Who thought NatWest Group would be the best performing UK blue-chip of 2024? The bank’s shares sprang into life around March and have been flying ever since. The NatWest share price is up 88% year-to-date but the total return is 101%, including reinvested dividends.

Second placed Rolls-Royce Holdings is also impressive. After a blockbuster 2023, when its shares rocketed 227%, I felt it had to run out of jet fuel. But it climbed another 90%, and with the dividend restored (albeit at a modest level) investors got a total return of 94%.

These blue-chips have smashed the market

There’s a real under-the-radar stock in third place: DS Smith (LSE: SMDS). Its shares are up 78%, with a total return of 84% once dividends are thrown in.

I last looked at the sustainable paper and packaging specialist on 21 November last year. Its shares had slumped by 25% over two years as the cost-of-living crisis hit e-commerce and therefore demand for its cardboard boxes.

With a price-to-earnings (P/E) ratio of 6.2 and a yield of 6.2%, I declared I would have bought DS Smith if I didn’t already hold sector rival Smurfit Kappa.

What I didn’t realise is that the DS Smith share price would spike thanks to the proposed merger with US heavyweight International Paper Company.

Susannah Streeter at Hargreaves Lansdown said a decent set of half-year results amid challenging conditions also helped: “DS Smith also made significantly higher cost-savings than investors expected, with further opportunity for efficiency gains.”

Streeter added: “Volumes are showing signs of recovery and merging with IPC will mean it can also make efficiencies by integrating plants and sharing technology.”

We can hardly expect DS Smith to repeat its blockbuster success in 2025. With a higher P/E of 16.45 times and lower 3.34% yield of 3.34%, I’ve missed my chance. So it goes.

My modest portfolio has still beaten the market

British Airways owner IAG is another one that got away. Its shares are up 81%, with the restored dividend lifting the total return to 83%. That’s the fourth-best showing on the FTSE 100.

Barclays is in fifth place. Its shares have risen 73% with a total return of 81%. Sadly, my sector pick was Lloyds Banking Group, which shot itself in the foot over the motor finance scandal.

Now let’s imagine a prescient investor had invested a £20,000 Stocks and Shares ISA in these five heroes right at the start of 2024, putting £4k in each. Today, they’d have a whopping £37,720. That’s a return of 88.6%!

That investor may not exist (or maybe they do). The chances of picking only winners every year are slim to zero. I don’t hold any of these five, sadly, but my portfolio is still up around 20% this year. That’s roughly double the return of a FTSE 100 tracker, and smashes the 4% or so I might have got on cash and bonds. It’s why I buy individual stocks. Now bring on 2025.

The post Here’s what an investor would have after buying 2024’s top 5 FTSE 100 stocks in a £20k ISA appeared first on The Motley Fool UK.

Starting from scratch

One of the first steps along any investment journey is to build a nice chunk of capital. Saving £5 a day translates to £1,825 a year, or around £152 a month. That means every two months, I’ll have just over £300 to put to work.

In most cases, it’s better to let capital accumulate in an interest-bearing savings account rather than investing small sums every day. Don’t forget buying and selling stocks isn’t free. So by investing infrequently for the long run, less wealth is lost to brokerage fees.

Crunching the numbers

On average, UK stocks tend to generate returns of around 8% a year – half of which comes from dividends. At least, that’s what the FTSE 100 has typically produced. So how much passive income can investors earn when investing £5 a day at this rate?

Compounding takes time to work its magic. But when left to run, investing even small sums can be financially transformative. Forty years is roughly the length of a professional career. So by starting early, even individuals with modest incomes can still potentially reach millionaire status by retirement. And best of all, this comes paired with a £42,450 passive income.

Aiming higher

As previously highlighted, the table above assumes a portfolio will, on average, generate a total return of 8% each year. Sadly, even with a FTSE 100 index fund, that’s not guaranteed. In fact, over the last decade, the UK’s flagship index has struggled to keep up with its historical performance.

But by selecting individual companies to buy, investors open the door to reap market-beating returns when executed sucessfully. That means more money at retirement and a larger passive income.

