So with tariff policies being pulled back and investor sentiment steadily improving, could the index and its constituents bounce back this month? Here’s what the latest forecasts are predicting.

Dow Jones’ outlook

Tariff-driven trade disruptions are bad for most businesses. But they’re especially problematic for a number of prominent Dow constituents such as Boeing, Caterpillar, and General Motors. With all three businesses reliant on global supply chains, higher import costs translate into higher production costs that eat into margins. Even if the added expenses can be passed onto customers, higher prices likely mean lower volumes.

This higher pricing/margin pressure issue also exists among consumer goods companies like Procter & Gamble as well as Coca-Cola. And overall, an estimated two-thirds of the companies in the index have or will be impacted by trade tariffs. With that in mind, it’s not so surprising to see the index sell off so aggressively.

Sadly, the worst might not be over. The 90-day pause on higher global US tariffs comes to an end in July. And assuming the elevated rates go back into play, The Economy Forecast Agency has predicted the Dow Jones could fall to around 35,160 points.

If this forecast proves to be correct, it suggests a further 12.6% decline is on the horizon, with no rebound likely to emerge this month.

An opportunity for long-term investors?

While this outlook’s certainly bleak, it’s important to remember that forecasts aren’t set in stone. More favourable pullbacks in trade policies this month could continue to improve investor sentiment. And even if the worst comes to pass, high-quality businesses will eventually adapt to the new environment.

Regardless, there are a few Dow Jones stocks that are far more insulated against international trade policies. Take McDonald’s Corp (NYSE:MCD) as an example. Its network of franchise restaurants sources ingredients locally. And while a slowdown in consumer spending could hurt hamburger sales, the bulk of profits actually comes from franchise rents and royalties.

Of course, there are still key risks to consider. The scrutiny surrounding processed foods and their role in creating obesity could drive customers away in the long run while damaging the firm’s brand perception. At the same time, its reliance on a franchise model could backfire if it’s unable to maintain a healthy relationship with franchisees (a problem Domino’s Pizza Group recently had to overcome).

Nevertheless, for investors, while seeking refuge from the market turbulence, McDonald’s might be worth mulling. And while 2025 might continue to be a rough year for the Dow, in the long run, I remain optimistic for this US stock index.

The post After a bumpy April, could the Dow Jones rebound in May? appeared first on The Motley Fool UK.

Given the current market uncertainty, defensive growth stocks with broad-reaching international diversification may offer more stability. In particular, it may be worth looking for stocks with limited exposure to physical goods trade with the US.

Two major US-listed companies that stand out to me as worth considering are Microsoft (NASDAQ: MSFT) and McDonald’s (NYSE: MCD). Both have proven track records of weathering macroeconomic turbulence and offer compelling long-term potential.

Microsoft

Most tech shares aren’t doing well at the moment, particularly those linked to the semiconductor market. However, as a global technology leader, Microsoft benefits from multiple revenue streams that are largely insulated from direct trade tariffs.

Yet the price is down 14% this year so clearly it isn’t entirely immune to the issue. And even with that drop, it still has quite a high price-to-earnings (P/E) ratio of 29. There’s a risk it might struggle to make significant gains in the short term, at least until economic conditions improve.

But its cloud computing arm, Azure, continues to grow rapidly, while Office365 and Windows maintain high customer retention rates. For the fiscal year 2024, it posted a 16% increase in revenue to $245.1bn, with operating income rising 24% to $109.4bn.

McDonald’s

Arguably the world’s most popular fast-food chain, McDonald’s operates over 40,000 restaurants across more than 100 countries, generating around two-thirds of its revenue from outside the US. This broad geographic exposure helps mitigate the impact of trade policy, including potential tariffs on imported goods.

Of course, for such an international business, a key risk is currency fluctuations. US tariff policies are causing volatility in foreign markets, which can lead to unexpected exchange losses for the fast food chain. Labour shortages and wage inflation are other risk factors that may arise from new US policies.

