Lately I’ve been thinking about my passive income streams for 2022 and beyond. Right now I see some high yield dividend shares whose price makes me want to add them to my portfolio. Here are five such companies, each yielding 8% or more. I’d happily consider buying them for my investment holdings this month and hold them across 2022 and beyond.

Diversified Energy

I recently opened a position in Diversified Energy (LSE: DEC), a significant reason for which was its dividend yield. Currently, the energy well operator yields around 11.0%, which I find very attractive. On top of that, it has raised its dividend annually over the past several years, although that is not necessarily an indicator of future dividend levels. Another attraction from a passive income perspective is that Diversified pays out quarterly.

But an 11% yield is unusually high – could that be a warning signal for potential risks with the share? I do see a number of risks in owning Diversified. Falling energy prices could hurt profits. Shifts in the energy demand mix could lead to declining revenues. There is also the clean-up cost associated with the company’s thousands of aging wells. Such costs could hurt profits in coming years. Recognising these risks, however, I continue to find Diversified compelling enough to have bought it for my portfolio as we head towards 2022. Its large, growing portfolio of energy wells should keep it pumping oil and gas for many years to come. I expect there will still be demand for such energy even as alternative sources become more popular. Growing overall energy demand should benefit Diversified despite its heavy reliance on oil and gas.

Direct Line

A well-known brand can be helpful for a company’s prospects. It can give it pricing power, allowing it to attract customers and earn attractive profit margins rather than being forced simply to compete on price. With the increasing price visibility brought to the insurance market by online comparison sites, I think that has become especially true for insurers. One insurer I think benefits from a strong brand is Direct Line (LSE: DLG).

Its pricing power isn’t the only thing I like about Direct Line from an investment perspective. It is also a generous dividend payer. Direct Line shares currently offer a prospective yield of 8.0%. I’d be happy to add Direct Line to my portfolio for 2022 and beyond. But I do see some risks here. For example, the rising cost of used vehicles could push up the company’s claim settlement costs. That might lower profits.

Income and Growth Trust

I wrote about venture capital trust Income & Growth (LSE: IGV) last month in a rundown of double-digit yielding dividend shares I was considering for my portfolio. I noted then that it had paid out 5p per share so far this year in dividends, but further payments were as yet unknown. Last week, the trust declared an additional 4p per share interim dividend. That means that, so far this year, it has declared 9p of dividends per share. With its trading price around 91p at the time of writing this article yesterday, that means that this year’s yield from the shares is almost 10% even without any final dividend yet being declared.

Last year’s payout per share totalled 14p and the year before that it was 6p. So the dividend can move around a lot. But the trust’s track record shows that it has been able to generate funds for significant dividend payments. It does that through investing in a portfolio of young companies and hopefully benefitting from their growth. Such an approach can bring risks as well as rewards, though. If the trust manager chooses promising companies that then fail to blossom, its profitability could suffer.

Imperial Brands

I hold both of the two main UK-based tobacco companies in my portfolio, British American Tobacco and Imperial Brands (LSE: IMB). Both benefit from the rich cash generation characteristics of the tobacco business. Production costs are low and the companies have strong pricing power, which can help fund large dividends.

BAT’s trading update this week was well-received by the market. The shares have moved up over the past few days. Its yield of 7.9% still looks attractive to me, but right now I’d happily add more Imperial to my portfolio. It currently yields 8.8%.

Imperial has scaled back its ambitions in so-called next generation products, which are cigarette alternatives like vaping. I think that could be both good and bad for the shares. The good aspect is that it saves Imperial from spending heavily to build market share in an area which isn’t yet strongly profitable like cigarettes. But the bad part is that it could mean Imperial becomes more dependent than competitors on cigarettes. Cigarette demand is declining in many markets. Imperial is trying to combat that with price increases and increased marketing to grow its market share. But long term, its cigarette focus could be a risk to revenues and profits. Meanwhile, though, I reckon it could keep making large profits from cigarettes for years or decades to come.

M&G

Another of the high yield dividend shares I would consider adding to my portfolio for next year is financial services firm M&G (LSE:MNG).

Like Direct Line, the company benefits from a strong brand. I also like the economic characteristics of the investment management business in which it operates. The size of many customers’ investments means that even with a modest commission, M&G should be able to earn a handsome profit. Last year, for example, the company reported a post-tax profit of £1.1bn. That compares to its current market capitalisation of £5.1bn, putting the M&G share price on an attractive valuation for me.

