That is a significant advantage, especially over 20-30 years.

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.

So why doesn’t everyone have one?

A big reason is that people don’t really know where to start. They hear about stock markets, crashes, crypto, and ‘once‑in‑a‑lifetime’ opportunities, and they freeze.

But there is no real downside to using an ISA to invest, beyond the usual risk that markets can fall. The main barrier is not the product — it’s the fear of things you don’t fully understand.

To make it easier, here are three useful things to do before you open your first ISA.

1. Write down realistic goals

Retiring in 10 years is a nice idea, but it only works if you know how to get there. How much can you put in each month? What would you have to cut back on to make it happen?

Start with something you can actually stick to, not a fantasy savings plan that leaves you broke by the end of the month.

2. Research realistic returns

Never assume a fixed return. Markets are unpredictable, and nothing is guaranteed. That said, history can help you set expectations. The FTSE 100 has delivered an annualised total return of nearly 8% since it started in 1984.

That does not mean it will return 8% every year; it could be 30% one year and a 10% loss the next. But over several decades, it tends to average out closer to that 8% figure.

3. Identify stocks with long‑term potential

Stock‑picking is hard, and news headlines often make every tech startup sound like the next Apple. In reality, the most reliable long‑term compounders are often pretty boring.

Think National Grid, Tesco or BT Group — household names that keep the country running. Alongside those, there are lesser-known businesses like Diploma (LSE: DPLM), which is one of my favourites.

A critical undercover company

Diploma makes controls, seals and diagnostics components for defence, agriculture, healthcare and industrial technology around the world. 

Hundreds of thousands of people across the UK, Europe and North America use equipment fitted with Diploma parts every day, without ever knowing the company’s name. They do so through infrastructure such as power grids, water systems, hospitals and logistics networks.

With a market-cap of £8.72bn, it has, over the past 10 years, risen around 770% — the third‑highest return in the FTSE 100. That equates to an annualised gain of roughly 24.15% a year — far above the average for UK stocks.

The bottom line

Diploma is a strong option worth weighing up for a long-term ISA portfolio. It sits in those essential, often overlooked industries that quietly keep the world moving.

There is some risk from cyclicality in industrial demand, and there’s a chance it struggles to maintain such a high‑growth track record. But with earnings growth of about 43% year on year and a 19.7% return on equity (ROE), it looks good right now. And the price-to-earnings growth (PEG) ratio of 1.04 suggests it is fairly priced based on performance.

Still, diversifying investments across several sectors and regions helps offset volatility, so no single shock can wreck your plan.

The post Considering an ISA in 2026? Before diving in, do these 3 things first appeared first on The Motley Fool UK.

One thing they all have in common is that, at some point, they had an empty ISA, before putting some money in and investing.

Perhaps they did not purposely aim for a million – but they got there anyway!

With the annual ISA contribution deadline falling this weekend, now seems like the ideal moment to reflect on how someone who currently has an empty ISA could aim for a million.

More than one approach

Putting in £20k now before the deadline and then doing the same every tax year, compounding at 5% annually, the ISA would be worth £1m after 26 years.

A much stronger compound annual growth rate of 15% would shave a decade off that timeline, making it 16 years.

Meanwhile, what about someone who does not have £20k a year to invest?

The same approach could still work, but depending on the amount of money put into the ISA it would take correspondingly more time.

Is that worth doing?

With a long enough timeframe, even fairly modest amounts of money invested in the right way can potentially do very well.

Setting realistic goals

You might be reading that and thinking, “right, well obviously it makes sense to aim for a 15% compound annual gain not a 5% one then”.

But that is like deciding to run your first marathon and deciding that doing it in three hours would be better than doing it in five hours.

The reality is that high performance can be very difficult to achieve. Having unrealistic goals can lead an investor to destroy not build wealth by taking badly judged risks.

I think both 5% and 15% compound annual gains are achievable though, at least for some investors.

Going for 5%

Take the 5% example.

At the moment, the FTSE 100 yields 3.1%. That alone could deliver over three fifths of the target.

With some share price growth overall (though most ISAs contain losers, not only winners), I see a 5% target as feasible when sticking to a fairly broad selection of proven blue-chip businesses.

What about 15%?

To hit a 15% compound annual gain over a 16-year period, an investor would need to make some exceptionally good choices about what shares to buy and hold.