DS Smith‘s (LSE:SMDS) a prime example of this. Over the last 10 years, the share price has risen a respectable 76%. And when we include the impact of dividends, this return skyrockets to 162%. On an annualised basis, that’s the equivalent of 10.1%. And investing £5 a day at this rate for 40 years would build a nest egg worth just shy of £2m, generating £80,000 in passive income.

The success of this paper packaging company is largely thanks to management evolving DS Smith into a mission-critical enterprise. Online retailers, including Amazon, have become highly dependent on the firm for its ability to meet high-volume orders, something many of its competitors simply don’t have, manufacturing capacity-wise.

The firm’s still sensitive to inflationary input costs, especially energy and paper. With most of its demand coming from e-commerce, it also introduces dependency on consumer spending levels.

Nevertheless, DS Smith has an impressive track record of navigating such environments. Sadly, the business is currently in the middle of a takeover process. So investors will likely have to look elsewhere for market-beating returns.

The post How I’d build passive income starting with £5 a day appeared first on The Motley Fool UK.

However, two picks I want to cover in more detail today are DS Smith (LSE: SMDS) and Beazley (LSE: BEZ).

Here’s why I’d love to buy some shares in both picks when I next have some funds to invest.

DS Smith

International packaging firm DS Smith has been around for a long time, approximately 70 years in fact. I must admit packaging isn’t the most riveting business. However, I’m more interested in shareholder value, and DS Smith ticks this box nicely.

The shares have been on a good run recently. Over a 12-month period, they’re up 64% from 286p at this time last year, to current levels of 470p. In 2024, they’re up 53% from 306p, to current levels.

DS Smith has a fantastic track record of performance, including churning out earnings and profit growth for many years. Although I do understand past performance isn’t a guarantee of the future, I can see this trend continuing. The changing habits of shopping and the e-commerce boom has led to huge demand for packaging.

From a returns view, the shares offer a dividend yield of 3.8%, which sweetens the investment case. However, I do understand that dividends are never guaranteed.

Finally, the business continues to adapt to future trends and appeals to ESG investors through the use of its environmentally friendly packaging alternatives. This could help future-proof earnings.

Two issues I’ll keep an eye on are DS Smith’s valuation, as well as inflationary pressures. The shares trade on a price-to-earnings ratio of 17, so any dent in earnings could send the shares tumbling. Inflation is a worry as a rise in cost of raw materials could dent profitability and returns.

Beazley

Lloyds of London insurance firm Beazley deals in speciality insurance risk and reinsurance. Like DS Smith, it’s hardly exciting, but nevertheless the business looks like a solid investment to me.

The shares have also done well, up 40% over a 12-month period, from 537p at this time last year, to current levels of 754p. In 2024 to date, they’re up 44% from 522p, to current levels.

I can see why the shares have been on a great run this year, and excellent interim results revealed earlier this month helped the ascent. The main takeaways for me were that profit before tax increased by a whopping 99% compared to the same period last year. Furthermore, insurance written premiums, and earnings per share also grew impressively.

From a fundamentals view, the shares look excellent value for money on a price-to-earnings ratio of just over four. Plus, a dividend yield of 1.9% helps my investment case.

Looking at the bear case, insurance firms like Beazley are at the mercy of disasters or catastrophes. These can dent earnings, when payouts are needed. A prime example of such an event is last month’s IT outage which impacted millions. Although unavoidable, it is something for me to bear in mind.

The post 2 of the best performing FTSE 100 shares so far in 2024 look like no-brainer buys to me! appeared first on The Motley Fool UK.

Packaged up nicely

First up is DS Smith (LSE:SMDS). The international packaging company was first listed on the stock market back in the 1950s and has stood the test of time. It has chalked up year after year of profits, even during the pandemic.

A key factor in this is the nature of its operations. Packaging and recycling probably does fit in the boring category, but it certainly is a profitable enterprise to be a part of! Further, certain packaging types are a necessity for other businesses to support their products sold. So there has (and I believe always will be) a constant flow of orders.

Recently the firm has also been pushing harder on using sustainable, plastic-free packaging. This will make it appealing for ESG-focused investors. It also makes it future-proof, as I expect more focus to be on sustainable business in the coming years.