Such profitability can translate into chunky dividends. Currently the shares offer a 9.3% yield. M&G is committed to maintaining or raising its dividend, although of course if it runs into unexpected business headwinds that could change. One such headwind could be increased competition in financial services driving down profit margins.

5 high yield dividend shares

With each of these shares yielding 8% or more, I’d pay particular attention on risk as well as potential reward. Do the yields reflect some hidden danger?

I simply can’t know — that’s the nature of a hidden danger. That is exactly why I seek to reduce my risk by diversifying across different shares when I add to my portfolio. I’d happily hold all five of these shares in my portfolio together.

Christopher Ruane owns shares in British American Tobacco, Diversified Energy Company and Imperial Brands. The Motley Fool UK has recommended British American Tobacco and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

If I had £1,000 to invest in the stock market today, I would buy shares using a diversified approach. 

I would also use a low-cost broker, such as Freetrade. Most online stock brokers charge a commission for every deal placed. This can range from a few pounds to £15, or more. With a lump sum of £1,000, paying a commission on every trade does not make much sense.

Indeed, if I spread my portfolio across 10 different stocks and paid £10 for each trade, I would instantly lose 10% of my money to commission costs alone. The numbers speak for themselves. 

I would also look to buy shares that offer the most growth potential over the next 10 years. 

Buy shares for a portfolio

Following this strategy can be challenging. Even the professionals struggle to pick winning stocks consistently. This is the reason why I would diversify my portfolio across a basket of different growth equities. Some of the most attractive growth stocks on the market at the moment, in my opinion, are technology companies. 

One of the tech stocks I would buy to play this theme is IT consultancy Kainos. As the world’s digital footprint explodes, I think the demand for IT consultancy services will only increase.

Every company now has to have a digital presence, but not every corporation has the skills required to maintain this. Organisations like Kainos will be instrumental in helping these businesses move into the 21st century. 

Unfortunately, the sector is highly competitive. As such, the company’s growth cannot be taken for granted. Dealing with this competition is the biggest challenge the group will face. 

Growth investments 

As well as tech, I would also add stocks in other growth sectors to my portfolio. The property industry is another growth area I want to build exposure to. I would do that with LSL Property. 

This company owns a portfolio of property businesses. This ranges across estate agency to surveying and mortgage broking. It is growing through organic expansion and bolt-on acquisitions. As the UK property market continues to expand, I believe LSL’s growth will continue. 

Once again, the biggest challenge the business will have to deal with is competition, as LSL is a small fish in the big real estate pond. 

The most speculative stock I would buy is hydrogen start-up AFC Energy. This business could revolutionise the hydrogen market through its green technology. This firm is still in its early stage development, which is why it is so risky. There is a high chance the company could struggle to survive before commercialising its technology.

Still, I think the stock has tremendous potential to revolutionise the energy market. In my opinion, this potential more than offsets the risks associated with the business. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Kainos. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

International Consolidated Airlines Group (LSE: IAG) is a FTSE 100 company comprising five airlines, including British Airways and Aer Lingus, and other cargo operations. Over the past two years, IAG stock has been battered by crippling travel restrictions enacted in response to the Covid-19 pandemic. While cargo flights continued to provide some income, the company and its five airlines have been as good as grounded for most of the pandemic. The real question for me, however, is should IAG be considered as an addition to my portfolio?

The 2020 Annual Report states that passenger numbers were down 66.5% from 2019 levels. In the second quarter of 2021, capacity was still only 21.9% of 2019 levels. Clearly, a recovery will take time, relying on fewer international restrictions and confidence from passengers. With many European states locking down, IAG’s business will inevitably be affected. This is because all of its airlines operate throughout Europe. In the longer term, management will have to address a debt pile that has increased from €7.9bn to €12.1bn. This need was demonstrated, for instance, by the £2.5bn rights issue that was launched in the summer of 2020.

The news is not all bad, though. Transatlantic travel resumed at the beginning of November 2021, which, considering it makes up about 30% of Available Seat Kilometres (ASKs), is something of a godsend for IAG. The management has also taken the opportunity to bring forward the retirement of old aircraft, including British Airways’ Boeing 747s and Iberia’s Airbus A340s. While the new Omicron variant has caused alarm on account of its greater transmissibility, it does not appear to cause such severe illness, and the chances of those crippling international restrictions returning seem low.