Still, the company exhibits strong defensive qualities. Despite the recent challenging economic conditions, it managed to achieve full-year sales growth of more than £1bn in 2024. Its franchised business model also offers strong margins and predictable cash flow.

Consistent dividend growth is another strong sign. It recently increased them for the 48th consecutive year, revealing an unwavering commitment to shareholder returns. Although a yield of 2.36% might seem small compared to the UK average, it’s almost double the S&P 500 average.

Safe havens

While broader US markets may remain volatile amid trade policy uncertainty, some businesses have the scale, brand strength and pricing power to deliver steady performance. Microsoft and McDonald’s are worth considering as they each present unique advantages for adding defensiveness to a portfolio.

Their global reach, recurring revenue models and limited sensitivity to tariffs position them as potential safe havens in today’s rocky trade landscape. As always, a well-balancing portfolio of stocks is essential when aiming for stable, long-term growth.

The post 2 defensive US growth stocks to consider even as the S&P 500 slides appeared first on The Motley Fool UK.

I can see the reasons for being wary of US stocks at the moment. But I think there are opportunities on both sides of the Atlantic right now.

US vs UK

According to Goldman, the S&P 500 will return around 3% a year over the next 10 years. If that’s correct, investors who own the index will probably be disappointed a decade from now.

JP Morgan analysts also have a underwhelming view, expecting 5.7% a year. That’s a better result, but it’s still below the average FTSE 100 return over the last decade.

That might make it tempting to avoid the S&P 500 right now. But while I wouldn’t buy the index, I think staying away from US stocks entirely would be a mistake. 

Over the last 10 years, the S&P 500 has handily outperformed the FTSE 100. Despite this, there have been some UK stocks that have delivered better returns than the US index. 

Experian‘s a good example (and it’s just one among several). After a 314% gain, investors who bought the stock in 2014 have done better than they would have by investing in the US index.

This shows that even in an underperforming index, there can be individual stocks that generate great returns. And that’s why I think avoiding US stocks entirely could be a missed opportunity.

Which stocks should I buy?

With a 10-year time horizon, I’m looking for shares that are out of fashion at the moment, but where the underlying business is resilient. McDonald’s (NYSE:MCD) is a good example.

The McDonald’s share price fell sharply on Wednesday (23 October) on news of an outbreak of E. Coli linked to its products. I think this looks like a buying opportunity though. 

Unlike other restaurants, the company makes money by leasing its properties to franchisees. That gives it a source of income that doesn’t come from selling food. 

This means McDonald’s can keep its prices down without destroying its profits in ways that competitors can’t. And I think this is going to be a big advantage over the next decade.

One potential risk with the business is debt. This has been growing and while earnings have also been increasing, the company’s net-debt-to-EBITDA ratio is higher than it was 10 years ago.

McDonald’s Total Debt & Net Debt to EBITDA 2014-24

Created at TradingView

The ratio’s started to improve, but this is still something to keep a close eye on. I expect McDonald’s to do well over the next decade, but I see debt as the biggest risk to that thesis.

Investment opportunities

The S&P 500 might be set for a difficult decade. But that doesn’t convince me to stay away from US stocks entirely, just as an underperforming FTSE 100 doesn’t stop me buying UK shares. 

In both cases, I think there are potential rewards on offer for investors who are willing to consider individual stocks. And that’s true on both sides of the Atlantic.

The post With analysts pessimistic on the S&P 500, is the FTSE 100 a better choice? appeared first on The Motley Fool UK.

In terms of returns, there’s more to the stock than just the dividend. And the company’s competitive position might well make it resilient going forward.

Business model

McDonald’s has built its reputation on quick service and bargain prices. And despite its recent results, I think offering better value than the competition has a durable appeal with customers.

Investors need to approach such businesses with caution though. Unless the company has a genuine advantage when it comes to costs, lower sales prices just mean lower profits. 

Yet McDonald’s does have such an advantage. Instead of renting its venues, it buys them outright and leases them to the operators that run them. 

This both reduces the company’s lease costs and gives it a source of income that isn’t about food sales. As a result, it can charge lower prices than competitors while maintaining strong margins.

