Iran has closed the vital Strait of Hormuz to the US and its allies. That has wreaked havoc in global oil markets, as the passageway is responsible for about 20% of the global oil trade.

There’s no doubt this could hit the global economy hard if the deadlock persists. However, I think there is another hidden risk that is looming large in the shadows of the conflict.

What’s happening with oil prices?

The closure of the Strait of Hormuz has rattled markets. Governments around the world are scrambling to find a solution to unblock this arterial trade route that carries about 20% of the world’s oil supplies.

The impact on oil prices has been immediate and large. As I write on 17 March, Brent crude is trading at over $100 a barrel. That’s a fair cry from the pre-conflict price of $66 a barrel just one month ago.

A hidden danger?

Oil isn’t the only important commodity that could be impacted by the conflict. More than 30% of the world’s nitrogen fertiliser exports and components like sulphur ordinarily pass through the Strait.

The knock-on effects from the closure to global economies could be massive. Hormuz is responsible for around 45% of global sulphur exports, while neighbouring Qatar accounts for nearly one-third of global helium output.

A protracted conflict could seriously impact fertiliser availability. In turn, that could impact food production and food prices. The economic and humanitarian impacts of such a situation could be enormous.

Sulphur is vital for fertilisers, chemicals, and chipmaking, while helium matters for medical imaging, semiconductors, and aerospace. In other words, the conflict isn’t just about oil.

Large-scale supply chain disruption could squeeze earnings across multiple sectors at once. That sort of scenario could feasibly create the risk of a stock market crash in 2026. 

One fertiliser stock to watch

One stock I am keeping an eye on here is Wynnstay Group (LSE: WYN).

That’s because this AIM-listed company with an £86m market cap could give investors more direct exposure to the fertiliser industry than many other UK shares.

The company is by no means a global commodities giant. However, it is a well-established agricultural supplies business with a dedicated Fertiliser & Seed division and its own fertiliser blending operations.

Its latest results suggest it is in decent shape. It reported revenue of £583.4m, adjusted profit before tax of £9.2m, and net cash of £25.7m, while also extending its long record of dividend growth.

There are still big risks. The company is small, and the impact of the conflict on the company’s fortunes is not immediately clear.

If costs rise too far, for example, farmers could cut or delay spending and actually hurt the company’s earnings.

My verdict

While markets are worried, none of this means a stock market crash is inevitable.

As always, it helps to take a long-term view. Investors who are fixated on just oil prices may be missing the bigger commodity picture and supply chain story here.

If the war rages on, I think other areas like fertiliser, sulphur, and helium could present some real opportunities for investors.

The post Why I’m worried about this hidden risk causing a stock market crash appeared first on The Motley Fool UK.

Companies that generate most or all of their profits from these shores could find it especially difficult in the short-to-medium term. Analysts at Bloomberg Economics are predicting a 52% chance of a recession due to higher-than-normal interest rates and rising unemployment.

Yet I believe now is still a good time to buy UK shares for dividends. There are many rock-solid stocks out there that should still pay a good second income in the current climate. Here are two on my radar right now.

Empiric Student Property

Purchasing residential property providers is a good idea in tough times. This is because having a roof over one’s head is one of life’s non-negotiables.

It’s why I think Empiric Student Property (LSE:ESP) is a great buy right now. Studies show that university participation doesn’t fall when economic conditions worsen. So this real estate investment trust (or REIT) is expected by City analysts to deliver strong earnings growth over the next few years.

Empiric is on a roll right now. It announced last week that like-for-like rental income leapt 10.5% for the 2023/24 academic year, a result the company said “is largely the result of a higher level of late cancellation and rebooking activity“. Revenue occupancy, meanwhile, came in at a forecast-beating 99%.

Given the industry’s weak development pipeline, the huge accommodation supply problems that are helping to deliver these strong numbers look set to persist.

Pleasingly for income investors, Empiric hiked its dividend forecasts for the full financial year on the back of its strong recent performance. It now intends to pay a 3.5p per share reward, up from a previously designated 3.25p, which would represent a 27% year-on-year improvement.

