as its FTSE 100 peers. The big high-street banks generate most of their income from large-scale retail and corporate lending, transaction fees, and international operations. Arbuthnot, by contrast, is much more focused on relationship-based private and commercial banking, alongside specialist lending divisions.

At the half-year mark, the group reported customer loans (including leased assets) of £2.32bn and specialist division lending balances of £895.9m. Its customer deposits of £4.42bn provide funding for this lending. In addition, the group has funds under management and administration of £2.38bn, which generate fee income.

But crucially, the dividend yield is strong, partially because it’s overlooked. The yield sits at 6.1% on a forward basis rising to 6.6% in 2026. Coverage is around two times, indicating sustainability.

Of course, there are risks. It’s much smaller than the blue-chip banks and that will engender concerns about liquidity. However, I believe it’s a well-run business that’s absolutely worth considering.

The post I asked ChatGPT for the best income stocks to buy in 2026 and here’s what it said… appeared first on The Motley Fool UK.

Assuming a 4% annual yield from dividends and interest, you would need roughly £604,500 invested (£24,180 ÷ 0.04). At a 5% yield, the required sum drops to about £483,600, while a 6% yield reduces it further to around £403,000.

However, it’s important to remember that higher yields often carry more risk and less predictable income. Balancing yield with safety and growth is key to preserving your capital while meeting your monthly income goal.

The reality of the yield is a reflection on market conditions. Five percent would have been an easily achieve yield to lock in a couple of years ago. It’s a little harder today and may involve looking outside the blue-chip indexes.

The beauty of doing this within in a Stocks and Shares ISA is that the dividends and gains generated are free from income tax and capital gains tax, helping passive income go further.

Build the portfolio

Of course, building a portfolio worth somewhere in the region of half a million pounds isn’t easy. But it’s achievable with a strategy built around consistent contributions, the power of compounding, and sensible long-term investments.

In simple terms, if an investor contributed £700 a month into a Stocks & Shares ISA and achieved 10% annual growth — slightly above the long-term average return for UK ISA investors — the portfolio would reach roughly £500,000 in around 19 years.

That outcome doesn’t rely on perfect market timing or speculative bets. It assumes steady investing through market cycles, reinvesting dividends, and maintaining discipline during downturns.

Importantly, the tax-free nature of an ISA means all growth and income compound without being eroded by income tax or capital gains tax.

While returns will vary year to year, the example highlights how time, regular saving, and a growth-focused approach can turn manageable monthly contributions into a substantial passive income asset over the long term.

Where to invest?

Like most of my Foolish colleagues, I believe the best way to build wealth over the long run is buying well-researched individual shares. One stock that stands out for consideration to me is British banking minnow Arbuthnot (LSE:ARBB).

So why does it stand out? Well, it comes down to relative valuation. It’s cheaper than its blue-chip peers trading around 8.1 times forward earnings and with a dividend yield around 6.1% with plenty of coverage.

On a price-to-book basis, the valuation gap looks even more striking. Arbuthnot trades at just 0.53 times book value, compared with ratios comfortably above one for the major UK banks.

That suggests the market’s heavily discounting its smaller size rather than its underlying fundamentals. Profitability also stacks up reasonably well, with earnings expected to grow by around 19% in 2026, supporting both dividend sustainability and future income growth.

The main risk, of course, is scale. As a smaller lender, Arbuthnot’s shares can be illiquid, and earnings could prove more volatile in an economic downturn. But for investors prepared to accept that trade-off, the valuation looks appealing.

The post How much do you need in a Stocks and Shares ISA for £2,015 passive income a month? appeared first on The Motley Fool UK.

But success has its price. Lloyds is simply no longer the bargain stock it was. It trades at 12.8 times forward earnings with that figure falling to 9.9 times in 2026. Growth’s strong, but that’s unlikely to continue throughout the medium term.

The dividend yield now sits at 3.8% with strong coverage. However, that’s down from near 6%. To be clear, none of this screams overvalued to me. I just don’t see much room for near-term appreciation from here.

For investors willing to look beyond the FTSE 100, two lesser-known banks could offer more compelling risk/reward profiles heading into 2026.

Georgian lender, listed in London

TBC Group‘s (LSE:TBCG) one such candidate. The Georgian lender, which also operates a fast-growing subsidiary in Uzbekistan, has lagged its closest peer Lion Finance. At present, TBC trades at just 5.1 times forward earnings. That’s a substantial discount not only to UK banks but also to Lion Finance.

