The Diageo (LSE: DGE) share price has been weak for some time — falling 21% in one year, 34% in two, and 42% since the end of 2022.

Now, it might be set for more pain after President Donald Trump imposed sweeping tariffs on imported goods from Mexico, Canada, and China over the weekend.

How does this impact Diageo? Let’s take a look.

A bitter-tasting development

Tariffs are like extra taxes placed on goods coming into a country. While they don’t charge the company exporting the goods (Diageo), the firms that import them (US liquor distributors) will have to pay the extra cost.

Starting this month, most goods exported from Mexico and Canada to the US will be hit with a 25% levy, while a 10% tariff has been imposed on products from China. To protect their profits, the affected importers could increase prices or seek alternatives.

Now, some companies will choose to set up or increase manufacturing in the US to escape tariffs (Trump’s intention). I note that last week Diageo North America announced plans to open a new manufacturing and warehousing facility in Alabama. 

But the FTSE 100 company is in a bit of a sticky spot with regards to tequila and whisky. By law, tequila can only be produced in designated areas in Mexico, while Canadian whisky must be distilled and aged across the northern border. So Diageo-owned Crown Royal is in the firing line, as are its premium tequila brands Casamigos, Don Julio, and DeLeón. 

Yet Trump might not be finished, as the UK could also be hit with some sort of tariff. That might impact Scotch brands like Johnnie Walker.

All of this has the potential to lower demand and hurt Diageo’s sales in its largest market. In November, Deutsche Bank estimated that it could result in Diageo’s earnings per share (EPS) being around 8% lower.

Ready for a rowback?

Just a few years ago, it was all so different. In 2021, interest rates were at near-0% and cashed-up consumers were stuck at home during lockdowns, treating themselves to pricey bottles of spirits. This was hardly surprising, as there was a lot of external doom and gloom to drown out.

At the time, Diageo forecast medium-term annual sales growth of 5% to 7%. But that projection is looking far too optimistic now. Personally, I expect the firm to row back on that tomorrow (4 February) when it reports its half-year results. And the 25-year record of dividend growth might be in jeopardy.

My move

It’s a big week for the company, with the earnings call certain to focus on tariffs. My fear as a shareholder is that management adjusts its sales targets downwards and blames the looming threat of GLP-1 weight-loss drugs. These can supress a desire to drink alcohol, and fund manager Terry Smith cited them as one reason why he sold his Diageo holding last year.

We suspect the entire drinks sector is in the early stages of being impacted negatively by weight-loss drugs.

Fundsmith Equity manager Terry Smith.

On paper, the stock looks good value at 17 times earnings and carrying a 3.5% dividend yield. But shareholders should buckle up for a potentially bumpy ride this week.

I’ll see what management says tomorrow before deciding what to do, if anything.

I think inflation is a real risk for the UK at the moment. And one of the best ways of trying to combat this could be figuring out a way of earning a second income. 

Warren Buffett says the best defence against inflation is being the best at something and the second best is owning shares in a quality business. I don’t see why people can’t look to do both. 

Passive income

A lot of businesses distribute part of their income to shareholders as dividends. And this provides people that own shares in these companies with a source of cash that’s genuinely passive.

After buying the stock, there’s nothing else to do – just wait for the share of the profits to arrive (although profits aren’t guaranteed). So investors have all of their time available to work on other ways of increasing their income. 

This is different to starting a business from scratch, or buying a property to rent out. Both of these involve significant amounts of work, which can cut off other potential ways of making money. 

There’s also an issue about competition. If I wanted to try and start my own operation, I could find things difficult – or even impossible. 

The stock market

The best thing about the stock market is that it allows investors like me a chance to own part of some of the best businesses in the world. This includes companies like Lloyds Banking Group (LSE:LLOY).

The bank makes money by making loans and earning interest on them. And the regulated nature of this type of industry means I could never realistically hope to set up an operation like this by myself.

This is a competitive business and customers are mostly influenced by price, which means Lloyds can’t easily charge higher rates than its rivals. But it does have an important competitive advantage. 

What separates the best banks is being able to pay less interest on the cash it uses to make its loans. And with the largest consumer deposit base in the UK, Lloyds is in a stronger position than its rivals.

Strategic investing

Of course, there are risks with Lloyds. Its competitive position is strong, but there are some things – like the possibility of a sudden change in interest rates – that could still weigh on profits. 

Lower interest rates usually mean narrower margins. But a sharp rise in rates is also a risk, as savers expect better returns on their deposits instantly, while loans are mostly at fixed rates.

There isn’t really a way around this for Lloyds – it’s the kind of risk that has to be managed, rather than avoided. And for investors, the best way to do this is by building a diversified portfolio.