REITS are required to pay 90% of annual rental profits out in the form of dividends. So I expect Empiric to be a solid income provider for years to come. I’d buy it even though higher interest rates could persist, keeping its net asset values (NAVs) under pressure.

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.

Wynnstay Group

Agricultural products supplier Wynnstay Group (LSE:WYN) is another UK share with above-average dividend yields that I’m considering buying. Its yield for 2023 sits at a market-beating 4.4%.

Food is one industry in which demand remains constant at all points of the economic cycle. And so this Alternative Investment Market (or AIM) company is expected to keep hiking dividends in spite of the tough macroeconomic outlook.

Wynnstay supplies animal feeds, seed, and fertiliser, and operates a grain marketing service. Revenues here rose 22% between January to June, to £409.1m, even as fertiliser prices receded from levels recorded in the aftermath of the Ukraine war.

The company has completed more than 50 acquisitions to boost its position in its highly fragmented industry and grow profits. Acquisition-related activity can be risky business, but Wynnstay has a great track record on this front. I think it could also be a great buy for long-term dividend growth.

The post 2 passive income stocks I’d buy for 2024 as the UK economy sinks! appeared first on The Motley Fool UK.

With £3,000 to invest, I’d spread the money between three of my top UK shares. And I’d diversify by size with one large-cap, one mid-cap and one small-cap. On top of that, I’d diversify by sector.

My large-cap pick

My pick from the big league is the smoking products maker British American Tobacco (LSE: BATS). The company has a market capitalisation of around £79bn and resides in the FTSE 100 index. 

The business deals in traditional smoking products and new-generation offerings aimed at reducing harmful health effects. And on 9 June, it delivered an upbeat trading statement. And that’s despite being in the process of withdrawing part of its operations from Russia because of the Ukraine war.

Chief executive Jack Bowles pointed to “strong” revenue and volume growth in all three of the firm’s new categories. But traditional smoking products continue to generate much of the firm’s incoming cash flow.

The company has an impressive multi-year record of growing its shareholder dividend. And it’s also buying back some of its own shares. However, it’s possible regulatory changes in the sector could lead to lower dividends in the future.

But with the share price near 3,564p the forward-looking dividend yield is forecast to be around 6.8% for 2023. I see that as attractive, although it’s always possible for any company to miss its estimates.

My mid-cap

My mid-range pick is international banking, investment and wealth management services provider Investec(LSE: INVP). The company has a market capitalisation of around £4.45bn and I can find it in the FTSE 250 index.

The business operates mainly in South Africa and the UK serving private clients with a range of products and services. 

In May, the company delivered a robust set of full-year results. And chief executive Fani Titi said the company is well-positioned to serve its “carefully chosen” client base. And that’s despite the uncertain outlook due to ongoing inflationary pressures and the war in Ukraine.

I reckon uncertainty is what I get with all businesses. And shares have the potential to disappoint as well as to delight me. However, I’m keen on Investec’s chunky dividend and analysts’ estimates of decent growth in earnings ahead. Although estimates are never guaranteed figures.

With the share price near 462p, the forward-looking dividend yield is around 5.7% for the trading year to March 2023. And that tempts me.

And a promising small-cap

For my small-cap company, I’ve chosen Wynnstay (LSE: WYN), the UK-based manufacturer and supplier of agricultural products. It has a market capitalisation of around £128m and is in the FTSE AIM All-Share index.

In May, the company issued a strong trading update. And the directors said they expect full-year pre-tax profits to exceed previous expectations. That’s because the business benefits from higher fertiliser commodities prices. And, again, the effects of the war in Ukraine plus the disruption of supplies from Russia are combining to keep prices elevated. But that could reverse in the future.

Meanwhile, with the share price near 642p, the forward-looking dividend yield is near 2.6% for the trading year to October 2023. That’s not the highest yield of these companies. But I like Wynnstay’s long record of steady annual and rising dividend payments. The compound annual growth rate of the dividend is running at about 5.25%.