An illustration is Diploma (LSE: DPLM). Its share price is up 136% in five years. The past 16 years have seen the share price achieve a compound annual growth rate of 25%.

That is before considering the dividend. Though only 1% today, someone that bought at the far lower price 16 years ago would now be yielding around 34%.

Why has Diploma done so well over the long term?

It has a clear, proven strategy and business model. It focuses on areas where it can add value for clients.

Many of the products it distributes are critical for customers, giving it pricing power and helping it ride the economic cycle.

At its current price-to-earnings ratio of 45, the company is too expensive for my taste. Risks include a slowdown in demand for aviation-related products hurting revenue, as airlines need to trim budgets as jet fuel prices surge.

Other companies that look cheaper to me now also have those characteristics…

The post With an empty ISA today, how long would it take to aim for a million? appeared first on The Motley Fool UK.

The situation looks even more dire for younger workers. With concerns about the long-term sustainability of the triple lock, even someone in their 40s will not only have to wait even longer before eligibility, but they could end up with far less after inflation.

Luckily, UK shares offer a solution…

Unlock a comfortable retirement

Relying on the State Pension as a retirement plan is a bad idea. For reference, Pensions UK have estimated a minimum of £13,400 income is needed to cover just the bare essentials. For a comfortable lifestyle, that number jumps all the way to £43,900.

The good news is, even a 40-year-old today starting from scratch can reach this target by investing in high-quality UK shares using a SIPP.

If the goal is to retire at 67, that translates into a 27-year time horizon. Adjusting the £43,900 target by an assumed inflation rate of 2% a year means that in 2053, someone will need to have a retirement income closer to £74,932.

But by putting aside £800 a month in a SIPP, which gets topped up to £1,000 after tax relief, and earning an 11% annualised return, a brand-new retirement portfolio today would grow to £1,988,724. And by following the 4% withdrawal rule, that translates into an annual income of £79,549.

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.

Earning an 11% return

Over the long run, UK shares have historically generated returns closer to 8% a year. So if the target’s 11%, an index tracker likely isn’t going to cut it. But a custom-crafted portfolio might.

By exclusively investing in the best British businesses, investors can unlock impressive market-beating returns. And anyone whose been investing in Diploma (LSE:DPLM) over the last 20 years has learned this first-hand.

Since March 2006, when including dividends, shareholders have enjoyed an average annualised return of a staggering 22.3%. In terms of money, that’s enough to transform £1,000 a month into £4,413,560, or £176,542 a year, in retirement income!

Still worth considering?

With a market-cap of £6.7bn, Diploma’s days of delivering 20%+ annualised returns are likely in the rear-view mirror. But that doesn’t mean the growth story’s over.

In fact, just earlier this week, the stock rocketed almost 18% in a single day following a guidance upgrade from management. Resilient demand within aerospace, rising defence spending, and accelerating data centre build-out are all providing powerful tailwinds, resulting in an upward revision for organic revenue growth and profit margins.

However, it’s important to highlight the risks of Diploma’s highly acquisitive growth model. By continuously executing bolt-on acquisitions, management’s been able to expand into new verticals, growing its addressable market.

Yet acquisitions don’t always pan out. And failing to integrate newly-acquired businesses could result in lacklustre future performance as well as a weakened balance sheet.

Nevertheless, with a stellar track record, investors looking to protect their retirement without relying on the State Pension may want to consider taking a closer look.

The post The State Pension age is rising to 67. I’m buying UK shares to protect myself! appeared first on The Motley Fool UK.

Revenues and margins are set to come in ahead of expectations this year. But the question for investors is whether this is a short-term boost, or a sign of something more durable.

Explosive growth

Diploma has increased its organic sales growth forecasts from 6% to 9% for 2026. And it’s expecting operating margins to be around 25%, rather than 22.5%. 

Together, those changes mean operating income is set to come in 14% higher than expected. That’s why the stock is moving higher and it’s worth noting where that growth is coming from. 

Diploma is a collection of businesses focused on industrial distribution. It focuses on buying and improving other companies and two of its recent acquisitions are doing very well. 

Windy City Wire is a supplier of low-voltage cabling for data centres. And Peerless Fasteners supplies aircraft components, where demand is strong as a result of higher defence spending.

Given this, it’s maybe the case that the stock market shouldn’t be surprised by upgrades to sales and profit forecasts from Diploma. But the latest news has caused a strong reaction.

