Setting a course

I’m talking about Taylor Maritime (LSE:TMIP). It’s a dry bulk shipping company that earns money by owning and chartering out cargo vessels. It buys second-hand vessels at attractive prices and then leases them out on time charters at daily rates. This provides predictable cash flow for the business. In theory, it can also sell older vessels on, using the money to repay debt, finance new purchases, or flip for a capital gain.

On the dividend side, it typically pays out funds quarterly. These have been held at two cents per quarter for several years now, with occasional special dividends added on top. The current yield is 9.25%, considerably above the average yield for both the FTSE 100 and FTSE 250. As for the dividend cover, it sits at 2.0. This means the current earnings per share could cover the latest income amount twice over, which is a great sign.

Why now could be the right time

The stock is down 17% over the past year. In fact, back in April, it hit its lowest level in a decade. When a stock is falling, it’s usually prudent to wait until there are some signs that the share price is stabilising. Over the past eight weeks, it has managed to find a footing, with it actually rallying over this period.

Therefore, it could be that the recent decade lows and subsequent bounce are the perfect time for me to buy. This is from the perspective of hunting for income, as the dividend yield is impacted by the share price. Assuming the dividend per share stays the same, a drop in the share price boosts the dividend yield. So, this move lower has pushed the yield higher.

If the share price keeps increasing from here and the dividend per share grows, it’s unlikely the yield will be as attractive as it is now.

Proceeding with caution

Even though I think this looks like a great idea, there are still risks to be aware of. Rising trade tensions and protectionist stances (such as tariffs in China/US) have disrupted dry bulk trade flows, reducing demand. Also, the market values of second-hand vessels have fallen over the past year, reducing the net asset value of the business’s portfolio.

Both of these influences could continue for the rest of the year, putting pressure on the share price and potentially threatening the dividend. Yet despite this, I still like the overall outlook for the business. On that basis, I’m seriously thinking about adding it to my portfolio.

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A sector for the future

If an investor had £10k in savings and an existing diversified portfolio, one idea could be to put half in Renewables Infrastructure Group (LSE:TRIG) shares. The stock might be down 15% over the past year, but the dividend yield‘s at a very healthy 8.07%.

The trust owns a portfolio of renewable energy generation and supporting infrastructure. It also has a diversified portfolio both in terms of geography around the UK and Europe, but also in the split between wind, solar and other elements of renewables.

I like the stock for income as one of the key stated financial objectives of the firm is to deliver “long-term, resilient dividends”. Given the cash flow generation, it can afford to do this on a quarterly basis, which is attractive.

As a risk, the fall in the net asset value per share due to lower power price forecasts isn’t great. Should those power prices move lower into 2025, it could weigh on the share price.

High seas, high dividends

The other half of the £10k could be invested in the Taylor Maritime Investments (LSE:TMIP). As the name suggests, operations are linked to the water, with the business owning and operating a fleet of dry bulk ships. The dividend yield’s 8.56%, with the share price up 12% over the last year.

It makes money primarily by leasing out ships, which creates a solid source of income. It also can make money from the acquisition and disposal of assets. In other words, it aims to sell the ships for more than it paid for them.

What’s good here is that there will always be a need for ship charter and leasing, given the global nature of commerce. So I don’t see demand falling anytime soon. As a result, this should enable the dividends to keep flowing.

Of course, investors do need to be aware that each ship has considerable value, with a lot of cash tied up in each. So if the business runs into problems, it’s not that easy to quickly sell a large vessel.

Above-average potential

If both these stocks were bought today, the average yield would be 8.32%. So in theory, owning both could make £832 in income next year. This assumes the dividends will stay the same. It doesn’t factor in unrealised gains or losses from share price movements. But even with these risks, it’s a very attractive return on an investment for consideration.

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Based on some juicy dividend yields on offer right now, here’s how I could make some decent money.

Squeezing the lemon

The first element to this strategy is putting all of my attention and money to income generating shares. My ISA limit’s £20k a year. This isn’t free money given to me, rather it means I can invest up to £20k to still be able to enjoy the tax benefits associated with the ISA.

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.

I might not be able to afford to invest each month to finish the £20k, but for the purpose of this strategy I’m going to assume that I can. In order to maximise my potential, I want to pick the top dividend stocks each month. This list changes from month to month, which is why I’m not going to invest everything in one go. Being nimble allows me to jump on opportunities as they arise.

