Investment horizon

Depending on what index you use to track performance, along with how far back you go, the validity of selling stocks in May and buying back late in the year is very mixed. In some years, it works. In others, you’ll have given up the potential for more profit.

Yet the point I think some people miss is that it contrasts a short-term investor with a long-term one. If I’ve bought a stock that I think has the potential to do really well in the coming years, what’s the point of selling it for a few months? Sure, I could be able to buy it back at a slightly cheaper price. But the opportunity cost of not owning it could be massive. Further, if I think it’s got good potential, there’s no logical reason for me to want to sell it, unless it rockets higher in price.

When we look at 2026, the adage doesn’t make sense even at a broader market level. We’re seeing a strong stock market recovery. This is being fuelled by an increasing belief that the situation in the Middle East may be past the worst. If we do see further de-escalation and the easing of supply chain problems, the market could be set for a strong rally over the summer. In that case, I don’t think it makes sense to sell at all.

Of course, this doesn’t mean all stocks will go up. There may be situations where a struggling company deserves to be removed from a portfolio. But from a high-level view, selling now ahead of May doesn’t really make sense to me.

Trending higher

In terms of a company that I think is primed to do well in the coming months, I’ve got my eye on Investec (LSE:INVP). The specialist bank is up 43% over the past year.

The latest trading update from last month had plenty of encouraging signs. It spoke of delivering “a resilient performance” and of good progress in modernising the digital platform. Revenue growth is supported by increased client activity and positive net inflows into funds under management.

Between now and November, we’ll get further trading updates and quarterly updates on progress. Given the current momentum, I expect the updates to be positive, with the share price then potentially continuing to trend higher. On that assumption, I don’t think it would be wise to avoid the stock until the end of this year.

Of course, I could be wrong. If economic conditions deteriorate, loan losses can spike, wiping out earnings momentum. This could trigger a stock sell-off, meaning that a dip could be bought later in the year.

On balance, I’m thinking seriously about adding the stock to my portfolio. But I think Investec is a good example of a stock that disproves the notion of selling right now in favour of hanging on.

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Investec (LSE: INVP) has implemented an aggressive dividend policy following the pandemic, when it was forced to slash dividends by 50%. But since then, it’s been ramping up its shareholder payouts for five solid years, raising the full-year dividend from 13p to 36.5p — a massive 180% increase.

Naturally, this has caught the attention of income investors, helping to boost the stock price by 168.5% since 2021. Impressive growth. Yet despite it all, the company doesn’t appear overvalued. In fact, it sports a shockingly-low forward price-to-earnings (P/E) ratio of only 6.8.

Numbers like that don’t come along often, so I had to find out what’s going on. Surely, there’s a catch?

Promising forecasts

Investec isn’t a well-covered stock but I managed to find two analysts with 12-month targets between 675p and 790p. Between the two, that’s an average increase of 29.9% from today’s price.

Earnings are expected to rise from 82p per share to around 98p by 2028, with revenue expected to reach £2.42bn, up from £2.14bn.

But most critically, the dividend is forecast to reach 45p per share by 2028 — a meaty 24% increase. Even if the price forecasts don’t materialise, the dividend income alone would make the shares worth considering.

So what are the risks?

Fundamentally, the company looks in decent shape, with modest earnings growth expected and steady growth in loans and customer deposits. However, there are a couple of clear issues.

The motor finance probe from the FCA means Investec’s sitting on a £30m provision for potential redress (and the final amount could be higher). Interest‑rate pressure is another concern, as easier monetary policy has already started to squeeze net interest income and could contain margins if rates stay low or fall further.

So the key risks for investors are uncertainty around the motor finance redress, credit losses if the economy weakens, and the impact of lower interest rates on profitability.

None of that puts the business in crisis but it’s worth keeping an eye on — in particular, how the FCA ultimately settles the motor finance matter.

My verdict

It’s impossible to say what’s ‘the best’ value and income play in any market, but Investec certainly looks appealing. Unfortunatley, the risks it faces are largely out of its hands. But how it deals with the eventual outcomes will make all the difference.