The stock is up 53% over the past year. Given the recent rally, it’s currently close to three-year highs. Some might see this as a risk, that it’s potentially a little overvalued right now. I get this, but as my ISA is the place to put long-term investments, I’m not overly concerned.

Admiring the Admiral

The second idea is Admiral Group (LSE:ADM). As a leader UK insurance firm, it provides everything from car cover to pet insurance. In the past year, the share price has rallied by 19%, higher than the FTSE 100 average.

I’m not sure any of us at school said that we wanted to have a career in insurance when we grew up. It’s true that the business isn’t that exciting. Yet in a similar way to DS Smith, the business model is proven to work. In charging for insurance premiums, Admiral is able to generate high levels of positive cash flow. This helps to keep the business out of any liquidity problems. The latest annual results showed it having a solvency ratio of 200%.

I also like the business for the long term due to the diversification of revenue. Sure, it’s still an insurance company. But different markets are uncorrelated, for example, motor insurance and animal cover. This means that it should be able to weather any storm in a particular division.

One concern I do have is the scope for high growth. The sector is mature. Although there’s room for Admiral to grow market share further, it’s never going to be able to offer me huge share price returns.

I like both ideas and am thinking about adding them to my portfolio when I get some free cash.

The post 2 boring but beautiful FTSE 100 stocks to add to my ISA appeared first on The Motley Fool UK.

Looking across the London market right now, there are quite a few shares offering what I see as attractive dividend yields.

Here are five, each yielding at least 5%, that I would be willing to buy if I had spare cash to invest in my Stocks and Shares ISA.

Financial services

Man Group is an investment manager that has had a good run of it over the past few years. Looking back over the past five years, for example, the Man Group share price has shot up 65%.

Despite that share price growth, the yield here is 5.2%. That is ahead of the average for the benchmark FTSE 250 index of which Man is a member. With $176bn of assets under management, I think the firm could continue to do well, although if we move back into recession, that could lead fundholders to withdraw money, hurting profitability.

Another financial services firm I would happily buy for my ISA is FTSE 100 asset manager M&G.

The yield here is much higher even than Man’s, at 9.6%. I notice that the company’s chairman spent his own money buying shares in M&G this week. Its strong brand name, client base stretching into the millions, and long asset management experience all go in its favour as far as I am concerned.

Less favourable is a similar risk to Man: rocky financial markets could see sales falling. Then again, perhaps the opposite will happen as buyers race to take advantage of recent booms in markets from AI shares to the Tokyo stock market.

Consumer products and services

No dividend is ever guaranteed, as shown by Vodafone’s plan to halve its payout per share. I hold it in my ISA already but do feel its debt pile continues to pose a risk to profits.

Even after such a cut, though, the FTSE 100 telecoms giant is set to yield 5.3%.

It has strong positions in markets across Europe, with a customer base in the hundreds of millions and exposure to the rapidly growing African mobile money market.

At 9.4%, the high yield offered by British American Tobacco (LSE: BATS) is compelling. The dividend has grown annually for decades though whether it survives the risk posed by declining cigarette sales only time will tell. The company’s strong brands and growing vaping business could be key.

Takeover target

My fifth pick would be a company that yields 5% — but might not for much longer. That is because papermaker and packaging specialist DS Smith (LSE: SMDS) looks set to be taken over by US giant International Paper, after the stateside firm edged London-listed Mondi out of the race.

For now, the yield is juicy enough to grab my attention. The underlying business looks strong to me, explaining why competitors have been battling to take it over.

The company announced this week that sales last year rose 14% and pre-tax profit soared 75%. The dividend jumped by a fifth.

If the takeover bid falls through, the DS Smith share price could fall. But a rising International Share price means it is more valuable than when it was first announced. Either way, DS Smith’s business looks attractive to me.

The post Five 5%+ yielders I’d buy for an ISA today! appeared first on The Motley Fool UK.

But despite a volatile time, we’re still looking at no real change over the past five years.

We see a modest valuation here, with dividend yields above 5% and growing. And forecast earnings growth could mean a forward price-to-earnings (P/E) ratio of 13 could turn out to be cheap.

Tough year

The firm makes packaging materials, using paper and card, including recycled materials. And we’ve had a year when inflation has kept people away from spending and from needing things to be delivered.

