With the Bank of England cutting rates, savers are likely to get weaker returns on their cash than they did before. But there’s a FTSE 250 stock that I think looks interesting right now.

The stock is Assura (LSE:AGR) – a real estate investment trust (REIT) that leases a portfolio of healthcare buildings. Its rent is 81% government-funded and there’s a 9% dividend on offer.

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.

Reliable income

Assura owns 625 properties, including GP surgeries, primary care hubs, and outpatient clinics. Over 99% of the portfolio is currently occupied and the average lease has over 10 years remaining.

With the vast majority of its rent coming from either the NHS or HSE, the threat of a rent default is minimal. And the company stands to benefit from a general trend towards people living longer. 

Debt can often be an issue for REITs, but Assura is in a reasonable position. Its average cost of debt is around 3% – which isn’t bad at all with interest rates currently at 4.25%. 

While some of its debt matures in less than five years, the loans that mature first are the ones with the highest rates. In other words, it has long-term debt at relatively low costs.

In other words, Assura looks like it’s in decent shape. It operates in an industry that should be fairly resilient, it has tenants that are unlikely to default, and its balance sheet doesn’t look like a concern. 

A 9% dividend yield can often be a sign to investors there’s something to be concerned about. It isn’t immediately obvious what that might be in this case – but a closer look is more revealing.

Share count

With any company, investors need to keep an eye on the number of shares outstanding over time. In particular, they need to pay attention to whether this is going up or down. 

Other things being equal, a rising share count decreases the value of each share. As the business is divided between a higher number of shares, the amount each shareholder owns goes down.

Assura’s share count has been rising quite considerably over the last few years. Since 2019, the number of shares outstanding has grown by around 4.5% per year. 

That means investors have had to increase their investment by 4.5% each year in order to maintain their ownership in the overall firm. And that really cuts into the return from the dividend.

If this continues, investors aren’t going to be in a position to simply collect a 9% passive income return. They’re going to reinvest around half of it to stop their stake in the business reducing.

This is actually a symptom of a wider risk with Assura. Its dividend policy means it often has to raise capital through debt or equity, so there’s a real risk of the share count continuing to rise.

A huge passive income opportunity?

A stock with a 9% dividend yield often comes with a catch. And I think this is the case with Assura – while the firm distributes a lot of cash, a good amount has to be reinvested to prevent dilution.

That’s not necessarily a devastating problem. But it is something for investors to be realistic about when thinking about passive income opportunities.

On 20 February, when the bank’s scheduled to release its results for the year ended 31 December 2024 (FY24), I think the Lloyds Banking Group (LSE:LLOY) share price will come under the spotlight once again.

Yes, it’ll be interesting to see whether the banking giant’s performance has beaten analysts’ expectations. The average forecast of the 18 brokers covering the stock is for a post-tax profit of £4.64bn (FY23: £5.52bn). Following recent base rate cuts, they are expecting Lloyds’ net interest margin (NIM) to come under pressure. Their FY24 consensus is for a NIM of 2.95% (FY23: 3.11%).

Motor finance issues

However, I’m more interested in what the bank has to say about the ongoing review by the Financial Conduct Authority (FCA) into the possible mis-selling of car finance.

In February 2024, the bank made a provision of £450m in its accounts to cover possible costs and compensation for customers.

Accounting standards require such an entry to be made when it’s “probable” that an outflow of economic resources will result. This tells me that Lloyds’ directors believe there’s likely to be some financial penalty. However, if latest estimates from Keefe, Bruyette & Woods (KBW) prove to be correct, it could be on the low side.

KBW has come up with a “conservative” prediction that the Black Horse bank could end up paying £4.2bn as a result of the ‘scandal’.

I think this is important because we’ve seen how sensitive the bank’s share price has been to the issue.

On 25 October 2024, its shares tumbled 7.3% when the Court of Appeal made a ruling that Lloyds said “sets a higher bar for the disclosure of and consent to the existence, nature, and quantum of any commission paid than had been understood to be required or applied across the motor finance industry prior to the decision”.

Conversely, on 21 January, the stock rose 4% when reports emerged that the government would seek to express its concerns to the Court that the case could undermine confidence in UK financial regulation. Since then, the share price has risen by a further 2.6%.

Timing is everything

The FCA investigation and unconnected legal cases have become a bit of a distraction.