Any dividends I receive I’ll reinvest back into the stock market. This means I can benefit from compounding, helping my future income stream to build faster. Further, by using my ISA, I don’t have to pay dividend tax, meaning I get to keep more of the gross payment.

Targeting high yields

I feel I can buy shares with a high yield that are also sustainable in nature. A good example I might consider is Taylor Maritime Investments (LSE:TMIP). The investment trust has a dividend yield of 7.89%, with the share price increasing by 3% over the past year. I’m thinking about adding the stock to my portfolio.

The trust’s a specialist dry bulk shipping investment company. It owns a fleet of vessels which it aims to make money from both from capital appreciation but also from steady income. The income comes from the fact that the boats are usually employed on fixed period charters.

Such charters can be a reliable source of revenue. In the latest quarterly update, it noted that the average time charter equivalent was £11,141 a day. This was up 12% from the same quarter last year. The dividend cover’s currently around 2, meaning that the dividends are sustainable and not eating into earnings too much.

As a risk, these kind of vessels tend to depreciate over time. The firm aims to buy second-hand boats it believes are undervalued. However, this might not always be the case and is something I need to be aware of.

Looking at the numbers

If I was able to build a portfolio of stocks with an average yield of 7.5% and used up the £20k limit each year, my pot would quickly grow. After a decade, my portfolio could be worth £299,950. This means that in the following year, I could stand to bank £1,874 a month.

The post How I’d invest to turn my ISA into a £1.9k monthly passive income machine appeared first on The Motley Fool UK.

Using the ISA contribution limit is more important than ever this year for two reasons. First, from 6 April, the annual capital gains tax (CGT) exemption is slashed from £12,300 to £6,000, while the dividend tax allowance halves from £2,000 to £1,000. Yet if I invest in an ISA, all of my dividend income and capital growth will be free of tax for life.

A good time to buy shares

Second, after the recent sell-off, the FTSE 100 is full of solid blue-chip companies offering king-size yields. I’ve counted 11 paying income of 7% a year, or more. Even a best-buy Cash ISA pays 4%, at most. Plus with shares I may get capital growth when stock values rise.

Shares aren’t for everyone. My capital is at risk if a company’s stock plummets. I could lose all my stake in the unlikely event it goes bust. Company dividends are never guaranteed, and could be slashed if cash flows can’t be maintained.

But I’m aware of the risks and mitigate them by building a portfolio of a minimum 12-15 different income stocks. So if one or two struggle, others should, hopefully, compensate. Also, I plan to hold my stock picks for the long term, which means a minimum of 10 years. This helps me look past short-term share price volatility.

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.

Sadly, I don’t have £20,000 to invest in an ISA before 5 April, having loaded up on dividend stocks last October. If I did have a full allowance, and was building my second income portfolio from scratch, I would start by targeting high-yield stocks.

Shareholder payouts can rise over time

Asset manager M&G is currently the FTSE 100’s highest of all, yielding a staggering 10.93% a year. A double-digit yield can suggest a company in trouble, and often don’t last long. But management is committed to its current payout, and reckons it will generate enough cash to cover it. It’s a risk but given the rewards I think it’s one worth taking. 

I might balance that by investing in British American Tobacco, which yields 7.56%. While smoking has gone into decline, revenues are holding up and the yield looks reliable. I can get further diversification through mining giant Rio Tinto, which now yields 7.47%. Management recently cut its dividend, but I don’t expect another one in the immediate future (although we never know).

Investing in insurer Aviva, which yields 7.49%, and housebuilder Taylor Wimpey, which yields 7.97%, helps spread my risk by giving me exposure to five different sectors.

If I invested £4,000 in each, my £20,000 would generate an average yield of 8.28%. That would give me a second income of £1,656 a year. With luck, this would steadily rise as companies increase their dividends. By the time I retire, it will hopefully be worth a lot more.

The post How I’d invest £20k in an ISA to earn a second income of £1,650 a year appeared first on The Motley Fool UK.

When I am researching smaller businesses to buy for my portfolio, I try to concentrate on firms that exhibit a robust competitive advantage. These should be able to better compete in their respective markets.

To put it another way, they should be able to navigate the challenges of the business environment without having to ask shareholders for extra cash. And based on these qualities, two penny stocks are currently attracting my attention as undervalued growth companies. 

