Well, the answer really depends on the type of shares held and the yield they provide. The dividend yield is simply the annual dividend per share expressed as a percentage of the share price. For instance, if a portfolio averages a 4% yield, an investor would need around £1.25m inside an ISA to hit that £50,000 target. But with a higher-yielding portfolio averaging closer to 6%, the required sum falls to about £830,000.

It shouldn’t be too daunting

At first glance, needing hundreds of thousands of pounds — or even more than £1m — inside an ISA might sound daunting. But the power of compounding shows that it’s more achievable than it first appears.

For example, an investor who contributes £500 each month and achieves an average annual return of 8% could end up with around £1m after 33.5 years. That’s without any lump-sum starting point. It’s just about steady investing and letting the returns roll up tax-free inside an ISA.

The process is simple. Setting up a Stocks and Shares ISA can be done in minutes through all major UK brokers. Contributions can be automated, ensuring consistency. From there, the key is to build a diversified portfolio, avoiding over concentration. The tax benefits mean dividends and capital gains can be reinvested without the drag of HMRC taking a cut.

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.

Of course, it’s not guaranteed. Stock markets don’t move in straight lines, and 8% annualised returns aren’t promised. Inflation, market crashes, and poor stock selection can all reduce outcomes. But with patience, discipline, and a long-term mindset, the ISA remains one of the best vehicles to build life-changing wealth.

Investing consistently

My preference is to invest in one or two stocks a month. Some months I’m investing less because the market looks hot. Some months I’m investing more because there appears to be more opportunity.

One company that I believe is worth considering is UK-listed minnow Synectics (LSE:SNX). The stock has enjoyed a strong run over the past year, yet the shares still look attractively priced.

The AIM-listed surveillance specialist trades on just 12.2 times forecast earnings for 2025, falling to under 10 by 2027, while analysts see dividend yields rising to 3.3%. A net cash balance of £12.1m against a £53m market-cap underscores its financial strength.

The latest half-year results showed 35% revenue growth and a 59% jump in adjusted EPS, driven by contracts with West Midlands Police, Stagecoach, and overseas clients. Expansion into new markets such as the Philippines and UAE highlights its global ambitions.

Investors should look at the spread between the buy and sell price as well as the apparent reliance on a handful of larger contracts. However, with strong momentum, a pristine balance sheet and undemanding valuation, Synectics is worth considering.

The post How much do you need in a Stocks & Shares ISA to target a £50,000 passive income? appeared first on The Motley Fool UK.

Melrose Industries

Let’s start with Melrose Industries (LSE:MRO). The FTSE 100 stock is up around 25% since I bought in around four months ago and such is my conviction, it’s my top holding right now. The company currently trades on a forward price-to-earnings (P/E) ratio of 15.2 — not particularly high for a business guiding for annual earnings growth of over 20% through to 2029. What’s more, it’s starting to deliver. Adjusted diluted earnings per share rose 30% to 15.1p in H1, driven by strong demand in aerospace, particularly via its GKN Aerospace business.

On a price-to-earnings-to-growth (PEG) basis — P/E adjusted for growth — Melrose looks even more appealing. The PEG ratio stands at just 0.75, making it materially cheaper than peers such as Rolls-Royce and GE, both of which trade on PEGs above 2 and P/E ratios closer to 40.

Melrose benefits from high barriers to entry in aerospace, with long-term contracts and sole-supplier status on 70% of sales. That’s a genuine moat.

However, it’s not risk-free. Net debt stood at £1.4bn at the end of H1 2025. While modest relative to cash flow, it remains something I’m monitoring, particularly if interest rates stay higher for longer or sector demand softens. Melrose has also been vulnerable to supply chain disruptions and cyclical swings in aerospace.

Synectics

Next up is Synectics (LSE:SNX). It’s a small-cap AIM-listed provider of surveillance and security systems and it’s new to my watchlist. Analyst forecasts suggest the stock trades on a forward P/E of 12.2 this year, dropping to 10.7 in 2026 and just 9.5 by 2027.