Things are very different now from the Covid days. Back then, soaring e-commerce demand pushed up a lot of stock prices of those involved. And a comedown had to have been inevitable.

Still, DS Smith, supplying the packaging rather than shipping the goods themselves, hasn’t suffered as badly as, say, Ocado.

Improving outlook

All in all, the 17% revenue fall reported for the year ended April 2024 doesn’t worry me. Nor does the 23% dip in adjusted earnings per share (EPS).

CEO Miles Roberts described it as “a robust performance, despite the challenging environment.“

He added that “positive trends in packaging volumes from the second half of last year have continued into the current financial year,” and he expects higher demand to lead to better pricing. Input costs should be higher too, though.

Debt

While I’m generally buoyed by all this, the company’s debt situation does concern me.

After a few one-off cash outflows, DS Smith saw net debt rise to £2,230m at 30 April. That’s 36% higher than the previous year’s £1,636m.

It means the net debt/EBITDA ratio has now climbed to 2.1 times, well up from 1.3 times the year before. And I don’t like that.

Dividends

But, it has been an unusually tough year. And the firm did pay £103m for the outstanding shares in Interstate Resources that it didn’t already hold.

I want to see that debt coming down in the next year, though. And I think I might hold off on any plans to buy the stock until I see how the current year is progressing.

The dividend still looks good, mind, held at the same 18p per share as last year. We heard that the board “considers the dividend to be an extremely important component of shareholder returns.” I should hope so, yes.

Cash cow

Investors appear to be looking for growth these days as confidence returns. It’s all about tech, and if there’s no AI involved then nobody seems to care that much.

DS Smith is nothing like that at all. It sells dull and boring products in a dull and boring market, used for dull and boring purposes. Refreshingly dull and boring, I should say.

That business has been bringing in bags of cash for years. And I’d rather have 5% dividends today than jam tomorrow.

The post These FY results could be just what we need for DS Smith share price growth appeared first on The Motley Fool UK.

No share can maintain this rate of growth forever, and there are signs of a slowdown. It’s still up 12.23% over the last month but nine FTSE 100 shares did better in that time. Two did notably well.

Paper and packaging firm DS Smith (LSE: SMDS) was the FTSE 100’s biggest winner, up a thumping 28%. The shares spiked after the board announced it had agreed to be bought by FTSE 100 rival Mondi for around 373p per share.

Paper tigers show their teeth

Now we have the prospect of a bidding war with DS Smith also in talks with New York-listed International Paper, which is offering around 415p. As I write this, the shares trade at 408.8p.

International Paper has until 23 April to firm up its intentions but I won’t do anything aside from watch with detached interest. Personally, I never buy on takeover speculation. All too often, it comes to nought, and the spike turns into a dip. Plus I already have exposure to the packaging sector via Smurfit Kappa Group.

The month’s second-best performer is Chile-based Antofagasta (LSE: ANTO), up 23.43%. This is no flash in the pan, as the copper miner’s share price is up 47.3% over one year, and 121% over five.

Antofagasta has benefitted from the rising copper price, which has jumped 7.9% in the last month on hopes of a Chinese recovery. In February, it reported solid 8% growth in 2023 revenue and underlying earnings to $6.3bn and $3.1bn respectively.

The risk is that the global economy slows as Middle East tensions spread and the rising oil price revives inflation. That would hit demand for copper. But my biggest concern is that Antofagasta now trades at 38.58 times trailing earnings. That’s too pricey for me.

A top stock but pricey

Rolls-Royce shares aren’t particularly cheap, either, trading at 30.47 times earnings. That’s hardly surprising, given how well they’ve done. I stupidly banked my 187% gain last summer, only to see the share price double since.

I remain optimistic as the good news keeps flowing. Last month, Rolls-Royce announced it would invest £55m to meet increased demand for its large civil aircraft engines. Sales are expected to climb 40% from 2025.

2023 was a brilliant year for the company. Underlying operating profit soared 144% to £1.6bn with free cash flow up 155% to a record £1.3bn. It expects profits to climb to between £1.7bn and £2bn in 2024, with free cash flow from £1.7bn to £1.9bn. The turnaround is stunning but I’m wary of buying Rolls-Royce today.