Owning shares in businesses that are less exposed to interest rates risk can limit the overall effect on a portfolio. And the stock market offers a lot of opportunities for diversification. 

Dividends

At today’s prices, Lloyds shares have a 4.7% dividend yield. And for a business with advantages that are difficult for competitors to copy, I think that’s quite attractive.

The bank’s sensitivity to interest rates means I think investors should consider it as part of a diversified portfolio, rather than as an investment by itself. But that’s why the stock market is so valuable.

There are a number of sectors traditionally known for their dividend growth potential, and those stocks within them that might be poised for growth based on trends and forecasts. Read on to hear from a selection of our free-site writers…

Defence

By Royston Wild. Dividends from cyclical stocks could fail to grow next year if economic conditions remain tough. Even payouts from classic defensive stocks (like utilities and real estate businesses) might underwhelm if inflation is sticky and interest rates don’t fall much further.

As a result, I think the defence sector could be in the best shape to grow cash rewards.

Despite weak economic growth, Western spending on weaponry continues to surge, rising at its fastest pace since 2009 last year (according to the Stockholm International Peace Research Institute).

President-elect Donald Trump’s pledge to overhaul the US military could give sector earnings a further shot in the arm. Broader NATO spending is also likely to rise further, driven by substantial arms building in Russia and China.

In this landscape, I think blue-chip defence stocks like BAE Systems could deliver robust dividend growth as earnings and cash flows take off.

City analysts expect annual dividend growth at BAE to accelerate from 8% this year to 10% in 2025. To put that in context, analysts at AJ Bell think total dividends from FTSE 100 shares will rise just 1% in 2024 and then 7% next year.

Royston Wild does not own shares in any of the shares mentioned.

Electronics & Manufacturing

By Zaven Boyrazian. With higher inflation and interest rates putting pressure on consumers, demand for electronic products hasn’t been high in 2024. Even world-leading businesses like Apple have suffered from this, with lower-than-expected performance in its new iPhone 16.

However, as economic conditions and technology improve, there’s growing potential for a new wave of device upgrades in the not-to-distant future. Looking at the global purchasing manager’s index for manufacturing, demand seems to be steadily coming back. And as the cycle shifts back into expansion, earnings and, in turn, dividends could be set to surge in 2025 and beyond.

In the UK, quite a few businesses, such as RS Group and Diploma, are positioning themselves to profit from the eventual cyclical change. The exact timing of when demand will bounce back is still uncertain, creating the risk of potentially investing too early, resulting in lacklustre short-term performance. But with pound-cost-averaging, this risk can be mitigated.

Zaven Boyrazian doesn’t own shares in the companies mentioned.

Industrials

By Stephen Wright. There’s obviously a lot of interest in the tech sector at the moment. And I think that’s reasonable – artificial intelligence (AI) is starting to make a meaningful difference to how people do things.

Despite this, I think the sector most likely to increase its dividends in 2025 is industrials. There are three main reasons for this. 

One is there are a lot of the firms that have strong dividend records in this sector. I have in mind the likes of Diploma and Halma in the UK and CSX and Norfolk Southern in the US.

Another is I think the sector stands to benefit from the rise of AI. Being able to operate more efficiently and use data more effectively should help businesses bring down costs. 

The third is I expect economic growth on both sides of the Atlantic in 2025. And this is something that should benefit the industrial businesses that make industry happen. 

Stephen Wright owns shares in CSX and Norfolk Southern.

Tobacco

By Mark David Hartley. The tobacco industry has long been a consistent dividend payer and looks to continue that trend into 2025. Several leading tobacco companies have been increasing their dividends for over a decade even in the face of falling tobacco sales. 

Now the future of the industry relies heavily on reduced-risk products (RRPs), such as vapes and nicotine pouches. Increasingly strict smoking laws have limited sales of traditional cigarettes, reducing profits and increasing debt within the industry. If companies don’t find new ways to increase sales in RRPs they risk becoming unprofitable and defaulting on their debt obligations.

British American Tobacco is one example. It’s currently unprofitable but continues paying dividends, with a yield of around 8%. Revenue is forecast to decline in the coming year, while earnings may increase slightly due to cost-cutting efforts. The price is forecast to remain flat for the next 12 months while dividends are expected to rise 4.7%.

Mark David Hartley owns shares in British American Tobacco.

Tobacco

By Christopher Ruane. Declining demand, regulatory pressure and litigation costs. The picture for tobacco two decades ago was gloomy. Those pressures have grown since.

Yet, British American Tobacco has raised its dividend per share annually since the last century. US peer Altria is a Dividend Aristocrat.