Shareholder returns

Right now, McDonald’s shares come with a 2.3% dividend yield. That’s not much to get excited about, but there are a couple of things investors should take note of.

The first is the dividend is growing. The company has increased the amount it distributes to shareholders from $3.2bn to $4.7bn over the last 10 years. 

The second is the firm has been buying back its own stock at an average rate of almost 3% per year. As a result, there are now fewer shares claiming a part of that growing dividend pot.

This means investors might expect McDonald’s to return around 5.3% of the current market cap in cash, with this increasing over time. That’s not at all bad from a business as good as this. 

What’s the catch?

McDonald’s reported its first sales decline since the pandemic earlier this year. However, given the company’s cost advantage, I’m not actually all that worried about this.

Maybe that’s a mistake, but it’s not the biggest reason that stops me buying the stock at the moment. The main issue is tax. 

Since McDonald’s is a US business, UK investors like me are eligible for a withholding tax on the dividends it pays. That’s a 30% tax, which comes down to 15% with a W-8BEN form.

That might not sound like much, but it brings the dividend yield below 2% and the overall return below 5%. And that’s enough to put me off buying the stock at the moment.

Valuation

I’d love to own shares in McDonald’s and it wouldn’t take much to bring the price to a level where I’d be comfortable buying. Right now though, I think the share price is just too high.

That makes the stock just too risky for me at the moment. But I’ll be watching the business carefully, especially when it reports earnings later this month.

The post 1 stock I’d love to buy for growth, dividends, and share buybacks appeared first on The Motley Fool UK.

After a turbulent month in the stock market, two stand out to me. Both are big firms I think have excellent long-term prospects, but some recent issues are making them unusually cheap.

Diageo

Diageo (LSE:DGE) shares took a big drop after the firm reported earnings, but I’m not entirely sure why. Sales fell 1% and profits fell 5%, but this is largely in line with what I was expecting. 

The company reported revenue declines in Latin America and the Caribbean, Africa, and the US. But to my mind, these highlighted existing risks with the stock, rather than revealing new ones.

The big issue in Latin America and the Caribbean has been consumers trading down as spending power deteriorates. But this has been well-documented, causing the stock to fall since November.

In Africa, the main issue was a decline in the Nigerian naira relative to other currencies. But that shouldn’t be a surprise either – Airtel Africa shareholders could have seen this one coming.

Similarly, Goldman Sachs indicated earlier in the month that data from US wholesalers indicated Diageo’s products were faltering there. And the latest report largely confirms this. 

As a result, the report didn’t give me any fresh causes for concern about Diageo shares. And since I thought the stock was good value before, I’m looking to keep buying it here. 

McDonald’s

McDonald’s (NYSE:MCD) also reported some disappointing-looking results earlier this week. But the stock market liked the look of things and pushed the stock up 5%. 

I think the market’s right on this one. Global sales fell 1% and earnings per share were down around 11%, but I see this as a short-term blip for a company in a strong long-term position.

In terms of what’s causing the decline, GLP-1 drugs and consumers trading up are both reasons I’ve heard suggested. Both of these are risks, but I don’t think either of is the reason sales are down.

A core part of the company’s customer base is teenagers, especially in the US. According to the Piper Sandler Teen Survey, US youngsters have less spending power than they did a year ago.

As far as I can tell, there’s no evidence this demographic is changing to healthier products and I don’t think they’re all on anti-obesity medication. They just have less disposable cash available.

It therefore looks to me as though McDonald’s still has its dominant market position intact. That’s why I’m looking to buy the stock while it’s down 12% since the start of the year.

Opportunistic investing

It’s rare to find shares like Diageo and McDonald’s trading at bargain prices. The reason is investors generally know these are companies with durable competitive advantages. 

I think both stocks look like opportunities at the moment. That’s why I’m looking to add both to my portfolio in August.

The post My top 2 shares to buy in August appeared first on The Motley Fool UK.

After a 16% decline this year, the McDonald’s (NYSE:MCD) share price is near a 52-week low. I think the company’s shares now offer the same exceptional value as its burgers.