At the same time, expected dividend yields are forecast to rise from 2.3% to 3.3%, and net cash is projected to grow — although current net cash (£12.1m) is already near the 2027 forecast. That’s substantial for a company with a market cap of just over £50m.

Recent interim results (H1) highlighted accelerating momentum. Revenue rose 35% year on year to £35.5m, underlying operating profit increased 48%, and adjusted EPS surged 59%. Contract wins with West Midlands Police and a major Southeast Asian resort, along with geographic expansion into the Philippines, UAE, and North America, drove the business forward.

There are risks though. Synectics relies on large project-based contracts, which introduces lumpiness and concentration risk. Economic slowdowns could delay spending in key markets like transport and infrastructure. What’s more, interested investors should be wary of the gap between the buying and selling price on their brokerage.

Even so, Synectics’ combination of rising earnings, strong balance sheet, and under-the-radar status means it’s definitely worth considering. For those willing to take a closer look, it may well be one of the cheapest quality stocks in the FTSE universe today.

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A SIPP opened at birth and topped up consistently could, in theory, accumulate a fortune over time. Using HMRC’s maximum child SIPP contribution of £3,600 a year (including tax relief), the numbers stack up compellingly if invested wisely from day one.

Assuming an average annual return of 10% — reflective of US market returns over the past decade — the balance grows modestly at first. By age 10, the pot might stand around £68,000. But the compounding effect gathers pace. By 25, it could top £450,000. By 40, it may pass £2m.

Keep going, and at age 65 — without increasing contributions beyond inflation — the balance could exceed £27m. The secret? Time, tax relief, and long-term exposure to growth assets like equities. This calculation also includes a 1% increase in annual contributions each year to account for potentially larger contributions in the future.

Of course, future returns aren’t guaranteed, and inflation would eat into purchasing power. UK investors may also earn more modest returns with UK-focused investments and poor investment decisions can see us lose money. But even under more conservative assumptions, a child’s SIPP could become a meaningful financial asset later in life.

Parents, grandparents, or guardians funding early SIPP contributions could give a child an extraordinary head start. And it’s not just financial, but contributes to an understanding the value of investing early and often. This calculation also involves the child going on to make contributions themselves as they start working. It requires a long-term commitment.

It’s not the flashiest strategy. It doesn’t have to involve hefty bets on tech disrupters or shorting overvalued stocks. It’s simply about starting early and letting compound returns do the heavy lifting.

Where to invest?

Anyone opening a SIPP for a child or loved one has several options when it comes to investing. A simple, hands-off approach might involve low-cost index-tracking funds or investment trusts. These offer instant diversification and a long-term growth orientation, making them ideal for compounding over decades.

Alternatively, more active investors might prefer to build a portfolio one or two stocks at a time. One company I’m watching closely right now is Synectics (LSE:SNX). It’s an AIM-listed specialist in advanced security and surveillance systems.

At just over £53m in market-cap, Synectics trades on just 12.2 times forward earnings, falling to 9.5 times by 2027. Adjusting for its net cash position of £12.1m, that gives a price-to-earnings-to-growth (PEG) ratio of 0.72. This implies the shares could be significantly undervalued based on growth forecasts.

Recent interim results showed revenue up 35%, operating profit up 48%, and earnings per share up 59%. Its growing order book, international expansion, and debt-free balance sheet are all really positive feature.

Of course, as a small-cap, it carries more risks. This including contract concentration and macroeconomic sensitivity as well as a large spread between buying and selling prices. But for long-term investors, Synectics might be worth a closer look. I’ve added it to my watchlist.

The post The simple way to try and build a £27m SIPP appeared first on The Motley Fool UK.

However, this just means we need to look harder for undervalued stocks. With that in mind, here are two small-cap stocks that don’t appear undervalued.