It’s a shame because analysts are forecasting strong growth — they’re expecting a FY27 profit after tax of £6.04bn. If realised, earnings would be 30% higher than the FY24 consensus. These same ‘experts’ are predicting a 2027 dividend of 4.26p — an impressive yield of 6.8%.

Of course, much can happen over the next three years.

The bank derives nearly all of its income from the UK. And the domestic economy is proving to be fragile, which could affect earnings and its dividend. Any increase in loan defaults will affect its bottom line.

However, in my view, the most pressing issue is the FCA investigation. Don’t get me wrong, I believe the bank has the financial firepower to cope with a £4.2bn (or higher) cost. Any fines and compensation are likely to be paid over several years. At 30 September, its balance sheet shows cash of £59bn.

But in the short term, I suspect the share price will come under pressure if the provision’s increased. Therefore, if an investor was looking to buy Lloyds shares, I’d suggest they consider waiting for the results announcement before making a decision.

If I had invested  £1,000 in Serabi Gold (LSE: SRB) a year ago when it was a penny share, I would now be sitting on an investment worth £2,680.

No longer a penny share, Serabi has soared 168% over the past 12 months.

It can be argued that the reasons behind that rise still suggest a lot of growth potential. Perhaps even more than we have seen in the past year.

So should I buy the share today?

Increasing production in a strong market

There are a couple of main reasons we have seen the Serabi Gold share price soar. One is its increase in production.

Last year, the miner produced 37,520 ounces of gold. That was growth of 13%. The most recent quarter saw Serabi’s output hit a five-year high. This year, it expects 44,000-47,000 ounces of production. That would be growth of 17-25% on top of last year.

From an investor’s perspective, that is good news and could support a higher share valuation. Mining has high fixed costs, so spreading them over greater production is typically positive.

The second main reason for the share price leap has been soaring gold prices. In an environment of heightened geopolitical and economic uncertainty, investors have once more flocked to gold as a perceived haven and it recently hit an all-time high.

Higher gold prices are also good for Serabi and could also lead to a higher share price.

Why I don’t feel I’ve missed out

So by not buying a year ago, I missed a 168% return (with the potential for more to come). But I do not regret my choice and in fact still do not plan to invest in Serabi.

As I wrote in November when Serabi was cheaper, “despite the incredible price rise over the past year, I see this penny share as a potential bargain even now. But the risks involved simply exceed what I am comfortable with as an investor”.

I was right that it was still a potential bargain: in just over two months since writing that, the share has gone up by a third.

But the risks I identified then also remain concerns for me. There are two main ones.

First, Serabi is a Brazil-focused gold producer. So it lacks diversification either geographically or in terms of metals mined. That means there is a geopolitical risk. For example, if the Brazilian government decides to raise taxes, Serabi cannot move its mines.

The second risk is gold prices. This is basically a cyclical market – gold is very high right now. It may go higher still, but sooner or later it will crash. Then it will start to rise again before hitting a new high again years or decades from now.

There is money to be made as an investor at the right points in a cyclical market. But with gold near record highs my concern is that we are at the wrong stage in the cycle. I would rather buy gold miners’ shares when the yellow metal is cheap, not expensive.  

A Stocks and Shares ISA might not be the most exciting sounding way to generate a passive income.

So what?

Passive income is about earning income without working for it. Investing a £20k ISA into proven dividend shares could achieve exactly that objective.

In fact, it could potentially set up a lifelong passive income stream.

£1 an hour, every hour, forever

To illustrate this, imagine that an investor wanted to earn an average of £1 per hour every hour.

That is £24 a day, or £8,766 per year (allowing for leap years).

Earning that in dividends from shares at a yield of, say, 6%, would require an ISA of around £146,100.

So, is it impossible to do, starting with a £20k ISA? Not at all, for an investor who is willing to take a long-term approach to passive income generation.

Investing £20k at a 6% compound annual growth rate for 35 years would mean the ISA was worth over £146,100. At that point, investing it in shares yielding an average 6% would mean that it was throwing off the equivalent of £1 or more in passive income per hour, every hour.

Buying the right shares

That could potentially go on forever.

In fact, the passive income could grow, if dividends were increased.

But the opposite is also true. After all, dividends are never guaranteed.

So it is important for an investor to make a smart choice when it comes to investing their ISA in the right portfolio of dividend shares.

A potential income star to consider

One share I think income investors should consider is Aviva (LSE: AV).