A durable business

McDonald’s offers its customers great value. And that resonates with consumers in pretty much any economic environment. 

In general, the biggest threat with this type of business is inflation. Whether it’s energy, staff, or raw materials, higher costs make it difficult to maintain low prices for consumers.

This is a genuine challenge for McDonald’s and a risk with the stock. But the company has some advantages over its competitors when it comes to dealing with the threat of inflation.

Unlike other restaurant franchises, the company owns its properties outright and leases them to tenants. This gives it a revenue stream that doesn’t depend on food sales. 

As a result, McDonald’s can hold down food prices as costs rise in ways its rivals can’t. This is a big advantage and a key reason the business has proved durable.

Outlook

Stock market wisdom says that what teenagers are buying today is a good indication of what will be popular 10 or 20 years from now. If that’s right, things look good for McDonald’s.

According to data from Piper Sandler, the company is the second-most popular food outlet for US teenagers. That’s a very positive sign looking forward – and it’s not the only one.

McDonald’s operating margin 2014-24

Created at TradingView

Over the last decade, McDonald’s has improved its operating margins and reduced its share count. This has been a powerful combination for growing earnings per share.

McDonald’s shares outstanding 2014-24

Created at TradingView

I expect the company to keep repurchasing shares with the cash it generates. And the ability to do this consistently should help growth in future.

Valuation

Despite all this, McDonald’s shares are cheap on a price-to-earnings (P/E) basis. The stock typically trades at a (P/E) ratio of 25, but the current multiple is closer to 21.

McDonald’s P/E ratio 2014-24

Created at TradingView

That’s unusually low for the company and I think it makes the case for buying the stock today quite a compelling one. It dramatically reduces the risk for investors. 

For the McDonald’s share price to go down from here, one of two things needs to happen. The first is the stock trading at a lower P/E multiple and the second is earnings going down.

Either is possible, but I don’t think either is likely. The fact the stock already at an unusually low P/E ratio means it would be historically surprising if it fell further from here. 

Equally, the strength in the underlying business means it would be surprising if earnings per share declined. The share buyback programme also reduces the chance of this.

US value

The likes of Microsoft and Nvidia have been pulling the S&P 500 higher recently. But investors should be careful not to overlook US stocks that are unusually cheap right now.

I think the case for buying McDonald’s shares at today’s prices is very strong. It’s impossible to eliminate risk entirely, but an unusually low P/E ratio goes a long way towards helping.

The post Near a 52-week low, McDonald’s shares look like unbelievable value appeared first on The Motley Fool UK.

The FTSE 100 has been providing average annual returns of 8% since it began. In the US, the S&P 500, is even better, returning about 11% on average (with dividends reinvested). While US stocks tend to have better price appreciation, UK stocks often offer higher dividends. They each have benefits and diversifying into both reduces risk from a localised economic issue.

A mega-cap UK dividend stock

HSBC (LSE: HSBA) is one example of a massive UK company that pays a high dividend. Shares are only £6.87 and it currently sports a 7% yield, so it pays out an extra 48p per share annually. But the share price is volatile, flipping between £4 and £10 over the past 20 years. This occasionally affects dividend payments — in 2020, the yield fell below 1%. 

Still, growth is up 250% in the past 30 years with an annualised return of 4.2%. With the current dividend, it’s about 11%.

But bank stocks are particularly vulnerable to economic instability. A financial crisis could send the stock plummeting, negating any gains from the dividends. That’s why it’s important to diversify into various industries. Investors might also consider Aviva or Taylor Wimpey, two well-established UK dividend stocks with yields near 7%.

A well-established US favourite

When looking for long-term passive income, a reliable growth stock like McDonalds (NYSE: MCD) is worth considering. Trendy tech like AI is fleeting but fast food has stood the test of time. Since 1994, the world’s most famous drive-thru restaurant has delivered an average annualised return of 9.9%. It also has a small but decent 2.6% dividend yield.