The company clearly has key subsidiaries in the right place at the right time. But investors need to think about how long these demand levels are likely to remain elevated. 

Right place, right time?

The risk with a company that’s in the right place at the right time is that things change. And the growth in the industries that are booming today might not last forever.

The Covid-19 pandemic is a good example. Companies like Croda International benefited from a surge in demand for lipids used in vaccine development and the stock surged as a result.

Unfortunately, that unusually high demand didn’t last forever. And elevated inventory levels built up during the pandemic meant the firm’s sales – and its share price – crashed afterwards. 

The risk is that something similar might be true of Diploma. The strong demand coming from AI and higher defence spending might prove temporary, which makes buying today risky.

There is, however, a big reason for positivity. Both Windy City Wire and Peerless are fairly recent acquisitions, which is a sign the firm is still finding outstanding growth opportunities.

That means Diploma’s recent news isn’t just a result of being in the right place at the right time. It’s down to an enduring ability to find acquisition opportunities, which is a long-term positive.

Buy?

Buying a stock that’s up 19% in a day in a volatile stock market looks risky. Especially when it might be benefitting from some unusually high demand in cyclical markets.

From a long-term perspective, though, there’s still a lot to like about the stock – even at some high valuation multiples. A continued ability to grow is impressive and extremely valuable.

Given this, I think the stock is one to consider buying. There’s always a chance the share price might fall, but the stock might have gone up a lot more by the time that happens.

The post Up 19% in a day, is there more to come from the surging Diploma share price? appeared first on The Motley Fool UK.

These seem like obvious principles. But it’s surprising how much of an advantage investors can glean just by sticking to these in a stock market crash.

Stock market threats

Right now, investors have plenty to worry about in the stock market. There’s the ongoing risk of artificial intelligence (AI) leading to job losses and putting pressure on consumers. 

That might show up in a few different places. Lower discretionary spending is one example and another is an increase in mortgage defaults is another. 

More recently, conflict in Iran has added another dimension. Rising oil prices are set to bump up costs for heavy industrial businesses that have high power needs. 

Some companies though are more at risk than others. And a stock market crash can give investors the chance to buy shares in quality companies at very attractive prices. 

Opportunities

Buffett’s initial Bank of America deal is a great example of being greedy when others are fearful. With the bank in financial trouble in 2011, Buffett arranged a $5bn investment.

In return, his investment vehicle Berkshire Hathaway received 50,000 shares of preferred stock, which came with a 6% dividend. It also received warrants to buy 700m ordinary shares at $7.14.

In 2017, Buffett used the warrants to buy a stock that was trading at $24 per share using the original preferred stock. So the initial $5bn turned into almost $17bn in one move.

Realistically, investors like me are highly unlikely to be in a position to do that kind of deal in the next stock market crash. But I think there will be opportunities for those who are looking for them.

Where I’m looking

One stock I’m keeping a close eye on is Diploma (LSE:DPLM). The industrial distributor is an extremely high-quality business that looks expensive right now – but that could change.

Acquisitions are a key part of the business model and this brings a risk of overpaying. And the company has been paying higher prices recently, which is worth keeping an eye on. 

Despite this, the firm’s record is outstanding. With Diploma retaining most of its cash (instead of paying dividends) changes in book value are a key metric to focus on in terms of growth. 

Source: Fiscal.ai

From this perspective, the last 10 years have been a huge success – annual growth has been 17% on average. And I think there’s more to come, but the issue right now is price. 

Buying

The thing with Diploma is that its growth hasn’t been linear. But whenever it looks like it might be stalling, a high price tag means the share price can fall sharply.

When book value stagnated in 2021, the stock fell 35% in the first half of 2022. And it fell 21% in early 2025 after a steady, but unspectacular, performance in 2024. 

I’m sure this will happen again and I’m looking to be ready when it does. But a stock market crash might also do the job just as well in terms of generating an opportunity for me.

The post Ready for a stock market crash? Here’s what Warren Buffett says to do appeared first on The Motley Fool UK.

But rather than panic and smash the sell button, follow these three tips to navigate the turmoil…

1: Get defensive

When the world feels risky, money often moves into so‑called ‘defensive’ shares. Think utilities, healthcare, and everyday consumer staples. They don’t magically avoid crashes, but their profits usually remain steadier because people rely on them in good times and bad.