Synectics: solid growth, attractive value

Synectics (LSE:SNX) delivered a 35% rise in first-half revenue to £35.5m and a 59% jump in adjusted earnings per share (EPS) to 16.4p. And despite the stock surging over the past 12 months, it’s now trading at just 12.2 times forward earnings.

That multiple falls to 9.5 times by 2027, reflecting continued earnings growth expectations. At the same time, net cash is already £12.1m — a substantial figure for a company with a £52m market-cap. Forecasts for net cash suggest it will hit £12.4m by 2027, although I’d expect it to hit that figure quite soon.

Meanwhile, the dividend yield’s set to climb steadily from 2.3% to 3.3%, reinforcing shareholder value. Contracts with West Midlands Police, a Southeast Asian gaming resort, and Stagecoach, alongside new market entries in the Philippines and UAE, support its expansion story.

A net cash-adjusted price-to-earnings-to-growth (PEG) calculation also supports my bullishness. It’s trading at 12.2 times forward earnings, and analysts expected CAGR earnings growth of 13% (from 16.4p in 2025 to an estimated 22.4p in 2027). Adjusting for net cash (23% of market-cap), the PEG ratio’s roughly 0.72. That’s a clear sign of undervaluation and we haven’t even accounted for the dividends.

However, risks include contract concentration and exposure to cyclical public infrastructure spending. Despite this, with a clean balance sheet and strong valuation picture, it’s a stock I believe is worth considering. I am.

Tracsis: cash rich and expanding earnings

After a difficult 2024, Tracsis (LSE:TRCS) appears to be back on track. Forecasts suggest a return to growth, with earnings per share expected to recover from 1.6p in 2024 to 11.2p in 2027. At the same time, the enterprise value-to-EBITDA is forecast to fall from 6.97 times in 2025 to just 4.93 times by 2027. For a software-driven transport optimisation business with critical infrastructure exposure, this could be an undervaluation.

The company has net cash of £22.9m forecast for 2025, rising to £39.5m by 2027. That’s over a third of its £109m market-cap. Revenue’s expected to grow modestly, while EBITDA margins are holding firm. Dividends are modest, but growing.

The net cash-adjusted PEG’s also attractive. The forward P/E is 42 times, and CAGR EPS is 60% (from 1.6p to 11.2p). Net cash is 21% of the market cap, and this gives us a PEG ratio of 0.55 times. That’s typically very good for software.

Risks remain, especially around earnings volatility and dependence on UK infrastructure spending. However, I believe there’s a lot to like. It’s worth thinking about and it’s on my list.

The post The stock market may be overheating, but these shares don’t look overvalued appeared first on The Motley Fool UK.

Undemanding valuation

Analyst forecasts peg Synectics at 12.2 times forward earnings this year, dropping to 10.7 times in 2026 and further to 9.5 times in 2027. This shows meaningful earnings expansion throughout the medium term.

Meanwhile, expected dividend yields rise from 2.3% this year to 3.3% by 2027, and net cash is projected to swell from £8.2m to £12.4m in the same period — although its worth noting that H1 2025 net cash is already above the former figure. That’s a very significant net cash position for a company with a market-cap just over £52m.

Synectics recently provided some very positive interim figures for the six months ended 31 May to underscore its strategic momentum. Perhaps most impressive of all was the 35% increase in revenue.

These figures were driven by significant contracts — such as with West Midlands Police, a gaming resort in SE Asia, and Stagecoach — while expansions into the Philippines and strategic hires in UAE and North America signal international ambitions.

Bulls vs bears

What I like:

1. Financial flexibility: With net cash more than doubling year-on-year and no debt, Synectics is well-positioned for organic or acquisitive growth.
2. Growth across sectors: Gaining traction across leisure, public space, critical infrastructure, and transport testify to diversified demand.

What concerns me:

1. Reliance on large contracts: Large contracts represent a significant proportion of total contracts. This is a potential concentration risk if major contracts don’t recur.
2. Macroeconomic sensitivity: Synectics serves some clients in the leisure and public infrastructure sectors. This can be cyclically exposed. Economic slowdowns or reduced spending could dent order flow.
3. Small-cap dynamics: As a smaller AIM-listed specialist, liquidity is limited and stock prices may swing sharply on sentiment shifts or headline-driven flows. The difference between the buy and sell price can also be significant.