From a technical analysis perspective, the share price bounced off a low of 88p in October 2020 and currently trades anywhere between 130p and 160p. It is interesting to note that the share price fell 15% with news of the Omicron variant, but it has nearly recovered and it appears that this news only caused a temporary price correction. Nonetheless, the prospect of future variants — together with the arbitrary nature of international lockdowns — are preventing IAG’s price returning to pre-pandemic levels. This is reflected in the sideways price action we are currently seeing. On the other hand, if these variants are indeed less severe and governments do not lockdown for a prolonged period of time, I think investor confidence will have a very positive impact on IAG’s share price. Personally, I will be continuing to steadily buy up this stock, especially when there are dips in price. This is because I believe there is significant upside potential in the medium term – the sky’s the limit!  

Andrew Woods owns shares in IAG. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Dividend shares are what I call compounding machines. When I receive a dividend, I can immediately reinvest it to buy more shares. These additional shares can pay dividends in the future, and the cycle continues. 

Renowned investor Warren Buffett once remarked, “My wealth has come from a combination of living in America, some lucky genes, and compound interest”. This compound interest would have come from reinvesting dividends.

Dividends can make a huge difference to total returns over time. For example, £10,000 invested in the FTSE 100 in 2010 more than doubled to £20,400 by 2020 with dividends included. However, excluding dividends the total pot grew to just under £14,000. That’s quite a difference. 

What I’d look for

The average FTSE 100 dividend yield is currently 3.5%. But there are several stocks that offer a much more lucrative passive income. When I’m looking for dividend shares, I try not to look at companies that offer over 10%. These much higher yields can be tempting but I’d be wary. Particularly high dividends can be at risk of being cut. In my experience, dividend yields greater than 9% or 10% aren’t the most reliable. So for me, the sweet spot is to look in the 6%-7% range. There are several companies that meet this criteria right now and I’m considering them for my 2022 Stocks and Shares ISA.

Which dividend shares?

The top dividend shares I’d consider for 2022 includes Jupiter Fund Management, Vodafone Group, and Legal & General. Each of these three FTSE 350 companies currently offers a dividend yield between 6% and 7.2%. In addition, Vodafone and Legal & General have been paying regular dividends for almost three decades. That’s an impressive track record, which gives me some comfort that they can continue to reliably pay dividends over the coming years. That said, there are no guarantees. These companies will need to ensure their earnings continue to grow. There are also market factors that may not be in their control. 

A balancing act

These three companies are quite different to many of the other shares I hold. For instance, I own plenty of growth shares in my Stocks and Shares ISA, many of which don’t pay any dividends at all. But that doesn’t concern me. I buy them for their growth potential, not for any income they distribute to shareholders. That said, I like to have some balance in my portfolio. In addition to diversifying across a variety of growth stocks, I also like to buy and hold a selection of dividend shares.

Best of both worlds

One company that offers growth potential and a decent dividend is housebuilder Persimmon. This is a high-quality share in my opinion. Not only does it steadily grow its earnings, but it offers an 8.5% dividend yield. With a price-to-earnings-ratio (P/E) of just 10 I’d say it’s also reasonably cheap. I’d need to keep an eye on rising interest rates as that is a risk for the sector, but overall, I’d buy this share.

Harshil Patel owns Persimmon. The Motley Fool UK has recommended Jupiter Fund Management. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I’m on the hunt for the best cheap UK shares to buy. Here are three penny stocks I think could deliver terrific profits growth over the next decade.

A penny stock for the homeworking boom

Fresh Covid-19 restrictions in Britain could potentially provide a boost to software firms like 1Spatial (LSE: SPA). New ‘Plan B’ rules have put homeworking firmly back on the agenda, meaning companies will have to keep spending to keep their workers connected. This bodes well for 1Spatial because it provides location master data management (or LMDM) software that allows users to connect and to share data from multiple sources in different locations.

Latest financials showed 1Spatial’s revenues rise 8% in the six months to July as the steady migration from office working to remote working continued. I think this penny stock’s a great way for me to make money from this theme in spite of the company’s elevated valuation. Today 1Spatial trades on a forward price-to-earnings (P/E) ratio of 68 times at current prices of 50p. Eye-popping multiples are extremely common among tech shares that have high growth prospects. But they also mean share price collapses can happen if news flow begins to worsen even marginally.