Past performance is not necessarily a guide to the future. Imperial Brands slashed its dividend in 2020 following years of double digit increases in the dividend per share.

Imperial’s cut could be seen as the canary in the coalmine. Declining cigarette sales volumes make it increasingly difficult for tobacco companies to keep raising dividends.

Nonetheless, I expect the sector to keep increasing dividends in 2025.

Why?

The sector is in structural decline and sells a product with nasty and potentially fatal consequences for customers. The investment case therefore relies heavily on dividends. Listed tobacco companies clearly understand that.

With strong brands, pricing power and an addictive product, I think the sector still has a significant future.

Christopher Ruane does not own shares in any of the companies mentioned.

According to the Pensions and Lifetime Savings Association, someone who earns £43,100 per year can enjoy a comfortable retirement. So earning this in passive income looks like a good investment aim to me.

Dividend stocks are a good source of cash for investors. But while investing enough to generate £3,591 per month isn’t straightforward, there are some things investors can do to make the process easier.

The numbers

Right now, the stock with the highest dividend yield in the FTSE 100 is from Phoenix Group Holdings. The company currently returns 10.25% of its market cap each year to investors. 

At that level, someone would need to invest £420,487 to generate £43,100 per year. But focusing on one stock is risky – especially when it’s a life insurance company, where unforeseen liabilities can pile up.

The FTSE 100 as a whole has an average dividend yield of 3.48%. I think that’s a much more reasonable expectation, but it means the amount needed to earn £2,608 per month in dividends is £1.24m.

That’s a lot – someone putting aside £1,000 per month would take 103 years to reach that level. But the big advantage of investing is that these things are more achievable than they seem. 

How to get ahead

For someone investing £1,000 per month, there are two main ways to cut down the time it takes to build a portfolio that can return £43,100 per year. The first is by earning and reinvesting dividends. 

Doing this at an average return of 3.5% per year brings the required time down to around 45 years. This is a big improvement, but I think investors can reasonably aim to do even better. 

The best businesses don’t just return cash to shareholders – they also grow over time. And that can help investors aiming to turn £1,000 per month into to £1.24m quite significantly.

A combination of growth and dividends has seen the FTSE 100 manage an average annual return of 6.89% over the last 20 years. That’s enough to shorten the timeframe to around 30 years. 

A stock to consider

One stock that I think is capable of doing both is Admiral (LSE:ADM). It’s another insurance company, but I think it’s an unusually good business that isn’t subject to the same risks as Phoenix Group. 

The company is mostly exposed to car insurance, where policies can be repriced after a year rather than running for decades. This helps limit the threat of long-term unforeseen liabilities.

Inflation is a constant risk to consider – as prices go higher, car repairs and replacements cost more. But Admiral has a big competitive advantage that helps it maintain strong underwriting margins.

This comes from the data the company collects on its customers using its telematics initiatives. This allows the firm to price policies more accurately, generating better profits and returns.

Growth and dividends

Admiral shares currently come with a dividend yield of around 4.5% – above the FTSE 100 average. And I think its unique strengths will help it grow and distribute more cash to investors over time. 

This is the kind of combination that can make earning £43,100 per year in passive income much more realistic than it initially seems. So investors hoping to achieve this should look seriously at the stock.

For the past decade, the S&P 500 has been the undisputed king of global stock markets. Fuelled by the meteoric rise of US tech giants such as Apple, Microsoft and Nvidia, the index has delivered breathtaking returns. But is its reign coming to an end? 

The US market is expensive, disruptive threats are emerging and now we have a potential trade war on our hands.

The S&P 500 trades at a cyclically adjusted Shiller price-to-earnings (P/E) ratio of just over 38. That’s more than double its long-term average of about 16. It’s only been higher once before – during the dotcom boom in 1999.

Can the US stock market really flop?

High valuations aren’t always a problem. Investors are happy to pay a premium for companies with strong growth prospects. 

But it does leave less room for error. If corporate earnings disappoint or growth slows, we could see a sharp correction.

Then there’s the AI story, which has lifted the US rally to the next level. ChatGPT and other generative AI tools cemented the view that the US would dominate this transformative technology.

Then China’s DeepSeek rocked up. It appears able to a similar job for a fraction of the price.

DeepSeek will either undercut US mega-caps like Nvidia, or boost demand and power them even higher. As yet we don’t know. 

Then there’s politics (isn’t there always). President Donald Trump’s tariffs could potentially trigger a global trade war.

Many of the S&P 500’s biggest firms rely heavily on international sales. If Trump’s targets retaliate, their earnings could take a hit.

One possibility is that investors start looking beyond the S&P 500 for opportunities. Enter the FTSE 100.