In my opinion, it’s one of the most promising bank stocks in the UK right now — especially for those looking to boost their portfolio’s average yield.

But it’s not the only strong income stock to consider in today’s market. With prices falling, I’ve noticed several other FTSE shares that look attractively undervalued.

For example, fellow challenger bank OSB Group offers a decent 6.6 yield and P/E ratio of just 6.7. Meanwhile, financial comparison site MONY Group sports an 8% yield with a forward P/E of just 8.3.

Whatever you ultimately decide, remember — diversification’s key to reducing risk during these volatile times.

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ISA benefits

Any of the growth stocks mentioned could be best bought via a Stocks and Shares ISA. The benefit of housing the portfolio here is that when dividends arrive or the stocks are sold, an investor doesn’t have to pay any tax. If we’re talking about growth stocks that have significantly increased in value, this tax saving could amount to a lot of money.

Please note that tax 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.

I know that we’re talking about past performance here when considering the last five years. However, these are stocks with clear momentum. It’s very plausible that the share price rally could continue in the coming years, banking further profits for active investors. However, past performance alone isn’t a guarantee of the future, and this should be noted.

Strong historical gains

The JP Morgan American Investment Trust is up 80% over the past five years. It focuses on buying and selling US stocks to try to outperform the S&P 500. The largest holdings currently include the likes of Nvidia, Alphabet, and Microsoft. I like the trust because it can provide easy exposure to the US market, diversifying a UK-heavy ISA. Further, given that most AI leaders and big tech companies are listed in America, I think growth in these sectors in the coming years should further lift trust.

Another share is JTC, a specialist outsourced services firm for finance companies. The stock is up 121% in the last five years, as regulations have become tighter, along with a boom in private equity companies. The business has been growing for several years with double-digit organic growth. I think this can continue as it scales internationally and cross-sells other services to existing clients.

A risk for both companies is a broader economic slowdown. This would likely reduce the American Investment Trust as tech stocks take a hit. For JTC, it could see clients cut back on the amount of business being outsourced, as cost-cutting starts to be felt.

Banking on it

Investec (LSE:INVP) is another good example, with the stock up 184% in the period mentioned. The firm has done well in recent years because it’s not just a regular ‘vanilla’ bank. The group has exposure to specialist banking, wealth management, and asset management, giving it multiple avenues for growth. The latest trading update for March showed core loans rose by 7.4% and deposits by 5.7%, both versus last year. These are good metrics to show higher customer demand.

I think it could keep doing well if higher-value advisory and wealth operations continue to expand. That said, one risk is growing competition in the wealth space. Other banks are realising this is an area of growth, so Investec’s market share could be eroded depending on how well it retains clients. Overall, I think all three stocks could be considered for future gains within an ISA.

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Take the following three dividend stocks. Each trades on a forward price-to-earnings (P/E) ratio of below 10 times. They also carry an enormous dividend yield above 5%. Here’s why I think they deserve serious consideration today.

Investec

Shares with low P/Es and sky-high yields are often signs of companies that are experiencing dividend problems (or are tipped to). This isn’t the case with investment bank Investec (LSE:INVP), which has a P/E of just 6.9 and carries a 7% dividend yield.

Like many UK stocks, Investec’s shareholder payouts dropped during the Covid-19 pandemic. Excluding this turbulent period, they’ve risen every year since 2010. Analyst predictions of another rise this financial year (to March 2027) look in good shape, with the expected dividend covered 2.1 times by anticipated earnings.

Investec’s share price might be blown off course if tough economic conditions hit profits. But that strong cover should at least mean dividends meet expectations.

Over the long term, I expect both earnings and dividends to rise strongly as the financial services market booms. Investec’s strong brand power puts it in an especially strong position to seize this opportunity.

Mears

Mears (LSE:MER) provides maintenance and repair services for thousands of homes across the UK. It straddles both public and private sectors, though it typically operates under long-term contracts with housing associations and local authorities.