For a UK investor, shifting your portfolio into these areas is like swapping a sports car for a sturdy family SUV. It might still get dented in a storm but, overall, it’ll hold up better.

2: Build a sensible cash pile

Stockpiling a decent amount of spare cash means you can capitalise on low prices before the market rebounds.

With around 20% of your portfolio in cash, you won’t need to sell shares in an emergency. When markets get wobbly, I tend to reduce my holdings of ‘risky’ stocks and keep the cash aside.

3: Identify rare value opportunities

Stock picking during a sell‑off can be daunting because it’s hard to know which companies will recover. But if you’ve done your homework in advance, you can use these moments to snap up top-quality shares at rock bottom prices.

For example, one of my favourite UK companies is Diploma (LSE: DPLM), but the shares typically trade at sky high prices.

Here’s exactly why I think it’s a compelling stock to consider if the stock market crashes.

A great business at a rich price

Diploma’s a UK‑listed specialist distributor that supplies vital components and services in areas including controls, seals, and life sciences. Sounds boring, but there’s a consistently high demand for its niche parts and products.

It has a long record of steady growth, strong margins and smart bolt‑on acquisitions. Revenue and earnings have been compounding at roughly mid‑teens percentages for many years.

In 2025, earnings grew around 43% to roughly 138p, and kept return on invested capital (ROIC) near 20% — impressive numbers for a mature business.

It also pays a dividend that’s been rising at around low‑to-mid‑teens each year, with a payout ratio just under 50%. That leaves sufficient room to keep investing for growth while still rewarding shareholders.

The catch is valuation. Right now the shares trade on a price-to-earnings (P/E) ratio of about 41, versus sector peers closer to the mid‑teens. Its price‑to‑sales (P/S) ratio is also very high and price‑to‑book (P/B) is close to 8.

In plain English, the market already expects big things, so any stumble in growth, margins, or acquisitions could hit the share price hard.

Why it’s worth considering in a crash

Diploma has all the trappings of a high‑quality compounder: solid returns, good cash conversion, disciplined acquisitions – and a growing dividend to boot. But at today’s rich valuation, it’s on shaky ground and the chance of further growth may be limited.

That’s why a market crash might provide the perfect opportunity to consider getting on board while prices are low. If market panic drags the P/E down closer to its long‑run average, investors could have a rare chance to buy a quality business at a sensible price.

The post How to survive a stock market crash: 3 tips for novice investors appeared first on The Motley Fool UK.

While that’s changed a little bit in recent months, I’m still looking for opportunities to buy UK stocks. And there are a few companies that I’ve got my eye on for the month ahead.

The quality growth stock

Diploma‘s (LSE:DPLM) a FTSE 100 industrial components and equipment distributor. It’s not a stock I own, which is a pity because the company’s grown impressively in recent years. 

A strategy of buying smaller businesses and incorporating them into its network has generated outstanding growth. And it’s also well-protected from artificial intelligence (AI) disruption.

The risk with this approach is that there’s always a chance the firm might overpay for an acquisition. And although the company has an outstanding record – especially in recent years – success is never guaranteed.

The more the company grows though, the more its scale gives it advantages over the competition. The stock trades at a high price-to-earnings (P/E) multiple, but I think it’s worth considering.

The under-the-radar winner

Vistry‘s (LSE:VTY) a FTSE 250 housebuilder. The industry hasn’t been in a good way recently, but the latest £39bn affordable housing programme is set to launch. 

That means local authorities, housing associations, and other providers are going to be looking for builders to partner with on building projects. And this is what Vistry specialises in. 

Partnerships can be complicated and they definitely introduce new risks, but it’s a potential opportunity for a company that has a £2.3bn market value.

This seems to have largely gone unnoticed by investors. I already own Vistry shares in my portfolio, but I’m not averse to adding to my position at the current valuation.

The wildcard

Judges Scientific‘s (LSE:JDG) a scientific instrument company. And the stock has fallen 39% in the last 12 months as weak demand – especially from the US – has been weighing on sales. 

There are strong reasons though, for thinking that this might be set to pick up. The US Congress has rejected the administration’s proposed cuts to research budgets, opting to increase them instead.

To some extent, this highlights the key risk of selling primarily into markets where supply depends on government spending. That’s something that the company doesn’t control and can’t really influence.

Nonetheless, I think the stock is in a really interesting position. While management’s latest guidance was relatively conservative, there are reasons to expect business to pick up in 2026.