The post With £3,000 to invest, here are the top UK shares I’d buy now appeared first on The Motley Fool UK.

Jersey Electric

As its name suggests, market minnow Jersey Electric (LSE: JEL) supplies electricity to approximately 50,000 domestic and commercial customers on the island. Importantly, it’s the only company to do so, making it arguably as defensive as small-cap stocks come. 

As a result of this, Jersey has shown itself to be an extremely consistent dividend raiser (+5% every year).  A total payout of 17.3p per share is expected in FY21. That’s a 2.9% yield; not massive but easily covered by profit.

As one might expect from a solid income payer, however, JEL’s share price performance has been adequate rather than explosive. The stock is up 44% in value since 2016. That’s clearly a whole lot less than other UK shares. So, a danger with JEL is that I wouldn’t get much in the way of capital growth. A valuation of 16 times earnings for a predictable utility stock isn’t exactly cheap either. 

Still, that predictability might suit me down to the ground if income were a priority. If/when markets correct, I can be pretty confident that JEL will recover quickly. That’s exactly what happened last year. 

NWF 

Small-cap NWF Group (LSE: NWF) describes itself as a “specialist distributor of fuel, food and feed across the UK“. Like Jersey Electric, it’s also a brilliantly regular dividend hiker. This potentially makes it another one of the best shares to buy at this end of the market spectrum.

The company is down to return 7.34p per share to holders in FY22, at least according to analysts. That’s a yield of 3.43% at last Friday’s closing price. Some might say that’s not enough given that shares in minnows can be pretty volatile due to their illiquid nature. Margins are also wafer-thin.

In NWF’s defence, its annual payouts are usually very well covered by profits, making them pretty secure. That’s more than you can say for some far larger stocks these days. On top of this, NWT’s shares aren’t expensive relative to the wider market. I could pick some up today for 12 times forecast earnings. 

Wynnstay

Agricultural product manufacturer Wynnstay (LSE: WYN) has shown itself to be admirably predictable when it comes to returning cash to its owners. We’re talking about an average hike of +5%, with the total sum always covered by profits.

A potential 15.2p per share in FY21 would give a yield of 2.7%. That’s the lowest of those mentioned here. However, it’s important to consider the impact of many years of compounding that regular dividends enable.

There are drawbacks, of course. Margins, like those at NWF, are seriously low. And, although performing superbly over the last year (+64%), WYN’s shares are now only back to the level they were in 2016. Like most things in life (and investing), I think balance is key. I would never fill an income-focused portfolio solely with small-cap stocks.

So, while Wynnstay might make a nice addition, I’d aim to reduce volatility by also holding some larger dividend hikers as well. 

The post Small-cap income: 3 of the best shares to buy for rising dividends appeared first on The Motley Fool UK.

A micro-cap stock to watch

One such stock I’ve been considering adding to my portfolio is agricultural supplies company Wynnstay Group (LSE:WYN).

Year-to-date the Wynnstay share price has risen 41%. It’s a small company with a market cap of £96m. The pandemic caused challenges for the business, and Brexit didn’t help matters either. But in the group’s final results for the year ended 31 October 2020, it showed signs of resilience.

Full-year revenue fell 31% year-on-year, partly due to reduced volume in grain trading and other commodities. That’s a high amount, but with the pandemic and Brexit to contend with, it’s not really a surprise.

Despite this, underlying pre-tax profit rose 4% thanks to strong feed sales at the end of the year. But earnings per share fell 10%. Net cash and assets both increased, and the company raised the dividend by 4.3% to 14.6p for the year.

Today the company has a price-to-earnings ratio (P/E) of 17 and dividend yield of 3%.

Positive sentiment building

Wynnstay believes the UK Agriculture Bill presents “significant opportunities”, as farmers are now incentivised for efficiency and environment initiatives. The bill provides a framework to replace outdated legislation and should help support farmers by paying them to produce public goods.

In 2017, the Wynnstay share price reached a high of 650p. If it can return to those levels, it has considerable growth potential ahead. However, climate change is impacting crop success and industrial farming is coming under fire. Technology is making advances into improving farming to reduce its carbon footprint.