However, it faces stiff competition from rival joints like Wendy’s, Burger King, and Taco Bell. It recently launched a $5 value meal to combat inflation but may need to do more if it hopes to stay relevant. The stock is up only 23% in the past five years, compared to 110% growth between 2015 and 2020. 

PepsiCo is another strong US growth stock to consider, up 991% in the past 30 years with annualised returns of 8.3%.

Calculating returns

With a mix of high-yield UK dividend shares and high-growth US shares, I think it’s realistic to expect an average 5% dividend yield and an 8% annual share price increase. By investing just £10 a day into that portfolio and reinvesting the dividends, the pot could grow to £1,075,216 in 30 years (yes, that’s one million).

Quick maths can calculate that a dividend yield of 5% on a £1m investment would pay out £50,000 a year. 

But nobody can predict what might occur in 30 years. Stock markets can fluctuate wildly, and the final return could be far less – or more. Keeping an eye on current events and occasionally rebalancing the portfolio may be necessary to keep it on course.

The post Can £10 a day turn into a passive income of £50,000 a year? It’s possible! appeared first on The Motley Fool UK.

While they operate in very different industries, both companies look as strong as ever today.

A beefy raise

First up is McDonald’s (NYSE: MCD). In October, the restaurant giant announced its next quarterly payout will be $1.67 per share. That equates to a roughly 10% increase over the previous payout of $1.52 per share.

While the yield is fairly modest at 2.36%, the Dividend Aristocrat has served up 48 years of consecutive annual dividend increases. And the payout has more than doubled over the past decade, accompanied by a near tripling of the share price.

It might seem somewhat surprising to consider that revenue peaked years ago. It was $23.1bn last year, down from $28.1bn in 2013.

So what’s been going on here?

Well, McDonald’s has famously been moving to a franchise model for some time. As a result, it has fewer company restaurants to operate while it collects rent and royalties from its franchisees. And this has seen its profit margins expand meaningfully over the past few years.

Looking ahead, I’m optimistic the company can maintain its excellent dividend record. It recently raised the royalty fees for new US franchisees from 4% to 5%, bringing them in line with the rate it charges elsewhere. This was the first such increase in nearly 30 years.

Meanwhile, China has become its second largest market, with restaurants there doubling to more than 5,500 since 2017.

Consumer consumption concerns

Now, I should touch on the risk of GLP-1 weight-loss drugs like Wegovy. These reduce food intake and could (in theory) also reduce restaurant visits and threaten sales.

But will a significant percentage of the global population stay on these drugs permanently? What happens when they stop taking them? I feel it’s too early to make sweeping assumptions, one way or the other.

However, if need be, McDonald’s could respond with menu changes, including innovations around ingredients and portion sizes.

Personally, I think the risk is overblown and I’ll add to my holding if fear engulfs the stock.

Record order book

The second stock that has given shareholders a 10% pay rise is BAE Systems (LSE: BA.). The 2023 interim dividend of 11.5p per share, to be paid on 30 November, is 10.5% more than last year.

The FTSE 100 defence giant is forecast to pay out 30p per share for 2023, an increase of around 11%.

The 2.6%-yielding stock has surged 117% over the past five years as global defence budgets have risen in response to the war in Ukraine and ongoing geopolitical tensions.

This saw BAE take in orders of £21.1bn during H1, resulting in a record order backlog of £66.2bn. In Q3, management said another £10bn of orders had been booked.

Of course, the firm’s growth is beholden to ongoing military spending by governments. Any drop in that and the share price could suffer.

However, its swollen order book contains complex defence programmes undertaken over many years. This provides great earnings visibility. BAE has also upgraded its three-year free cash flow guidance, suggesting more dividend growth ahead.

The post 2 top dividend growth stocks that just gave investors a 10% pay rise! appeared first on The Motley Fool UK.

I’m talking about GLP-1 weight-loss drugs like Wegovy and Ozempic. They suppress appetite and have proved so popular that Novo Nordisk (the maker of both) is struggling to keep up with demand.

Meanwhile, rival Eli Lilly is expecting US regulatory approval for its own weight-loss drug, Mounjaro, by the end of the year. Research suggests Mounjaro could be even more effective!