Recovery investment

The first company on my list is Hostelworld (LSE: HSW). This is a recovery investment. The business is a leading global online travel agent focused on the hostel market. But as investors might expect, the firm has been struggling over the past couple of years.

However, it is now returning to growth. According to its latest trading update, in October of last year, net booking values across its platforms exceeded 2019 levels. Unfortunately, the impact of the Omicron variant destabilised this recovery.

Nevertheless, last year’s numbers show that consumers are waiting to return, which could bode well for the enterprise in 2022. 

There are plenty of challenges on the horizon. The pandemic is not over just yet. New variants and disruptions could hit the company’s recovery. The cost of living crisis may also impact the demand for holidays, and Hostelworld will almost most certainly feel the impact of this. 

Still, with over €25m of cash on the balance sheet, the company has the resources to weather any uncertainty and capitalise on the global economic recovery. As the corporation looks to consolidate its position in the global hostel booking market, I think it has strong growth potential over the next 10 years. 

Penny stocks for income and growth

Taylor Maritime Investments (LSE: TMIP) is a somewhat unique offering in the world of penny stocks. It is a specialist dry bulk shipping company that owns a portfolio of 31 vessels contracted out to clients across the globe. 

These vessels transport bulk commodities such as iron ore. The shipping industry is one of the main arteries of the global economy and is currently experiencing a boom in demand as countries worldwide try to rebuild from the pandemic. 

This industry is highly cyclical. That is probably the biggest challenge this business faces. It is experiencing favourable tailwinds right now, but if shipping rates suddenly drop through the floor, the enterprise might have to take evasive action. 

Still, the corporation is generating a lot of cash in the meantime. That is why I would buy the shares for my portfolio of penny stocks. Management targets a 7% dividend yield on the company’s issue price of 100p. There is no guarantee it will hit this target, but with the stock trading below this level, it looks attractive as an income investment. 

The post 2 penny stocks I’d buy to hold until 2032 appeared first on The Motley Fool UK.

A top electric car stock

Booming electric vehicle sales opens up a world of opportunity for UK share investors like me. I’m thinking of doing this by acquiring shares in Zinnwald Lithium (LSE: ZINN). The commodity it’s aiming to pull out of the ground is required in huge amounts to drive battery-powered vehicles. Zinnwald is hoping to start producing lithium from its Central European project over a 30-year period from next year.

I also like Zinnwald because its eponymous lithium asset is, as it says itself, “in the heart of the European chemical and automotive industries” in Germany. This puts it on the doorstep of major industrial customers. Even though trouble developing the mine could hit profits projections I think Zinnwald still has enormous long-term investment potential.

Full steam ahead

It’s possible you haven’t heard of Taylor Maritime Investments Limited (LSE: TMIP). This penny stock only began trading in London last May. I’d buy it today because shipping rates are booming and there’s a good chance they’ll continue climbing for some time.

Taylor Maritime owns 32 Handymax and Supramax vessels which transport bulk commodities. And at the moment, the firm is thriving as the global economy recovers from Covid-19 and raw materials demand surges.

Charter rates are currently at their highest for a decade, Taylor Maritime says, and it has tipped “continued market strength for the coming two to three years” too. This is perhaps no surprise given that orders of Handysize vessels (which comprise the Handymax and Supramax categories) are at their lowest for many decades.

The shipper could of course hit choppy waters if the economic rebound runs into trouble. But as things stand today, I think the potential benefits of owning this penny stock far outweigh the risks.

Tough as steel

Strong commodity price inflation because of rocketing demand could threaten earnings at steelmaker Severfield (LSE: SFR). However, a strong outlook for the global construction market suggests this could still be a top penny stock for me to buy. Rebounding building rates following 2020’s Covid-19 shock drove Severfield’s European and UK order books to record highs as of September, most recent financials showed.

I like Severfield because the structural steel it manufactures is used to make buildings, bridges and other types of infrastructure across the globe. This gives it extra strength as it reduces its reliance on one or two sectors or geographies to drive profits. I am particularly encouraged by the firm’s exposure to India where rapid urbanisation will offer terrific revenues opportunities.

One final thing. At current prices below £1, Severfield trades on a forward price-to-earnings (P/E) ratio of 9.5 times. I think it could be a great growth stock that’s too cheap to miss.

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