Wynnstay has an advisory team to help farmers increase efficiency and productivity. Part of its strategy is following trends in product development, R&D and ultimately enhancing customer performance.

Growing through acquisitions

The Mid-Wales firm is expanding its horizons. It’s just completed the acquisition of two companies to complement its existing set-up. These purchases include the agricultural division of the Armstrong Richardson Group, and the fertiliser manufacturing business and assets of HELM Great Britain.

The Wynnstay share price is currently experiencing a pull-back, so is this a good time to buy? The long-term agricultural outlook does concern me, but we all have to eat and some areas of the world, such as China, are aggressively importing agricultural products to keep up with rising demand. This micro-cap has already enjoyed a nice share price run since the turn of the year, and I think the vaccine rollout gives further encouragement. A P/E of 17 is getting on the high side for a small company, but it’s growing through acquisitions and has a strong presence in the UK farming community. I think Wynnstay is a micro-cap stock to watch, and I’m tempted to buy some of its shares. 

The post Share price pull-back: an agricultural micro-cap stock to watch appeared first on The Motley Fool UK.

Today I’m going to take a look at three of these companies. I think they could be the perfect stocks to own for investors looking to protect their portfolios from another market decline. 

UK shares to own

Small-cap Wynnstay (LSE: WYN) might fly under the radar of many investors, but the company has performed well this year. The business provides farmers with agricultural products and helps organisations manage logistical problems. 

Demand for both of these services remained high throughout the coronavirus lockdown. This helped the company weather the stock market crash. I think it is highly likely that the demand for Wynnstay’s services will continue to grow in the long term. 

At the UK’s population grows, demand for food will continue to increase, and the country is under increasing pressure to produce more food at home. As one of the only publicly listed farm supply companies, Wynnstay could be one of the best UK shares to play this trend. 

Stock market crash bargain

Shares in power group Drax (LSE: DRX) slumped in the stock market crash.

However, the company provides a critical service for the UK. It’s one of the largest power plant operators in the country. Even at the height of the coronavirus lockdown, consumers were still using electricity. Thanks to this steady demand, the firm’s earnings are expected to decline by just 3% in 2020. 

Still, despite this bright outlook, the stock looks cheap compared to other UK shares. It is currently changing hands at a price-to-earnings (P/E) ratio of 9.5. On top of this, it supports a dividend yield of 6%. 

As such, due to the group’s income potential and defensive nature, I think it could be worth buying the stock as part of a diversified portfolio today while its trades at a low level.

Ferrexpo

Ferrexpo (LSE: FXPO) is one of the world’s largest iron ore producers. Shares in the company performed relatively well in this year’s stock market crash thanks in part to the group’s international diversification. 

In my opinion, this diversification should help the business stage a strong recovery in the years ahead. Countries around the world are planning to spend hundreds of billions of dollars over the next few years to stimulate their economy after the coronavirus pandemic. This could send the demand for iron ore skyrocketing, as infrastructure spending takes centre stage. 

Ferrexpo could be one of the best UK shares to play this trend. As of yet, the market does not seem to have cottoned on to the company’s potential.

It is changing hands at a forward P/E multiple of just five. Investors may also be entitled to a 6% dividend yield, according to current analyst projections. 

All in all, as a stock market crash bargain, I think it is worth taking a closer look at Ferrexpo. 

The post 3 UK shares I’d buy to prepare for the next stock market crash appeared first on The Motley Fool UK.

The only problem with this strategy is that the coronavirus pandemic has forced many companies to withdraw their cash payouts. Many, but not all. Today, I’m going to look at two minnows that continue to offer very tempting dividends and also trade on low valuations. 

Cash ISA beater

I doubt many private investors are familiar with Wynnstay (LSE: WYN). Let me bring those of you up to speed. This firm manufactures and supplies agricultural products, such as animal feeds, fertiliser, and seeds. It also operates rural outlets, serving farmers and pet owners.