So, should McDonald’s shareholders (like myself) be worried about this potential threat? Here’s my take.

GLP-1 weight-loss drugs

First, I should note a difference here. Ozempic is a drug used in the treatment of type 2 diabetes, but it also results in weight loss. Wegovy, on the other hand, is specifically designed for chronic weight management and is prescribed for that purpose.

Nevertheless, they share the same active ingredient — semaglutide. And this mimics the action of a hormone called GLP-1, which is released after eating and slows down the movement of food in the gut.

This results in fewer cravings and a fuller feeling for longer. And most patients then tend to eat less high-sugar and high-fat food.

So the potential threat is clear. If more people are less hungry, will they still turn impulsively into a McDonald’s drive-through or order in a delivery?

Food for thought

Research from Morgan Stanley estimates that 24m people in the US — around 7% of the population — will be using these drugs by 2035.

The UK ranks among Europe’s most overweight countries, so I’d imagine demand will be strong here too.

However, I’m not sure about emerging economies, where the cost of taking these medicines could be a limiting factor.

Besides, 2035 is years away, with many things still unknown at this point. For example, GLP-1 medications have already been linked to serious intestinal side effects. Perhaps some patients will shun the treatment altogether.

Or could there be reduced demand for some kinds of food (salty fries) but increased demand for others? McDonald’s could change its menu options to adapt, as it has in the past.

Also, I doubt most kids will be prescribed these drugs, so I’d imagine some parents will still find themselves in McDonald’s pretty regularly.

My move

Now, despite its recent fall, the stock is still trading on a price-to-earnings (P/E) ratio of 23. That’s hardly dirt cheap for a mature restaurant/consumer cyclical stock.

However, it’s debatable whether McDonald’s really is that. It owns the buildings run by franchisees and collects rent and royalties. These provide a steady source of non-cyclical income, which has helped the firm double its dividend over the last decade.

Of course, this is irrelevant if fewer people are going to visit its restaurants in future. But I think the risk of this might be overblown, at least in the immediate-to-near term. And I’m wary of making assumptions about long-term changes to consumer habits.

Still, the share price could come under more pressure in the coming months. And the stock does arguably now carry a bit more risk. But certainly not enough for me to panic and sell my holding.

The post Is Ozempic a danger to the McDonald’s share price? appeared first on The Motley Fool UK.

Dr Martens 

What it does: Dr Martens designs and sells fashion footwear internationally, as well as a range of fashion accessories.

By Gordon Best. Dr Martens (LSE:DOCS) could be an interesting company for investors looking to grow passive income. In addition to the generous dividend of 6.74%, the company could be trading at a major discount. Issues in inventory and economic uncertainty have cut the stock in half in the last year. Dr Martens has a price-to-earning (P/E) ratio of 9.9 times, well below the average of 16.2 times. The discounted cash flow calculation suggests that the current price of £1.27 is 25% below fair value of £1.71. 

The most recent earnings call saw management admit to mistakes made in the last year, outlining their strategy for growth. Although further issues are possible, I like what I see of this plan, with debt now under control, experienced management in place, and steady earnings growth. I like the look of the company for a long-term hold, with dividends paying me a healthy passive income.

Gordon Best owns shares in Dr Martens.

Howden Joinery Group

What it does: Howden Joinery is a vertically integrated kitchen supplier operating a network of depots across the UK and Europe.

By Zaven Boyrazian. Howden Joinery (LSE:HWDN) is a specialist designer of fitted kitchens allowing households to renovate and modernise. With the pandemic encouraging families to revamp, the group enjoyed riding significant tailwinds, resulting in double-digit growth.

Today, with rising interest rates, home renovation isn’t at the top of the priority list for most households — and that may be a risk if buying the shares now. However, with families now staying put for longer on the back of higher mortgages and falling prices, the long-term temptation to renovate is on the rise. At least, that’s what’s being reflected in the group’s latest trading update.

Revenues are still rising, and management has begun executing a new £50m share buyback scheme. And thanks to the business generating plenty of excess cash, the firm has raised dividends by almost 600% over the last decade – a trend that I believe can repeat itself moving forward.