Today it trades on a forward P/E ratio of eight, and its dividend yield is 5%. This year’s dividend is covered a healthy 2.5 by anticipated earnings. So what are the risks?

With a strong reliance on government contracts, profits are greatly influenced by policy changes that impact budgets. But on balance, I think its still a rock-solid stock to consider — after all, demand for quality residential property remains stable at all points of the economic cycle.

Looking longer term, I think it could deliver brilliant all-round returns as Britain’s booming population drives housing demand.

Custodian Property Income REIT

As its name implies, Custodian Property Income REIT (LSE:CREI) is designed to deliver passive income to shareholders. In this respect it isn’t alone — all real estate investment trusts (REITs) must pay at least 90% of rental profits out in dividends.

So what makes this particular one so special? Firstly, its 7.1% dividend yield for this financial year (to March 2027) is one of the sector’s highest. And its forward P/E ratio is a snip at 9.9.

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.

With interest rates falling and the UK in low-growth mode, Custodian could experience occupancy and rent collection issues going forward. But I’m confident it can sidestep such problems given its wide operational wingspan.

In total, it has 430 tenants across a variety of industries, meaning it enjoys stable income streams over time. And it has customers tied down on long contracts which further improves earnings visibility.

The post Seeking stock market bargains? 3 dividend stocks with 5%+ yields to consider appeared first on The Motley Fool UK.

An attractive business model

I’m talking about Gaming Realms (LSE:GMR). The current share price is 31p, but analysts have a positive outlook for the company. Based on the three analysts with a rating, all are forecasting strong gains in the coming year. Peel Hunt has the highest target price at 60p, with Investec the lowest at 56p. In theory, if the stock did reach 60p, it would almost double an investor’s money based on the current price.

Part of the reason for this outlook is the highly scalable, high-margin business model. Gaming Realms is a gaming content developer and licensor for other businesses. It creates games and then sells them on. This means that, once a game is built, each new partner adds recurring revenue at minimal extra cost.

This bodes well for the coming year because North America is now the largest market. The full-year results should be out shortly, but the latest annual accounts showed this geography accounted for 54% of content licensing revenue. I expect this has grown and will only increase further based on the fact that more US states are likely to legalise online gambling.

A dip to consider buying

Some will look at the 17% fall in the stock over the past year and be concerned. This is mostly down to new UK gambling stake limits, which have negatively impacted licensing revenue in this market. Back in September, half-year results showed overall revenue increased by 18%, but the UK market fell by 13%.

Of course, this remains a risk going forward, but I believe continued international expansion will help offset it. In fact, the UK could end up being a relatively small part of group revenue in the years to come. This is especially true if the planned push into Brazil and British Columbia goes well.

As a result, some may see now as a good opportunity to buy the stock at a low level. The price-to-earnings (P/E) ratio is 10.37. When I compare this to the average P/E ratio of the FTSE 100 at 18, it could be used to suggest the stock is undervalued.

As with any penny stock, caution is needed. Volatile share price movements make it hard to keep emotions under control. However, with a market cap of just £88m, Gaming Realms could rally significantly without becoming overvalued if its expansion abroad starts to yield financial results.

I won’t be buying the stock purely on ethical grounds, as I don’t want to hold companies associated with gambling. However, if investors don’t have the same concern, it could be a stock to consider.

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Fortunately, the UK stock market hosts a treasure trove of dividend-paying companies. From mega-cap multinationals on the FTSE 100 to up-and-coming domestic gems on the FTSE 250, we have a wealth of options to choose from.

Currently, one stock that’s been catching my eye is Investec (LSE: INVP), a British/South African investment bank headquartered in London.

An undervalued dividend machine

With a 6.1% dividend yield, Investec’s by no means the highest payer on the market. Still, it’s significantly higher than the FTSE average of around 3.5%. Plus, with only 50% of earnings being paid out as dividends, it has lots of room to grow. Payouts could also be considered highly reliable, with 2.77 times cash coverage and an uninterrupted 20-year track record.