Crucially, this low valuation’s not a reflection of poor growth prospects. Forecasts suggest revenue growth averaging around 17.5% over the next two years, placing TBC among the fastest-growing companies in the FTSE All Share — number 17 to be precise.

Earnings growth’s expected to average roughly 11% annually, giving the shares a forward PEG ratio close to 0.45. That’s meaningfully lower than Lloyds on most measures.

The dividend also strengthens the case. The stock offers a forward yield of around 6%, supported by a strong coverage ratio.

Risks remain — notably regulatory changes in Uzbekistan and political uncertainty in Georgia — but recent underperformance appears more like a temporary speed bump than a structural problem.

A bank for the wealthy

Another interesting option is Arbuthnot Banking Group (LSE:ARBB). Unlike the big UK banks, this AIM-listed lender has seen little share price appreciation in recent years, even as dividends have risen steadily. The forward yield now exceeds 6%, with dividend cover forecast at just over two times.

Arbuthnot also looks cheap on balance sheet metrics. The shares trade at around eight times forward earnings and just 0.52 times book value, far below FTSE 100 peers.

Its conservative loan-to-deposit ratio of 57.6% provides a substantial liquidity buffer, reducing financial risk during economic downturns.

The main drawbacks are size and liquidity. The difference between the buying and selling price can deter investors from smaller banks.

Lloyds remains a solid business and still worthy of consideration. But on valuation, growth, and income potential combined, these two smaller banks could outperform by 2026.

And because of that, I believe they’re certainly worth considering as we move through 2026.

The post Lloyds’ shares are doing great… but these two banks could outperform in 2026 appeared first on The Motley Fool UK.

One popular route is to use a Stocks and Shares ISA to produce a tax-free income stream that supplements employment earnings or, over time, replaces part of them altogether.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

It might be daunting, but it’s very possible

To put a clear figure on the challenge, £900 a month equates to £10,800 a year. If an investor targets a 5% annual withdrawal rate from an ISA portfolio, the maths is straightforward. Dividing £10,800 by 5% implies a required portfolio value of roughly £216,000.

At first glance, that number can feel intimidating. However, focusing solely on the end figure risks missing the more important point: very few investors reach it in one leap.

ISAs are built for gradual, consistent wealth accumulation. Contributions are made monthly or annually, dividends are reinvested, and compounding does much of the heavy lifting over time.

What’s more, compounding is snowball effect. Looking at the graph below we can see how the pace of growth appears to increase as time goes on.

Here’s how £500 per month could compound into £210,000 in 15 years, and surge to £400,000 within 20 years. This assumes a 10% annualised growth rate — marginally above the average annual ISA return over the last decade.

Importantly, time and consistency matter more than starting size. Regular investing, even in modest amounts, can compound meaningfully over a decade or more.

This is particularly the case within the tax-efficient wrapper of an ISA. What begins as a distant target can, with discipline and patience, become a realistic and sustainable second income stream.

Where to invest?

When building a portfolio from scratch, I believe the carefully chosen stocks are the best way to go. One small-cap stock I like is Arbuthnot Banking (LSE:ARBB).

Arbuthnot presents a compelling case for income and growth-seeking investors, trading at a steep discount with significant appreciation potential. The stock is currently priced at a modest 0.52 price-to-book ratio, and analysts forecast a price target of 1,500p, implying it’s 69% undervalued.

The income narrative is equally strong. Dividends have grown steadily from 42p in 2022 to an estimated 53.5p, pushing the forward yield above 6%. This payout appears secure, supported by a healthy 2.1 coverage ratio and a conservative loan-to-deposit ratio of 57.6%, which provides a superior liquidity buffer compared to larger peers like Lloyds (96%).

The primary risk is the liquidity. Due to its smaller size, Arbuthnot has a wide buy-sell spread. Investors face an immediate “fall rate” of 3%-4% upon purchase as they navigate this pricing gap.

However, with a projected long-term earnings growth rate of 15.2%, the fundamentals may justify this initial cost. I certainly think it’s worth considering.

The post How much do you need in an ISA to target £900 of monthly second income? appeared first on The Motley Fool UK.

Contributions benefit from income tax relief at the investor’s marginal rate, while investments held within a SIPP are sheltered from both capital gains tax and dividend tax. Even children get this tax relief if they’ve got a SIPP — you can open one from brith.

Importantly, a SIPP also offers far greater control than most workplace pensions. Investors are not limited to a narrow range of funds but can instead build a portfolio spanning individual shares, investment trusts, ETFs, and bonds.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Where to invest?