Full steam ahead

The prospect of new Covid-19 lockdowns also bodes well for UK hobby shares like Hornby (LSE: HRN). Sales at the models mammoth rocketed in 2020 as housebound Brits sought to entertain themselves. They’ve kept rising since then, too, even as restrictions have been scaled back. Revenues rose 3% in the six months to September.

I wouldn’t just buy Hornby because of the near-term profits boost it could receive from the pandemic. Its packed stable of products like Airfix model kits, Corgi miniature cars, and own-branded train sets are considered market leaders. The have a timeless appeal that allows the business to raise prices even when broader retail conditions are tough. I think this immense brand power makes them a top buy even though supply chain pressures are hitting sales right now. Hornby shares can be picked up at 40p apiece.

Cleaning up nicely

I believe Photo-Me International’s (LSE: PHTM) expansion into other rapidly growing self-service markets could help to turbocharge profits growth. The penny stock is perhaps best known for its photo booths and laundry services but it also operates amusement machines, digital photo printing points, and food vending machines. It has a broad geographic footprint, too, giving it extra strength through diversification as well as exposure to fast-growing emerging markets. Its roughly 45,000 machines are spread across 17 countries all over the globe.

Sales at Photo-Me could suffer if broader economic conditions worsen. Its machines are located in shopping malls, travel hubs, and supermarkets, places where footfall could drop if consumer spending comes under pressure. However, I believe the penny stock’s low valuation reflects this ever-present risk. At 58p per share Photo-Me trades on a forward P/E ratio of just 7.7 times.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I have been looking for FTSE 250 shares to buy for my portfolio in 2022. I want to buy into a couple of investment themes next year, and I have been looking for the best companies to play these trends. 

As such, here are the five FTSE 250 stocks I would buy next year. 

Shares to buy for 2022

The construction industry is currently experiencing a boom in growth. Both the domestic and commercial sectors are reporting strong activity as money floods into the industry. To play this theme, I would buy Volution and Balfour to target two different sections of the industry.

Volution is a leading supplier of ventilation products with primary markets in the UK and Europe. According to its latest trading update, group revenues for the four months to the end of November were up 14.6%. A combination of acquisitions and organic growth contributed to the total. 

Meanwhile, Balfour has rebounded from the pandemic and expects to report a profit in line with 2019 levels for the current financial year. It also has a £15.5bn ordered backlog, locking in around two years of revenue.

Despite their potential, both of these companies are exposed to supply chain risks and rising costs in the construction sector. Both of these challenges could hold back growth. 

FTSE 250 property

As the commercial property sector rebounds from the pandemic, Hammerson could see a recovery in property values and rental income. I like this stock because it is trading at a price-to-book (P/B) value of 0.5, implying the value of the property on the company’s balance sheet is more than double the firm’s current market value.

However, there is a clear reason why the stock is so cheap. The outlook for the commercial property sector is highly uncertain. This means there is no guarantee the stock will ever trade back up to book value. 

As the world places more emphasis on recycling and sustainability, I believe the demand for Biffa’s services will only expand. As one of the largest refuse operators in the country, it has the economies of scale required to process rubbish efficiently, at a cost consumers are willing to pay. Management is also looking for acquisitions to help improve the overall growth rate.

Despite its position in the market, this is a competitive industry. Biffa’s biggest challenge is to overcome competitor attacks on its market position. 

Oil market 

Harbour Energy is my final FTSE 250 buy for 2022. Rising oil prices are great news for the oil sector, and they have bought a welcome relief for Harbour.

The North Sea operator can use the enhanced cash flows from higher sales and profits to pay down debt and strengthen its balance sheet. This should put the firm in a strong financial position to expand over the next few years. 

The biggest risk the company may have to deal with is another decline in the oil price. This may hit its recovery plans. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

I am always looking for top dividend shares to add to my portfolio. And, right now, I believe investors are spoilt for choice when it comes to finding income stocks. 

Here are three companies I would buy today, all of which offer dividend yields of 6%, or more. 

UK dividend shares

The first company on my list is the Gore Street Energy Storage Fund (LSE: GSF). With a dividend yield of just over 6%, at the time of writing, I think this company looks incredibly attractive as an income investment. It is also an excellent way for me to build exposure to the green energy industry. 

Gore Street buys and builds energy storage facilities. The goal of these facilities is to stabilise the electricity supply through the peaks and troughs of renewable energy generation. The market for this energy storage capacity is only likely to increase as the country invests more and more in renewable energy. 