Last year, the bank boosted its full-year dividend by 5.8% — the fifth year in a row that it’s been increased. Overall, that’s a very impressive set of figures for income-focused investors. But all that means nothing if the stock price is falling, so how stable is the business?

Assessing viability

When investing for passive income, it’s critical to assess whether a business can deliver in the long-term. If profits decline and debt takes precedent, a dividend cut could derail your entire strategy.

The balance sheet is the first place to look. With £7.7bn in debt against only £5.3bn in equity, some investors may be alarmed. In most cases, equity should outweigh debt, but this level isn’t unusual for an investment bank. However, its current ratio of 3.1 is concerning, as too much leverage amplifies earnings volatility and dividend risk during downturns. If interest rates fall, it could compress net interest margins and squeeze profitability.

Encouragingly, the share price is estimated at only 7.7 times forward earnings, suggesting the market may undervalue the company. A strong set of year-end results could ignite investor interest and spark a price rally.

Targeting £1k+

To bring in over £1,000 of passive income with a 6.1% yield, an investor would need at least £16,394 worth of shares. With the Investec share price currently hovering around 621p, that equates to about 2,640 shares.  

If an investor bought 50 shares a month for a total of £310.50, it would take less than four and half years to accumulate that many. But £1,000 a year is just the start. Savvy investors usually reinvest their dividends until retirement, thereby maximising the income potential.

Whatever your plan, careful assessment of a company’s financial situation is critical before making any decisions. While Investec is a promising stock to consider, it should be done so as part of a diversified portfolio targeting an average 6%-7% yield.

I’ve recently covered several similar income stocks that would suit such a strategy.

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Fortunately, the UK stock market is one of the best in the world for shares that pay regular dividends. With the average FTSE 100 yield upward of 3.5%, many find dividend investing returns are more than a basic savings account.

With an aggressively income-focused portfolio, an average yield of 6% (or more) is a realistic target. So a contribution of just £100 every month for 20 years could grow to around £60,000 (with dividends reinvested).

At that level, a 6% yield would pay out £3,600 a year in passive income (£300 a month). Not only would you have a £60,000 nest egg but you’d be getting back triple your initial contributions!

So why doesn’t everybody do this?

Well, unlike a savings account, the returns aren’t guaranteed and the value of shares can go up and down. A lack of market knowledge combined with a fear of loss is enough to scare most people off.

But in reality, it only takes a bit of research and some careful planning to reduce the risk of losses to a minimum. Historical evidence suggests market participants can achieve superior long-term returns to savings accounts — and often do. By example, the S&P 500 has delivered 12.1% annualised returns since 2015, vastly outpacing basic savings interest that typically ranges from 2%-4.5%.

Unfortunately, many investors make simple mistakes. Some dive into speculative stocks based on sensationalised news, others panic sell at the first sign of trouble.

Smart investors tend to follow a less emotionally-charged and more sombre strategy. My personal favourite is making regular contributions to a diversified portfolio of reliable — albeit boring — dividend shares.

How does an investor assess reliability?

Think of the oldest restaurant in your town — family-run, hasn’t changed in decades, consistently good food, and affordable prices. Boring? Maybe. Reliable? Yes. I’d invest in that restaurant — it’s got history, deep roots and a solid reputation.

There are many UK stocks that fit that criteria, for example Investec (LSE: INVP). The wealth manager’s 6.5% dividend yield’s significantly above the UK average and supported by solid fundamentals: 2.7 times cash coverage, a comfortable 46% payout ratio, and a decades-long track record.

Not only does this add reliability but suggests substantial room for dividend growth without straining finances. Dividends have already increased from 24p to 37p over five years — a 6.7% annualised growth rate.

Naturally, there’s a few risks. As an investment firm, its more exposed to market volatility and interest rate fluctuations — not to mention political instability in South Africa, one of its key operating regions.