I’m concerned that early success will go to CEO Tufan Erginbilgic’s head. His aggressive drive to hike prices has scared off long-standing customer Thai Airways. A lot of excitement is baked in but investors will punish Rolls if it doesn’t deliver.

I’m still keen to restore Rolls-Royce to my portfolio though, and plan to buy on short term weakness. But I won’t bother with DS Smith and Antofagasta.

The post Up 28% in a month! How 2 UK stocks smashed Rolls-Royce’s share price growth appeared first on The Motley Fool UK.

The two agreed in principle to a £5.14bn all-share deal that could see Mondi absorb DS Smith into its operations. There is no definitive statement yet that the agreement is finalised but wording in reports suggest it’s all but a done deal.

In a joint statement, both firms said they see the merger as an “opportunity to create a pan-European industry leader in paper-based sustainable packaging solutions“.

Packing for the future

The packaging industry enjoyed elevated revenues during COVID due to surging e-commerce and online food orders. However, the recent return to normality has seen revenues decline.

Now, sustainability has become a core driving factor for growth, with many plastic producers looking to create paper alternatives. Soft drink giant Coca-Cola has been working with Mondi to replace some of its plastic packaging with a recyclable fibre-based alternative.

Looking at the wider packaging industry, it has a compound annual growth rate (CAGR) of 3.89%. Consequently, it’s expected to grow from $1.14trn to $1.38trn by 2029. With Mondi viewed as one of five major players in the industry, the merger should help it corner an even larger part of this market.

Putting pen to paper

Mondi has agreed to pay 373p per share of DS Smith – a 33% premium on the 7 March closing price. Mondi shareholders will subsequently own 54% of the merged group.

When (if) the deal finalises, current Mondi CEO Andrew King and Head of Finance Mike Powell will maintain their positions. Whether or not any of this is set in stone is unclear but, apparently, both sides are still evaluating aspects of the outcome.

Interestingly, DS Smith is the older of the two firms, having started life in the UK in 1940. Mondi, on the other hand, was originally a South African company that formed in 1967 out of Anglo-American. It was only listed on the London Stock Exchange as recently as 2007.

Testing integrity

On paper, the merger looks like a solid plan – particularly since both companies could do with a boost.

But will a combination of the two forces help save the day?

Both Mondi and DS Smith have seen share price declines since 2018. Minor price recoveries in 2021 were short-lived and losses have continued since. When news of the merger broke on 7 March, DS Smith jumped 3% while Mondi closed down 0.29%.

One risk factor is that DS Smith is packing £2.7bn of debt, which Mondi will have to take on. 

Sure, DS Smith has £4bn in equity to cover the debt, but it’s far less than Mondi’s £5bn to cover its £1.6bn debt. The combination would bring the merged group’s debt-to-equity (D/E) ratio to 48% – quite a bit more than Mondi’s current 31%.

Eating the competition can be a lucrative business strategy but you end up eating everything that comes with it too. In an uncertain economic environment, you want to make sure you’re eating healthy. 

Besides the debt, analyst forecasts for DS Smith’s annual revenue and earnings growth are low, at 0.8% and 1.1% respectively. 

With that in mind, I think Mondi will need to play its cards right if it hopes to turn this merger into a lucrative venture.

The post Mondi and DS Smith: can a merger save these 2 FTSE 100 packaging giants? appeared first on The Motley Fool UK.

Here is why.

Housing hero

A steady flow of positive price data suggests the worst may be over for the country’s housebuilders. For this reason, I’m considering snapping up more Taylor Wimpey (LSE:TW.) shares for my portfolio.

Just this week, Halifax said that average home values rose 0.4% month on month in February, to £291,699. This was the fifth consecutive rise, and reflects a steady improvement in mortgage costs since the end of last year.

A series of encouraging updates from across the building sector has echoed these improving conditions. Taylor Wimpey’s weekly net private sales rate per outlet was at 0.67 between 1 January and the end of February, it announced last week. This was up from 0.62 in the same 2023 period.

Cancellation rates also dropped 5% year on year, to 12%.

The UK housing market isn’t out of the woods just yet, however, and not just because of the struggling UK economy. Home loan rates are also edging higher again as swap rates have increased.