Still, this is not a risk-free investment. The company has been using a lot of debt to fund its expansion. This could have an impact on profit margins if interest rates suddenly increase. 

Insurance challenger

Mid-cap insurance group Sabre Insurance (LSE: SBRE) offers a dividend yield of around 6.3%, at the time of writing. The company helps consumers find car insurance and has been doing so for several decades. It owns a portfolio of well-known brands, although these only make up a relatively small share of the overall car insurance market. 

The company’s smaller size is not a significant drawback. It can actually be beneficial, especially in a market where insurance rates are falling. In these weak markets, Sabre can pick and choose its customers to maximise profitability. 

Despite this advantage, the company’s most considerable challenge is competition and the potential for additional regulations, which could hit profit margins. 

Global giant

Vodafone (LSE: VOD) is one of the most respected dividend stocks in the FTSE 100. That is why I would buy the telecommunications giant for my portfolio today as an income play. At the time of writing, the stock supports a dividend yield of 7%, which is more than double the market average. 

I am optimistic about the company’s potential because its infrastructure network across Europe means it is one of the largest data-driven network providers. This is a strong competitive advantage in a world that is increasingly driven by data and data processing. 

Cash flows from the organisation’s telecommunications business should more than cover its dividend as we advance, although I am worried about the company’s debt.

Vodafone’s debt levels have increased rapidly over the past 10 years, and management needs to focus on reducing borrowing, or it could jeopardise the group’s financial position. 

Even after considering this risk, I think the company has attractive income credentials. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

As a Fool focused on increasing my wealth over the long term, I’m partial to buying UK growth stocks that others with shorter time horizons are dumping en masse. Here are two examples grabbing my attention.

“Slower than expected” sales

At the time of writing, the share price of video game developer Frontier Developments (LSE: DEV) has tumbled almost 43% in 2021 to date. This isn’t a complete surprise.

Back on 22 November, Frontier announced that PC sales of its latest release — Jurassic World Evolution 2 — had been “slower than expected“, due to a “crowded release window“. That’s despite generally favourable reviews from critics and gamers alike.

Unfortunately, copies of another one of the firm’s titles — Elite Dangerous: Odyssey — haven’t been flying off the shelves either. As a result, Frontier is revising its guidance on full-year revenue to between £100m and £130m. That’s a significant reduction on the £130m-£150m once hoped for. A lot will depend on how the company fares over the run-up to Christmas, hence why investors are understandably skittish.

Opportunity knocks?

Could this be a great opportunity? Possibly. As the company itself notes, the arrival of the new Jurassic World Dominion movie next year could generate better demand for its latest release. There are also Frontier’s first F1 management and Warhammer games to look forward to. Demand for video games (and, consequently, video gaming stocks) could also return if further restrictions are brought in to tackle the Omicron variant.   

My issue with Frontier, however, remains its valuation. A P/E is 47 isn’t excessive compared to some tech-related shares. It is, however, very rich for a stock that depends on a small number of titles performing as expected.

Without a compelling margin of safety, Frontier stays on my watchlist for now. That said, further slippage in the share price could force my hand.

Another growth stock disappoints

Online bathroom-related products seller Victorian Plumbing (LSE: VIC) is another growth stock that’s crashing in 2021. Since hitting a high of almost 342p back in June, its value is now down over 70%. 

A good proportion of this fall came following last Thursday’s full-year numbers. Despite posting a 29% rise in revenue to just under £269m, investors were shaken by the company’s rather subdued outlook on trading as the UK home improvement/DIY boom shows signs of having run its course. This was a risk I raised not long after the firm’s IPO.

Does a slowdown in growth justify such an awful share price collapse? I’m not so sure. In fact, Victorian Plumbing shares could offer great value now, even if gross margins fall, as expected.

Barriers to entry aren’t exactly high, but Victorian should continue growing its already significant presence through a hefty marketing budget. Other attractions include a solid balance sheet and a strategy to target more trade customers going forward. Founder and CEO Mark Radcliffe also remains a major shareholder. This should make him even more determined to see the company recover. 

Like Frontier, Victorian Plumbing remains on my watchlist. However, a lot of bad news does look to be priced in. A bounce could be on the way if trading proves even slightly better than a now very pessimistic market is predicting.

For now, I’m letting the dust settle.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Frontier Developments. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.