The bottom line

Synectics has an exciting mix of operational momentum, an undemanding valuations, and shareholder returns. Analysts’ projections point to earnings expansion, a rising dividend yield, and growing cash reserves. If this were to happen, I’d expect to see shares push upwards.

For cautious investors, the company’s progress and perfect balance sheet may warrant a spot on a watchlist, especially if diversification in contracts and geography continues. However, reliance on major account deliveries and exposure to economic cycles are risks to monitor closely.

Personally, I’m going to be keeping a close eye on this stock. It doesn’t receive much attention from analysts or market commentators, and it may be going under the radar. I think it’s worth considering.

The post An undervalued stock with operating momentum… tell me more! appeared first on The Motley Fool UK.

The beauty of this approach is that if you’re willing to do your own research, you have a real chance of uncovering some genuine bargains. Today I’m going to look at two profitable small-cap stocks to see if either deserves a buy rating.

Watching the profits

With a market cap of about £35m, AIM-listed Synectics (LSE: SNX) is too small for most funds. This 30 year-old firm specialises in advanced surveillance and security systems. Key customers include oil and gas companies, casinos, transport operators and public authorities.

Today’s full-year results show that revenue fell by £0.8m to £70.1m during the year to 30 November. However, despite flat sales, adjusted pre-tax profit rose by 15% to £3m. Underlying earnings rose by 22% to 15.2p per share.

Stronger cash generation helped to lift the group’s net cash balance from £2.2m to £3.8m at the end of the year, enabling the board to raise the final dividend by 50% to 3p per share. This gives a total payout of 4p per share for the year, equivalent to a yield of about 2.1% at current levels.

Should we be betting excited?

Synectics business is quite lumpy, depending on periodic big orders. These can boost earnings in one year and depress them in the next.

According to management, gaming profits are likely to slow this year, while those from transport could rise. Oil and gas is expected to remain depressed for another year. Overall, the board expects profits to be broadly flat in 2018.

The share price has fallen by 10% today on this downbeat outlook. This has left the stock trading on a forecast P/E of about 13, with a prospective yield of about 3%. In my view this looks like a decent company, but I would prefer to wait for a sharper sell-off before considering an investment.

Faster growth elsewhere?

If you’re looking for a stock with a stronger track record of growth, one alternative might be CML Microsystems (LSE: CML). This Essex-based semiconductor firm produces two main lines of products, solid state storage and radio frequency communications chips.

Both product lines cater for growth sectors of the market, which helps to protect profit margins. Spending on research and development is consistently high, supporting future growth.

A strong recovery

After hitting some stumbling blocks in 2014/15, CML has returned strongly to sales growth. Sales rose from £22.8m to £27.7m last year and are expected to climb by around 15% during the current year.

The picture is less clear when it comes to profit growth. Analysts’ consensus forecasts for the current year suggest earnings of about 23p per share, broadly in line with 2016/17. This puts the stock on a forecast P/E of 23, with a prospective yield of 1.6%.

In my opinion, this could be an attractive growth stock with good long-term potential. CML’s balance sheet is strong and the group’s 15% operating margin is attractive.

On the other hand, I think the current valuation is quite demanding when compared to earnings growth. This is a stock I’d be more tempted to buy during a market correction.

The post Two small-cap dividend-growth stocks I’m watching closely appeared first on The Motley Fool UK.

The security and surveillance specialist advised that revenues rose 5% higher during December-May, to £33.7m, a result that powered pre-tax profit to £1.3m from £0.2m a year earlier. This prompted the company to affirm its expectations for the full year ending November 2017.

Synectics advised that it has clocked up new orders worth £41.8m in the first half, up from £38.4m in the corresponding period last year. And this powered the company’s order book to £33.7m, up 28% from the end of fiscal 2016.