With a 6.7% yield, it is more lucrative than the 6% I used in my example (though any savvy investor will be spreading their ISA funds across diversified shares, not just one).

Aviva has also been growing its dividend per share handily over the past several years. I think its strong brand, large customer base, and proven business model could help it keep doing that.

On the other hand, it did cut the dividend substantially in 2020. Dividends are never guaranteed to last and, while Aviva’s planned takeover of rival Direct Line could boost earnings, I see a risk that the ever-present difficulties of integrating two different businesses could divert management attention and hurt profits.

Still, I reckon that if Aviva gets things right, it might not only maintain but actually keep growing its dividend.

Making the right choices

My example above presumed a 6% compound annual growth rate. With the right shares, an investor might do better and speed up the process of generating passive income.

But another factor in returns is paying close attention to the costs and fees of an ISA.

So, deciding which one seems right (given that every investor is different) seems like a smart place to start.

After the FTSE 100 index of leading blue-chip shares hit a new all-time high last month, it could seem that top UK shares may now be overpriced.

In fact, I think there are potentially some great bargains to be found this February!

What a high index does and doesn’t tell us

The FTSE 100 is made up of the 100 London-listed companies with the biggest market capitalisations.

Over the decades, as declining companies slip out and growing ones take their place, I would expect the index to keep moving broadly upwards, though there could be substantial volatility along the way.

One way for me to try and take advantage of that would be to invest in a fund that tracks the FTSE 100 index.

That would mean I could invest without needing to do a lot of research into individual shares myself. My portfolio ought also to benefit from the strong performance of some index members.

The flipside is also true, though: I would be saddled with the poor performance of the weaker FTSE 100 shares.

That helps explain why I prefer to buy individual shares rather than invest in an index tracker.

As for what a record high index level tells us as investors? In my view, not necessarily much of actionable use.

What the index is at now and how it compares to the past is not useful for me. What  I want to know – or at least take a view on – is whether it is undervalued or overvalued compared to what I think is its likely future value.

Buying individual shares

To make that judgement at the index level strikes me as difficult.

Sure, I could consider its price-to-earnings ratio as a proxy. But I like to invest in what I know – and I do not know all 100 of the top FTSE businesses well enough to take a view on whether their current valuations are reasonable or not.

But I can do that in the case of individual shares.

Fortunately, despite the index price, I think there are still some potential bargains even among well-known FTSE 100 firms.

One share I’ve been buying

As an example, consider my shareholding in retailer JD Sports (LSE: JD).

I already owned the FTSE 100 firm in my portfolio, but have been taking advantage of a recent share price fall (JD has tumbled 12% so far this year alone) to add more.

Could the JD price keep falling from here?

I think it may. Multiple profit warnings in the past year – including one last month – have shaken City confidence in the investment case. A weak economy could hurt discretionary consumer spending on things like pricy trainers.

Still, as a long-term investor that does not bother me.

I think the JD Sports share price, which has halved in the past five years, now looks like a possible bargain for a proven and highly profitably business I expect to keep growing in years to come.

With a strong brand, expanding international shop footprint, large digital operation, and enthusiastic customer base, JD Sports seems like a brilliant FTSE 100 business to me – selling for a knockdown price.

When it comes to electric vehicle makers, a lot of investor attention goes to Tesla. But Tesla is far from the only game in town. Rival Nio (NYSE: NIO) may sell far fewer vehicles, but it is growing, has an attractive brand positioning and uses battery swapping technology that helps set it apart from competitors, including Tesla. So, how would an investor have done investing £2,000 into NIO stock five years ago?

Modest return and a very bumpy road

The answer is that they would now be in the money, albeit on a modest scale. Around £200 on a £2k investment, to be specific.

Over the past five years, NIO stock has risen 10%. That compares to a 651% leap for Tesla stock in the same period.

As NIO does not pay a dividend, that 10% would be the total return over the past five years.

Given how the wider market has performed during that period, 10% does not seem particularly exciting to me.

Still, the road has been a bumpy one. Investing five years ago and selling less than one  year later, in January 2021, an investor could have achieved a remarkable 1,526% increase in value. But someone buying the shares from that investor at that point would now be sitting on a 93% paper loss.

It is difficult to value fast-growing, loss-making companies

Why has NIO stock proven so volatile?

I think this is a classic example of a growth share in an emerging industry that investors struggle to value.