Rather conveniently, the £55m-cap also reported to the market last week. At £229.3m, revenue was 12% lower in the six months to the end of April, compared to the same period last year, as a result of commodity price deflation.

Nevertheless, adjusted operating profit rose 8% to £4.78m, with reported pre-tax profit up 4% to £4.3m. This was deemed a “resilient” performance by management in light of “exceptionally challenging market conditions.“

According to CEO Gareth Davies: “Wynnstay’s broad spread of agricultural activities is a significant strength, acting as a natural hedge against sector variations.” Even so, the company believes the rest of the year is likely to be tough going, due to the pandemic and Brexit-linked uncertainty. No real surprise there.

Now, what about those dividends? The confirmed interim payout of 4.6p per share might be the same as last year. But the fact the company is willing to pay up in this market environment, gives me confidence. Analysts are forecasting a total return of 14.2p per share in FY20, giving a stonking yield of almost 5.3%.

It’s also worth highlighting that Wynnstay trades on just 9 times earnings. While this may reflect ongoing threats and wafer-thin margins, I’d feel more comfortable taking a risk here than accepting the chicken feed offered by a Cash ISA.

Another dividend delight

Actuarial, consulting, and administration business XPS Pensions Group (LSE: XPS) may not quicken the pulse, but it’s another great small-cap dividend pick, in my view.

Like Wynnstay, it announced numbers to the market last week. Through a combination of new client wins and a boost from acquisitions, total revenue rose 9% to just under £120m in the year to the end of March. Pre-tax profit came in flat at £11.1m.  

I suspect XPS has just what a lot of investors want right now. Thanks to the essential nature of its work, earnings visibility is high. Moreover, the company suspects the pandemic is likely to increase demand for additional services over the short term.

That said, XPS has also said it could lose some earnings momentum. That’s if discretionary projects are deferred by trustees and new business opportunities continue to slow. A similarly mixed outlook then.

And the dividends? A total payout of 6.6p may be the same as the previous year, but this still gives a very satisfying trailing yield of 5.6%. I’d expect something similar in FY21.

Again, the shares aren’t expensive. XPS trades on just 11 times forecast earnings. 

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Improving performance

Reporting on Monday was technical fluid power products distributor, Flowtech Fluidpower (LSE: FLO). The company reported a rise in revenue during the first half of the current year of 24.7%. This was driven by the continued momentum experienced across all of its business divisions, as well as the positive contribution from acquisitions.

The Flowtechnology division increased revenues by 6.8%. It recorded strong organic growth in difficult trading conditions. It also benefitted from the performance of Indequip, which was acquired in February 2016. The company’s Power Motion Control division increased revenues by 53.7%, with recent acquisitions and organic growth combining effectively.

Looking ahead, the company is on target to meet expectations for the full year. It also announced today the acquisition of Orange County Limited, which is an exclusive UK supplier and distributor of storage equipment. This could contribute positively to the company’s future performance, while other acquisitions look set to form part of the firm’s pipeline.

With Flowtech Fluidpower forecast to record a rise in earnings of 29% in the current year, it seems to offer upside potential. This is enhanced by a price-to-earnings growth (PEG) ratio of just 0.4, which suggests that now could be the right time to buy a slice of the business for the long term.

Return to growth

Also offering the prospect of share price growth is Wynnstay (LSE: WYN). The supplier of products and services to the agricultural sector has experienced a couple of challenging years, with its bottom line forecast to decline in the current year by 3%. This could lead to a rather disappointing performance from its share price in the short run after its 0% return since the start of the year.

However, looking ahead to next year the company is due to return to high levels of growth. Its earnings are forecast to increase by 10% next year, which puts its shares on a PEG ratio of 1.8. Beyond 2018, more growth could be on the cards as the company’s strategy may continue to bear fruit.

In addition, Wynnstay could become a more enticing income share over the medium term. Its dividends are currently covered 2.3 times by profit, which suggests they could increase at a faster pace than profit and leave the company in a strong financial position. Therefore, while the stock may only yield 2.3% right now, its yield may increase in future and become more enticing to a wide range of investors as inflation moves higher.

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