Which one to choose?

I like all three stocks, but my favourite is Judges Scientific. I can see strong long-term potential with the added boost of a potential recovery in 2026 for the markets it sells into.

I’m a big fan of Diploma, but I think I’ll get a better opportunity further into the future. And Vistry’s a very worthy candidate, but its long-term prospects just look slightly weaker to me.

That’s why I’m looking to buy Judges Scientific for my own portfolio. But I think all three are well worth considering for investors trying to find opportunities in the current market.

The post 3 UK stocks: which should I buy in March? appeared first on The Motley Fool UK.

As it turns out, with the right strategy, the answer’s yes. And there are already countless investors aiming to build a chunky nest egg to secure a more comfortable retirement. Here’s how.

Building a custom portfolio

Today, a decent cup of coffee in London will, on average, set you back roughly £4. Alone, that doesn’t seem like much. But buying a cup of Joe each day quickly adds up to roughly £122 a month.

But what if this money were invested instead? On average, the UK stock market generates a total annualised return of roughly 8%. Investing £122 a month at this rate with a brand-new portfolio would gradually compound over time and eventually start snowballing. So much so that after 37 years, an investor would have accumulated £331,400.

When following the 4% withdrawal rule, that’s enough to generate a £13,256 passive income, allowing investors to more than double the income provided by the UK State Pension alone.

Of course, waiting for a lifetime is far from ideal, yet by crafting a custom portfolio rather than relying on index funds, it’s possible for this journey to be drastically accelerated.

That’s because with a custom portfolio, investors can go on to earn market-beating returns. And while that can prove tricky, even a modest improvement can cut years from the waiting time without needing any extra capital.

Aiming for 14% gains

Cutting 12 years off the waiting time sounds great. But it’s important to recognise the difficulty of actually earning a 14% annualised return. Investors will need to identify a business with ample long-term growth potential, protected by a wide moat of competitive advantages.

That’s a pretty rare combination. But as long-time shareholders of Diploma (LSE:DPLM) know, finding these hidden opportunities can be immensely rewarding.

Through its strategy of executing bolt-on acquisitions and improving operations to fuel organic growth, the business steadily dominated niche engineering sectors often protected by regulatory barriers to entry.

This unique combination of acquisitive and organic growth alongside limited competition enabled the business to deliver jaw-dropping, long-term returns.

Fun fact: since February 2006, Diploma shares have generated an average annualised return of 22.5% – enough to transform £122 a month into a £555,300 nest egg!

Still worth considering?

At a market-cap of £7.2bn, it’s unlikely Diploma shares will continue generating a 20%+ annualised return. But that doesn’t mean the growth story’s over.

In 2026, the business is still posting impressive double-digit growth and continues to pursue new opportunities in sectors like aerospace, datacentres, and biotech diagnostics.

Obviously, that doesn’t guarantee Diploma will continue to outperform. Its reputation for quality isn’t exactly a secret in 2026, with the stock priced for near perfection. And as with any acquisition-oriented growth strategy, there remains continuous execution risk.

If acquired businesses fail to live up to performance expectations, shareholder value could end up being destroyed – a risk that investors have to consider carefully. Nevertheless, with such an impressive track record, taking that risk has so far proven exceptionally lucrative.

That’s why, despite the premium valuation, Diploma shares may still be worth a closer look in 2026.

The post You can aim to double the State Pension for the price of a daily coffee! appeared first on The Motley Fool UK.

But the thing is, predicting market crashes is like predicting precise weather patterns — everyone has an opinion, but nobody really knows for sure.

So let’s cut through the noise and talk about what might happen.

The bull case for 2026

Most mainstream Wall Street forecasters are cautiously optimistic about 2026. Bank of America predicts the S&P 500 will reach around 7,100 by year-end (a modest 3.7% gain), while some analysts such as Ed Yardeni see it climbing to 7,700 (a 12.5% rise). Morgan Stanley and JP Morgan both favour stocks over bonds, suggesting they expect continued gains rather than a collapse.

The reasoning is straightforward: corporate earnings remain healthy, unemployment is low and consumers are still spending money. As long as the economy doesn’t implode, stocks should keep climbing — just not as dramatically as 2025’s exceptional run.

The problem is, banks seem to always be optimistic — even right before a crash. But those with less ‘skin in the game’ are somewhat less convinced.