So, let’s imagine you have £10,000 to invest in a SIPP for next year. For starters, if you put £10,000 in a SIPP, you’ll automatically receive around £2,500 in the form of tax relief. You’ll receive more if you’re a higher rate tax payer.

How this £12,500 is divided between investments depends on the total size of your portfolio and how much your brokerage charges for each trade.

But here’s a few stocks to consider for 2026.

One stock that ticks a lot of boxes in TBC Group (LSE:TBCG), a Georgian bank with a subsidiary in Uzbekistan.

It’s got a forward dividend yield around 6%. It trades at 5.1 times forward earnings making it cheaper than the vast majority of global banks. And, forecasted earnings growth is around 11% on average over the next two years.

The business looks vastly undervalued according to these figures. Analysts agree with the share price target around 35% above the current price.

It’s also pretty strong when it comes to profitability grades. The return on equity ratio is around 24.8%. That’s far above many banks in the UK, but also below its Georgian peer Lion Finance — the issue with Lion Finance is it’s more expensive.

The risks? Well, its Uzbek operations have dragged on earnings this year after regulatory upheaval demanded a strategy change. It’s also true that Georgia is still experiencing political challenges.

However, it certainly looks like a stock to consider for 2026.

Another undervalued banking group is Arbuthnot (LSE:ARBB). Analysts suggest it could be undervalued by as much as 79%. It trades at 8.2 times forward earnings with a 6.1% forward dividend yield.

Earnings will take a backward step in FY2025 due to falling interest rates, but long-term prospects remain positive. It serves high-wealth clientele and inflows remain strong. Looking longer term, an inevitable change of government might bring more high-wealth clients back to the UK.

Risks include liquidity. It’s much smaller company even than TBC and the spread between the buying and selling price is wide.

Nonetheless, I think it is certainly worth considering.

The post £10,000 to invest in a SIPP? These stocks could send it surging in 2026 appeared first on The Motley Fool UK.

It said that everyone must balance specific financial goals, risk tolerance, and available capital. It also stressed the need for diversification across multiple income streams to ensure stability.

Initially, the AI provided a broad framework, dividing the opportunities into Investment Income (capital-heavy, low effort) like dividend stocks and REITs, and digital/business Income (time-heavy, scalable) such as online courses or niche websites.

That wasn’t really what I was looking for.

When I requested stock specific guidance for a UK audience, Gemini suggested building a foundation using low-cost, high-yield Exchange-Traded Funds (ETFs) such as the iShares UK Dividend ETF for broad market exposure.

To enhance the yield, it recommended supplementing with strong individual FTSE 100 dividend payers, specifically naming the insurer Legal & General and British American Tobacco.

It’s not overly detailed. It’s not overly impressive. But that’s why we shouldn’t use AI to guide us on financial decisions.

What’s wrong with it?

I’ll forgive it for misinterpreting my original question and suggesting I try and sell online courses. However, when it comes to actually making investments, I believe every suggestion needs both caveats and serious explanation.

For example, while Legal & General pays a subtotal 8.7% dividend yield, it’s worth noting that the payout ratio has been less than one over the past three years. This suggests the company’s net income is actually less than the amount it paid in dividends.

That doesn’t mean it can’t continue to pay the dividend. But it is a warning sign.

What is the perfect dividend portfolio?

Personally, I don’t invest for dividends today. I invest to grow my portfolio in the hope of taking a larger dividend in the future. That means I don’t have a huge number of dividend stocks in my coverage.

However, I’m in no doubt that the most effective dividend portfolio would involve heavily researched stocks from a variety of sectors.

In banking, I’d suggest investors consider Arbuthnot (LSE:ARBB). Despite a flat share price over three years, the investment case has quietly strengthened. Dividend payments have risen from 38p in 2021 to an estimated 53.5p this year, lifting the forward yield to 6.1%. Importantly, that income looks secure, with a forecast dividend cover of two times.

Balance-sheet conservatism is another differentiator. Arbuthnot’s loan-to-deposit ratio of 57.6% means it lends out just over half of its deposits, leaving a substantial liquidity buffer. By comparison, Lloyds operates at around 96%. This tells us that Arbuthnot is positioned cautiously, but also nods to the other wealth management services it leverages to make money.

Valuation is where the anomaly becomes most apparent. The shares trade at just 8.2 times forward earnings and at a price-to-book ratio of 0.5. Institutional analysts suggest this means it’s undervalued by as much as 70%.

However, the key perceived risk is size — big banks look safer. The spread between the buying and selling price is another concern. But I still think it’s worth a look.

The post I asked Gemini for the perfect passive income portfolio, here’s what it said… appeared first on The Motley Fool UK.