From the bullish side, NIO has a lot going for it. While Tesla’s (much larger) sales volumes fell slightly last year, NIO grew its own sales volumes 39% year on year.

2024 ended on a high, with December deliveries showing a 73% year-on-year increase. Last month was still very positive but year-on-year growth fell back to a more modest 38%.

NIO, like Tesla, has established a premium brand. Its battery swapping technology also offers a solution to a common problem that irks electric vehicle drivers: limited range.

On the bearish side, though, that range problem is arguably going away of its own accord as battery technology improves. So NIO’s battery swapping could end up being a costly solution to what anyway becomes a non-problem.

Despite strong sales growth, NIO is still far behind rivals like Tesla and BYD, meaning it lacks economies of scale.

In its most recently reported quarter, the company lost around $721m. For the same three-month period, Tesla reported net income of $2.2bn.  

I can’t yet invest with confidence

That helps explain why Tesla has a market capitalisation of $1.2trn, against $8bn for NIO.

I do find a lot of the bull case for NIO quite persuasive. Over time, if the business keeps growing, develops better economies of scale, and can prove a pathway to profitability, I think NIO stock could move up — perhaps a lot — from today’s level.

But, just as I was not ready to invest five years ago, nor am I today.

I want to feel more confident that (like Tesla) NIO can make a profit on a sustained basis, before I consider investing.

Must it be complicated or costly to start buying shares? No and no.

Here is how an investor could do it for just £5 a day, in five simple steps.

1. Learn about the stock market

The first move would be to get to grips with how the stock market works.

For example, when a company like Apple has big sales and profits, what does that mean for its valuation?

Learning about concepts like valuation, diversification and how to read company accounts is critical if someone who wants to start buying shares is serious about aiming to build wealth.

2. Decide how to invest

A second move is deciding an investment strategy.

This can be very simple. But I think having a plan is important, even if it changes along the way.

For example, what is the right balance between growth and income shares? What about UK versus foreign shares? How can an investor decide whether a share looks fairly priced or not?

3. Get ready to invest

A next step could be setting up an account that allows one to buy shares, and starting to transfer £5 a day into it.

Over just one year, that would add up to more than £1,800 so is more substantial than it may sound.

There are lots of options available and each investor is different, so I think it makes sense to check out different share-dealing accounts and Stocks and Shares ISAs before making a choice.

4. Construct a portfolio

With enough funds to diversify and a way to deal, it could be time to start buying shares – depending on what is available.

My own approach is to aim to buy shares in great companies that I understand at attractive prices. If none is available, an investor could simply let the £5 a day keep piling up until one is.

One of the shares I think new investors could consider is Legal & General (LSE: LGEN).

Its focus on retirement-linked financial services means it has a large and potentially lucrative target market. The firm’s brand and heritage help it to set itself apart from rivals and it has a large client base.

It is a solid dividend payer, currently offering an 8.3% yield. That means that £100 invested today (less than three weeks of saving £5 a day) would hopefully generate £8.30 annually in dividends.

The company announced last week that it plans to sell its US protection business and anticipates spending the equivalent of around 40% of its market capitalisation in the next three years on share buybacks and dividends.

One risk I perceive is overspending on share buybacks, hurting the overall business valuation. But I see Legal & General as a proven, well-run business and regard its commercial prospects favourably.

5. Staying the course

After an investor starts buying shares, what next?

I am a buy-and-hold investor. So I am happy to buy shares and hold them for the long term, unless the investment case changes substantially.

Doing that, and continuing to contribute £5 a day, even a new investor could hopefully lay the foundations for long-term wealth-building.           

Seldom a week goes by without someone asking me how to earn passive income through investing. Since the rise of remote working during Covid, building wealth through passive income’s become a key goal of many individuals.

The problem is that many wealth-building strategies aim to satiate the common desire for a rapid solution. When investing for income, the reality’s usually a far cry from the get-rich-quick schemes touted by social media influencers.

If the thought of a long, drawn-out process is off-putting, consider this. When I started investing at 35, I thought I was too late. It took dedication but less than a decade later, I was well on my way towards earning a second income. If I’d hoped to see results within a year, I’d likely have given up.

Patience and dedication are key factors to consider, but they’re not the only ones.

Formulate an asset allocation strategy

A key part of risk management is developing an appropriate asset allocation strategy. This essentially boils down to deciding how much risk is tolerable.

An investor who can survive on half their salary could potentially allocate the other 50% to investments. The decision then is how to divide that capital between bonds, commodities and stocks.