It’s not all sunshine and rainbows

Here’s where things get interesting. In a recent Reuters poll, 56% of strategists said a correction’s likely in the coming months. That’s not a crash but more like a dip of around 10%. Think of it as the market pausing to catch its breath before the next leg up.

Goldman Sachs CEO David Solomon put it bluntly: “It’s likely there’ll be a 10-20% drawdown in equity markets sometime in the next 12 to 24 months.” Mark Newton, technical strategist at Fundstrat Global Advisors, echoes this sentiment, forecasting a possible 15%-20% pullback with his S&P 500 target hitting 7,300 by year-end.

Neither of these are crash calls, but suggest that the big banks may be over optimistic.

So what’s the play?

A mild 10% correction is a minor event that doesn’t require drastic action. It could however, present some decent opportunities.

The industrial components distributor Diploma (LSE: DPLM) is a good example. It boasts exceptional 20% return on equity (ROE), recurring revenue from healthcare and industrial sectors, and a 15-year track record of 8% earnings growth. Yet at 5,685p, it trades 44% above intrinsic value and 40.6x forward earnings — more than double peer averages.

For value-focused investors, these eye-watering valuations present an insurmountable barrier, despite the company’s merit. A 10% correction to around 5,100p is still elevated but far more attractive, potentially justifying research for a small allocation in a diversified portfolio.

Admittedly, insider selling has raised eyebrows, with CEO Jonathan Thomson recently dumping £1.7m of his stock. This may just be a reaction to short-term overvaluation, but if it continues, it could irk investors, risking a price drop.

Final thoughts

For now, the immediate risk of an actual stock market crash looks limited. A short-term correction however, is quite possible — and should be viewed as an opportunity, not a risk.

In my opinion, Diploma’s current insider selling doesn’t deter me, as I believe the long-term outlook remains highly attractive. As such, I think it’s a compelling stock that’s worth considering in 2026, especially if the price dips.

The post Disaster averted! But a stock market crash isn’t off the cards yet appeared first on The Motley Fool UK.

There are some things to be careful of and rules investors — especially beginners — should try to stick to. But shares in companies that distribute part of their profits as dividends can be a great source of passive income.

Time

Whether it’s building wealth or earning passive income, one of the most important rules for investing is to be patient. Warren Buffett – one of the best investors of all time – puts it like this:

“No matter how great the talent or the efforts, some things just take time – you can’t produce a baby in a month by getting nine women pregnant.”

He’s right – not just about the biology, but about the stock market as well. Sometimes, what look like opportunities to fast-track returns present themselves, but these are usually traps.

With dividend stocks, this shows up most often with dividend yields. These can be very high – and very attractive – but they don’t always offer the kind of returns investors might hope for. 

High yields

Taylor Wimpey (LSE:TW) is a good example. The stock currently has an 8.8% dividend yield and compounding £100 a month at that rate of return leads to something generating £1,485 in year 10.

That sounds terrific, but there is a catch. The FTSE 250 housebuilder’s dividends have been higher than its net income in recent years – in other words, it’s paying out more than it’s taking in.

As a result, the book value of the company has gone down and the stock has fallen in a way that reflects this. So investors who bought the stock five years ago haven’t earned a good return at all. 

This isn’t to say Taylor Wimpey will be a bad investment going forward – the UK’s housing shortage should help with long-term demand. But investors shouldn’t be lured in by a high dividend yield.

Starting small

It sounds paradoxical, but lower yields can sometimes create higher returns. Diploma (LSE:DPLM) has never been a big dividend stock, but investors haven’t had much to complain about.

A 1.15% dividend yield doesn’t exactly jump out, but this is only part of the story. The industrial distributor keeps and reinvests the majority of its earnings to generate higher future profits.

A strategy focused on acquiring smaller operations always brings a risk of overpaying. But the firm has a very successful track record, especially under its current management team. 

As a result, the dividend has more than doubled in the last five years. And if this carries on, income investors could well find themselves rewarded with growing future returns for a long time. 

Patience and time

I think the stock market is one of the best places for passive income investors to look for potential opportunities. But there really is no substitute for patience and time. 

A high dividend yield can feel good at first, but this isn’t much good if it all goes wrong later. A lot of the time, starting small, and being patient can be the way to get the best results.

The post What passive income means for beginners appeared first on The Motley Fool UK.