This stellar performance has encouraged the AIM business to shell out a 1p per share interim dividend, the first midway payment for four years.

A pretty picture

And Synectics has painted a promising picture looking ahead, commenting that “the market for high-end electronic security and surveillance worldwide is fundamentally strong and likely to remain so.”

While the company cited current economic and political uncertainty as a reason for caution, it added that “the state of Synectics’ current contracts and order book give us confidence that the Group’s prospects for the remainder of this financial year and beyond are good.”

The City expects it to keep making tracks and expects earnings at the Warwickshire business to rev higher in the coming years — rises of 10% and 33% are pencilled in for this year and next.

I reckon a subsequent forward P/E ratio of 16.2 times is decent value given Synectics’ ample growth opportunities as the emphasis on surveillance grows. And the AIM play also offers plenty of reward to dividend chasers, at least if broker projections are to be believed.

A 4p per share payout is forecast for fiscal 2017, up from 2p last year and yielding 1.8%. And the yield leaps to 2.6% for next year thanks to predictions of a 6p dividend.

Food favourite

Greencore (LSE: GNC) is another stock expected to remain a hit for growth hunters.

Sure, earnings expansion is expected to slow to a trickle in the current fiscal year ending September 2017. But the bottom line is anticipated to crank back into life from next year thanks to a bright outlook in its UK and US marketplaces, helped by recent acquisitions and the massive investment it has made in its manufacturing and distribution capabilities. An 11% profits rise is currently anticipated for 2018.

This results in a very attractive prospective P/E multiple of 13.3 times. And the food manufacturer also provides plenty of potential for income chasers.

Greencore’s dividend of 5.47p per share last year is expected to leap to 5.9p in fiscal 2017, resulting in a 2.5% yield. And a further dividend hike is predicted for next year, an estimated 6.4p reward driving the yield to 2.8%.

I reckon Greencore could prove a very lucrative share selection in the years ahead.

The post 2 stocks for growth and dividend investors to consider appeared first on The Motley Fool UK.

Improving outlook

The recent half-year results from Colefax (LSE: CFX) showed that the company is experiencing challenging trading conditions. The international designer and distributor of furnishing fabrics and wallpapers recorded a decline in its earnings which is expected to lead to a fall in its bottom line of 39% in the current year. Much of this is due to the challenging trading conditions experienced in its core US market, while the hedging of the US dollar proved to be a disappointing decision.

However, an investment in the business via significant one-off capex this year should provide a boost to the company’s performance. Its new US showrooms and new Decorating Division premises in London may also positively catalyse its financial performance. As such, the company is expected to record a rise in its earnings of 20% in the next financial year. This is due to be followed by further growth of 12% the year after.

With Colefax trading on a price-to-earnings growth (PEG) ratio of 1.5, it seems to offer a sufficiently wide margin of safety to merit investment. Although its shares could remain volatile and its earnings outlook may deteriorate depending on its operating environment, the risk/reward ratio on offer appears to be favourable.

Solid growth

The recent results from advanced surveillance technology solutions provider Synectics (LSE: SNX) showed that its strategy appears to be working well. It was able to increase revenue by 4% and underlying profit by over 80% in the most recent financial year. Much of this was due to the actions it has taken to improve its business model and invest for the future. It now has a strong position in a variety of sectors and seems to be well-positioned to deliver high growth in future.

Looking ahead, Synectics is forecast to record a rise in its bottom line of 10% this year and 33% next year. This puts it on a PEG ratio of just 0.3, which indicates that it offers high growth at a reasonable price. As well as this growth potential, the company is also expected to yield 2.6% next year from a dividend which is due to be covered three times by profit. This suggests a rapidly-rising dividend could be on the horizon, which further enhances the attraction of the company’s shares.

Certainly, neither Synectics nor Colefax are risk-free. Both stocks are relatively small and could experience disappointments over the medium term. However, with wide margins of safety, they may be worthy of a closer look.

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