A 60/40 allocation (60% stocks, 40% bonds) is a popular option. Others may choose 30% commodities, 30% bonds and 40% stocks. Cash and bonds are considered low risk/low return, while stocks and commodities have higher risk/return potential.

An investor should always aim to achieve the perfect risk/reward balance based on their financial circumstances.

Evaluate long-term stocks

Picking the right stocks at the right time can make or break a portfolio. With the sheer amount of options available, it can be a daunting process. It may seem obvious to pick whatever big tech stocks are trending at the time but this method seldom works long term.

A truly diverse portfolio should also include some companies with a 20-30-year projection of stable growth. Think large, well-established and closely tied to the economic prosperity of the country. One example is Barclays (LSE: BARC).

Unlike HSBC, Barclays is more deeply rooted in the UK and less likely to move headquarters abroad. As the second-largest bank in the UK, it’s very well-established and invested in the country’s economic progress.

It’s also been on a tear lately, with the price up 111% in the past year. Despite the rapid growth, it doesn’t appear overvalued yet, with a forward price-to-earnings (P/E) ratio of only 7.3. This follows two years of slow growth during which high inflation subdued economic activity. With the first interest rate cut of 2025 done (and perhaps more on the horizon), the hope is that inflation will drop further this year.

Unfortunately, as a bank, it’s highly sensitive to economic downturns — remember the 2008 financial crisis? Barclays crashed by over 80% during that period. There’s always the risk that a similar event could send it tumbling again.

That’s why diversity’s key, not just between stocks but also between asset classes. Commodities tend to move inversely to stocks while bonds maintain stability in most situations.

I’m not looking to add more bank stocks to my portfolio right now but for investors aiming for long-term passive income, I think Barclays is a good option to consider.

Barclays (LSE: BARC) shares made a habit of outpacing the FTSE 100 last year, and they’ve just done it again.

Over the last 12 months, the Barclays share price has skyrocketed 111%. Only British Airways owner IAG has done better.

At some point, the momentum has to stall. But not yet. The stock has jumped another 15% in the last month. The FTSE 100 has done well in that time, rising 5.45%. Yet Barclays delivered almost triple the return.

Can this winner continue to fly?

If an investor had put £10,000 in Barclays shares a month ago, they’d now have around £11,500. That’s a pretty solid return for a bank many had written off as a serial underperformer. So what’s been driving it?

February 2024 marked a turning point when CEO CS Venkatakrishnan launched an ambitious strategic overhaul, making the high-performing UK retail division the focal point of his growth strategy.

He also snapped up Tesco’s banking arm for £600m and launched a £2bn efficiency drive. Investors woke up.

FTSE banks have also benefitted from higher interests rates. These allow them to widen net interest margins, the difference between what they charge borrowers and pay savers.

That benefit was expected to reverse last year, with the Bank of England (BoE) expected to cut base rates five or six times in 2024. Instead, we got just a couple.

This allowed the banks to unwind their interest rate hedges in a measured way. Last year probably handed Barclays the best of all possible worlds. Especially since it largely bypassed the motor finance mis-selling scandal.

Can its good fortune continue? I’m wary. The UK economy looks sticky to me. A recession can’t be ruled out. That could force the BoE to cut rates faster than currently expected, squeezing margins.

On the plus side, lower interest rates should revive the housing market, pushing up demand for mortgages.

Barclays shares still look decent value. The price-to-earnings ratio has climbed from around seven times earnings to almost 12 times. That’s a big jump. But with earnings per share forecast to grow 12.8%, it’s not excessive. The price-to-book ratio remains a modest 0.6, suggesting the valuation is still grounded in reality.

Good value, decent yield

Another downside of the rally is that Barclays’ dividend yield has fallen to 2.6%, although that’s expected to nudge up to 3% over the next year. It’s covered 4.5 times by earnings, so watch out for extra shareholder rewards.

Barclays is a FTSE rarity as it has maintained its investment banking side. With Donald Trump in the saddle, volatility looks to be baked in. That could boost activity and fees.

The 18 analysts offering one-year share price forecasts have produced a median target of just over 322p. That’s an increase of just under 6%. Combined with the expected dividend yield, this would deliver a total return of under 10% if true. After the recent surge, a period of consolidation might be on the cards. This may be one to consider at the moment but perhaps not for anyone seeking a repeat of its outperformance.