The bottom line

Investec’s recent full-year results reveal an impressive 8% operating profit growth and a 13.9% return on equity (ROE), reflecting strong underlying business performance.​

But it’s just one of many reliable FTSE 100 dividend shares that are worth considering. For other reliable options, think about retail, utility or healthcare stocks with a long history of dividend payments.

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The Financial Conduct Authority (FCA) is investigating 30 million loan agreements to check if customers were unfairly charged. Analysts think compensation could total £9bn-£18bn — hefty, but still far short of the £40bn lenders shelled out during the payment protection insurance scandal. 

Lloyds’ management, led by CEO Charlie Nunn, reiterated that its provisions for motor finance claims aren’t likely to change, suggesting the potential hit to earnings may already be baked in.

Positive developments

Financing probe aside, the bank continues to post positive developments. It recently extended a strategic partnership with Broadcom, which should boost digital capabilities. 

Credit ratings agency S&P Global also upgraded Lloyds from BBB+ to A-, citing stronger earnings and a sturdier capital base. That should make borrowing cheaper and bolster confidence among institutional investors.

There’s one trade-off though.The soaring Lloyds share price has driven the dividend yield below 4% for the first time in years. For income seekers, that makes the stock a little less appealing. I still aim to keep Lloyds in my portfolio, but for dividends, I’ve been looking at other names.

A high-yielding alternative

One bank that’s caught my attention is Investec (LSE: INVP). At 6.35%, it currently offers the highest yield of any bank on the FTSE indices, comfortably covered with a payout ratio of just under 50%. With a market-cap of around £4.5bn, it’s even a candidate for FTSE 100 inclusion in the next reshuffle.

Investec has a strong track record, paying dividends for over two decades with five consecutive years of growth. Its balance sheet looks solid, profitability’s respectable, and although debt’s slightly higher than some rivals, that’s not unusual for an investment bank. 

On valuation, the stock trades at a price-to-book (P/B) ratio of 0.98, which suggests it’s fairly priced compared with assets on the balance sheet.

Income potential

I think Investec looks like an intriguing candidate for investors to consider, especially at a time when many larger banks have seen their yields compressed by rising share prices. 

Still, investors need to weigh up some risks. The bank’s full-year 2024 results showed that net income slipped due to wider credit loss impairment charges and several one-off costs tied to strategic actions. While revenues remain healthy, bad loans and non-performing assets could eat into profit if conditions deteriorate. 

The uncertainty lies in whether these charges are genuinely one-off or a sign of a trend that may repeat. If profit volatility persists, that could affect sentiment and dividend sustainability over time.

But for now, things are looking good – and it appears to be going from strength to strength. The share price may be lagging behind some bigger banks, but valuation and dividend-wise, it’s attractive.

For me, Lloyds remains the star performer of 2025. But in terms of passive income potential, I think it’s worth checking out smaller names like Investec.

The post The Lloyds share price continues to outperform rivals despite an ongoing finance probe appeared first on The Motley Fool UK.

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.

But as history shows, yields that look too good to be true often are. Dividends can be cut when profits fall, and some businesses struggle to sustain generous payouts over the long term.

That is why I always look deeper than the headline number. A company’s balance sheet strength is vital, as is its ability to generate consistent earnings. Equally important is the demand for its products and services. Without a healthy customer base and reliable cash flow, even the fattest dividend yield can prove short-lived.

With that in mind, two shares stand out this autumn as potential ISA candidates for investors seeking income to look at.

Investec

Investec (LSE: INVP) is a FTSE 250 specialist banking group and wealth manager with a £4.33bn market-cap. It has significant operations in both South Africa and the UK, and its size suggests it could soon re-enter the FTSE 100, having been demoted back in 2011.

The share price has climbed an impressive 277.8% over the past five years, showing that growth investors have been well rewarded. 

Meanwhile, income seekers may like the dividend, which currently sits just under 7%. The payout ratio of 49.7% suggests dividends are well covered, while the company has enjoyed five consecutive years of dividend growth. In fact, since 2010, dividends have grown at a compound annual rate of 5.6%.