But the market’s continued improvement — allied with Taylor Wimpey’s 6.7% dividend yield — suggest now could be a good time to increase my stake in this highly cyclical share.

On the other hand, I already have decent exposure to the housing sector through additional holdings in Persimmon and Barratt Developments. I’ll carefully consider building my exposure in the coming days.

Another top FTSE stock

Packaging manufacturer DS Smith (LSE:SMDS) is another economically sensitive share I hold in my Stocks and Shares ISA. But positive news here in recent days suggests now could be a time to increase my stake.

Like-for-like corrugated box volumes for the firm’s November-February quarter matched the previous year’s levels, the business has just announced. This marked a healthy improvement from the prior six months when volumes dropped 4.7%.

I’m also attracted by the excellent all-round value of DS Smith’s shares. It trades on a rock-bottom price-to-earnings (P/E) ratio of 9.9 times, below the FTSE 100 average of 10.5 times.

As an added bonus, the business also offers significantly higher dividend yields than the Footsie and its major competitors. At 5.4% for this financial year, its yield sails above the FTSE 100’s 3.8%. It also beats International Paper‘s 5.1%; Mondi‘s 4%; WestRock‘s 2.6%; and finally Smurfit Kappa‘s 4%.

The packaging industry’s recovery could run out of steam if interest rates remain well above historical norms. But a solid long-term outlook suggests DS Smith shares are still an attractive investment.

Mordor Intelligence thinks the global packaging market will grow at an annualised rate of nearly 4% between now and 2029. And it is likely to continue expanding strongly beyond this point as the e-commerce and food retail segments steadily expand.

The post 2 high-dividend FTSE 100 shares I’m considering for my ISA in March appeared first on The Motley Fool UK.

And it has edged even higher on Wednesday (6 March) following an encouraging trading update. Yet at 322p per share the company still looks terrifically cheap, as I’ll delve into shortly.

Are DS Smith shares now too cheap to miss?

Improving Volumes

Positive news from the packaging sector in early 2024 has fuelled hopes that the market is back in recovery. And today DS Smith added to the sense of optimism by announcing that demand “continues to improve“.

It said that “North America and Eastern Europe saw good growth” in the quarter between November and February, although this was offset by “a weaker performance in Northern Europe“. As a consequence, like-for-like corrugated box volumes were flat year on year during the quarter.

This marks a healthy improvement from the first half of the year, and suggests that the impact of high inflation on consumers’ wallets may be beginning to ease. Like-for-like box volumes had dropped 4.7% during the first half of the year.

Corner turned?

As I mentioned, these comments add to speculation that the packaging sector may be turning a corner. Mondi announced last month that “we are seeing improvements in our order books and are implementing price increases across our range of paper grades.”

And Smurfit Kappa said it had witnessed “a progressive improvement in demand” over the course of 2024. Encouragingly for DS Smith, its FTSE 100 rival also announced a “strong acceleration [in] demand for sustainable packaging solutions“. This is an area in which DS Smith is heavily invested.

Excellent value

Today’s update suggests now could be a time for me to buy more of the shares for my portfolio. I’m certainly attracted to the brilliant value that it offers despite those recent price rises.

Right now the packager trades on a forward price-to-earnings (P/E) ratio of 7.2 times. This is well below the FTSE 100 average of 10.5 times.

But the company doesn’t just look ultra cheap compared with other UK blue-chips. It also looks like a bargain compared with major operators in its sector.

As the chart below shows, its multiple is far below that of US rival International Paper‘s 17.2 times. We can also see its P/E ratio is more modest than those of (in descending order) Mondi, WestRock, and Smurfit Kappa.

A top stock

It’s too early to say that these companies are out of the woods just yet. Consumer confidence remains fragile, while raw material costs are also higher than historical levels.

Yet at current prices I think DS Smith could be a top stock to buy. Its earnings could rise strongly from here as the e-commerce and food retail segments bounce back. It also stands to gain from soaring demand for sustainable goods. And its share price could rocket again if takeover talk ignites again.

I’ll look closely at adding to my existing holdings when I next have cash to invest.

The post Is DS Smith’s share price too cheap to ignore after a fresh trading update? appeared first on The Motley Fool UK.