Zaven Boyrazian owns shares in Howden Joinery Group.

M&G

What it does: M&G is the FTSE 100 investment fund and wealth management company that demerged from insurer Prudential in October 2019.

By Harvey Jones. Was I right to pile into M&G (LSE:MNG) shares in March? The risks were obvious at the time, but so were the potential rewards.

I find it hard to resist super-high income stocks, and M&G was certainly that, with a yield of 10.21% when I bought it. Yet I’ve learned the hard way how vulnerable double-digit yields can be, as fellow portfolio holdings Persimmon and Rio Tinto fell into that category before slashing theirs.

I took a chance on M&G because its board seems keen to reward loyal shareholders, hiking the 2022 dividend per share by 7.1% from 18.30p to 19.60p. In total, it returned nearly £1bn via dividends and share buybacks, despite capital generation turning negative (it’s expected to hit £2.5bn this year).

In June, M&G reported £400m of net client inflows in Q1 despite today’s volatile markets, while slashing headcount and costs should streamline the business and with luck, secure future shareholder returns.

It has a healthy Solvency II coverage ratio of 200%, even after paying the £310m final dividend announced in March.

M&G is forecast to yield 9.98% in 2023 and 10.1% in 2024, although as ever forecast payouts are not guaranteed. Those yields look ridiculously high, but the market expects them to come through. Even if they’re cut slightly, it should still prove a great passive income stock.

The share price is down 1.76% in the last year and looks good value trading at a modest 11.5 times forward earnings. It may not seriously recover until today’s economic rough patch is behind us, and that’s a risk if buying the shares now, but personally I’m happy to wait.

In the interim, I’ll reinvest any dividends that come my way to build up my position, and I might even buy more M&G stock over the summer.

Harvey Jones has positions in M&G Plc, Persimmon Plc, and Rio Tinto Group.

McDonald’s

What it does: McDonald’s is a fast-food company that serves 69m customers daily from 40,000 outlets in over 100 countries.

By Charlie Carman. McDonald’s (NYSE:MCD) offers a modest 2.1% dividend yield, but it’s a very reliable passive income stock. The company has increased shareholder distributions for 46 consecutive years, giving it Dividend Aristocrat status.

The group’s franchised model has served it well, reducing restaurant costs and ensuring free cash flow conversion of over 90%. Strong cash flow supports the sustainability of the dividend, which rose 10.1% in Q1 to $1.52 per share.

However, the company faces inflationary risks from higher labour and ingredient costs. In addition, the balance sheet isn’t as healthy as it could be. McDonald’s currently carries a $46.21bn net debt burden.

Nonetheless, it’s a highly profitable enterprise with a history of menu innovations that add sparkle to a simple business model. With plans for 1,500 net restaurant openings this year and a robust dividend history, I hope I can continue to look to the Golden Arches for regular passive income.

Charlie Carman owns shares in McDonald’s. 

Phoenix Group

What it does: This FTSE 100 company is a giant of the insurance sector; previously, it had been a closed-book consolidator.

By Dr James Fox. Phoenix Group (LSE:PHNX) is one of the few shares I hold almost exclusively for dividends. That said, by buying more of this stock during the dip, I’m hoping for some share-price gains.

The dividend yield currently sits at 9.1% as I write, making it the second largest on the FTSE 100. The coverage ratio was 1.6 for 2022, suggesting the dividend remains safe for now. This figure is down from 1.93 in 2020 and1.62 in 2021.

Naturally, I’d prefer to see coverage higher – around two. However, insurance companies tend to have fairly regular cash flows, and Phoenix Group is no different. Steady business should support the yield’s sustainable.

Obviously, inflation has caught out insurance firms over the past year, and it could continue doing so. However, I’m bullish on Phoenix Group. It’s got 14m policyholders, and chief executive Andy Briggs wants to see cash generation reach £1.5bn by 2025. It’s still a growing business.

Dr James Fox owns shares in Phoenix Group Holdings.

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