One concern here is the debt-to-equity ratio of 1.4, which looks on the high side — though that’s not unusual for a bank. A more pressing risk is falling interest rates, which could dent profitability if lending margins shrink. 

Still, with steady growth and strong capital generation, I think Investec looks like a reliable income option this autumn.

Zigup

Commercial vehicle rental firm Zigup (LSE: ZIG) might not have the glamour of a global bank but its dividend yield is even juicier, at 8.5%. The company also provides accident management and repair services, operating across the UK, Ireland and Spain.

The balance sheet looks sturdy, with sufficient debt coverage and management has built a strong dividend track record. Investors have enjoyed 14 straight years of payments and five years of consecutive growth. Since 2015, dividends have grown at a compound annual rate of 6.2%. Between 2024 and 2025, underlying revenue rose 2.3%, leading to a matching increase in dividends.

On the downside, Zigup is a costly business to run. Return on equity (ROE) is just 7.5%, reflecting its thin margins. Free cash flow is currently negative, which is never ideal, and there are always logistical risks in managing a fleet of vehicles across multiple territories. If earnings slip, debt could quickly become a headache.

Long-term potential

Dividend yields above 7% always deserve a second look but caution is key. Investec and Zigup both offer tempting payouts and solid dividend histories, making them attractive candidates to consider for an ISA this autumn. 

While each carries its own risks, I think the long-term income potential looks strong enough for investors willing to ride out the occasional bump in the road to consider it.

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With low price-to-earnings (P/E) ratios and enormous dividend yields, here are three to think about that offer excellent value, in my opinion.

Investec

Investec‘s (LSE:INVP) the first of these low-cost shares I think deserve serious consideration. At 554.5p per share, it trades on a forward P/E ratio of 6.2 times. Its corresponding dividend yield’s 7.5%. Discover three cheap shares with high yields and long-term growth potential — including top picks from the FTSE 250 and small-cap markets.

Banks and asset managers like this have significant growth potential as demand for financial services grow. I also like this FTSE 250 company’s substantial exposure to South Africa as well as the UK — the former’s emerging market carries substantial growth potential as population sizes and wealth levels boom.

Finally, I’m impressed by Investec’s resilience despite tough market conditions. Sales jumped 7.8% in the last financial year (to March), breaching £1bn for the first time ever.

Be mindful though, that the company’s South African operations create risk as well as opportunity. More specifically, huge political uncertainty following last year’s general election could hamper future performance.

Card Factory

Investing in UK retail shares remains high risk in the near term as the economy splutters. Yet at 95.1p per share, I think this is reflected in Card Factory‘s (LSE:CARD) ultra-low P/E ratio of 5.9 times for this financial year.

On the one hand, the company operates in a highly mature industry, which may limit future earnings growth. But it’s rapidly expanding in international markets to give profits a shot in the arm. Last year, it entered the £70bn gifts and celebrations market in the US, with the $25m acquisition of Garven.

This week it also announced the £24m purchase of funkypigeon.com to boost its UK operations. With Card Factory on course to eliminate debt in the near future, more growth-boosting acquisitions could be coming, alongside share buybacks and more chunky dividends.

Speaking of which, the forward dividend yield here’s a hefty 6%.

STV

Commercial broadcaster STV (LSE:STVG) has struggled of late as poor economic conditions and higher interest rates have sapped advertising revenues. It cautioned this week that it had seen “a further deterioration in the commissioning and advertising markets towards the end of H1 and into H2“, indicating these risks remain in play.

It’s not surprising to see the company’s share price sink in the aftermath. But for long-term investors, I think this drop could represent an attractive dip-buying opportunity to think about.

STV’s quality Studios division’s likely to enjoy long-term growth as traditional broadcasters and global streaming companies scramble for content. By 2030, it’s planning for at least a quarter of production revenues to come from international markets as its expansion continues.

For me, STV’s one of the best cheap shares to consider in the small-cap space. It trades on a forward-looking earnings multiple of 5.2 times. The prospective dividend’s a market-beating 8.5% too, based on a current price of 135p per share.

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