The UK’s flagship index has been overshadowed by its US counterpart, but does have distinct advantages. First, it’s cheap, trading at around 15 times earnings. That offers some risk protection if markets turn sour, although there’s no guarantee it won’t fall as well.

The FTSE 100 could now be a winner

Second, the FTSE 100 is packed with high-quality dividend shares. Companies like AstraZeneca, Shell and Unilever have a long history of rewarding shareholders with steady, reliable payouts.

Global asset manager Schroders (LSE: SDR) often flies under the radar but is worth considering, I feel. Its shares have struggled lately, falling 13% over 12 months and 35% over five years. Yet they’ve now jumped 10% in the last month.

Schroders has a stellar trailing yield of just over 6%. Its dividends will look even more attractive as UK interest rates fall and yields on cash and bonds slide. And it still looks good value with a P/E of around 14 times earnings.

It does face one big threat. With a hefty £777bn of net assets under management, it has good reason to fear a trade war. Those assets could take a beating if things turn nasty.

The UK is facing its own challenges, from sluggish growth to persistent inflation. But as the S&P 500 wobbles, more investors may consider diversifying into defensive, income-paying UK stocks.

The US market isn’t doomed, but investors may tread more carefully. Has the S&P 500 had its day? Maybe not, but its glory days could be over for now.

Value stocks are my favourite type. My portfolio is full of them. But I wondered whether I’d missed any obvious ones and called in ChatGPT for a second opinion.

The artificial intelligence chatbot instantly came up with three FTSE 100 stocks, but something was up. The first was Rolls-Royce, which looks more like an overpriced growth stock than an underpriced value play.

So I made myself clear. I told my robot assistant that a value stock refers to a company that appears to trade at a lower price relative to its fundamentals, with potential to recover.

ChatGPT is only a glorified computer programme, but it’s no fool. It quickly latched on.

I love Legal & General Group too!

Its first pick was insurer and asset manager Legal & General Group (LSE: LGEN). This one I can totally get behind. I hold the stock myself and love its bumper 8.4% yield.

The shares have struggled though, falling 5% over 12 months. Yet they’ve crept up 5% over the last month. That’s mostly down to growing interest rate cut hopes, which will hit yields on rival asset classes such as cash and bonds.

No dividend is guaranteed and cover is still thin at 1.1. Yet the board remains positive and is planning steady increases of around 2% a year. Legal & General isn’t as cheap as it was, trading at a price-to-earnings ratio (P/E) of 33 times earnings. The share price could be volatile in the short run, but there’s value waiting to be released over time. Plus those dividends.

I wish I’d bought NatWest shares too

ChatGPT’s second value pick turned me green with envy. That’s because it’s NatWest Group (LSE: NWG) whose shares jumped 92% over the last 12 months. Why so green? Because I bought rival Lloyds Banking Group instead, which has trailed.

NatWest was bailed out in the financial crisis. At its height, the government owned 84% of the then Royal Bank of Scotland Group. That’s now down to just 8.9% and ChatGPT says this “has further alleviated previous market concerns, potentially leading to further share price appreciation”.

NatWest still looks good value despite its blockbuster run, trading at just 8.8 times earnings. The dividend yield has dipped below 4% though.

Interest rate cuts may squeeze net interest margins and the potential UK recession might drive up loan defaults. I’d still buy if I didn’t hold Lloyds but I do. Oh well.

But I’m not too keen on Vodafone

Finally, ChatGPT picked a stock I swore I wouldn’t touch with a bargepole: telecoms giant Vodafone Group (LSE: VOD).

My AI chum says its trailing P/E of 11 suggests “it may be undervalued relative to its fundamentals”. It also praises Vodafone’s “substantial dividend”, ignoring that the 11% trailing yield will be slashed in half from March.

To be fair, ChatGPT does warn that intense competition in the telecoms sector may pressure profit margins, and that Vodafone requires “substantial capital expenditure for network maintenance and expansion, especially with the rollout of 5G technology”.

The Vodafone share price is flat over one year but down 54% over five. In fact, it’s consistently fallen throughout the millennium.

I do like value stocks. Vodafone looks more like a value trap for me though. Still, two out of three isn’t bad.

Real estate investment trusts (REITs) are often found in the portfolios of UK investors aiming for passive income. This is because the rules around these specific trusts require that 90% of profits are returned to investors in the form of dividends.

The best part is, they provide exposure to the real estate market without the high cost of property investment in the UK.

The FTSE 250 is home to some of the UK’s best REITs, offering high yields, inflation protection and long-term capital growth. Lingering inflation has been tough on REITs lately but this could change soon with the promise of interest rate cuts.

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.

Here are three popular REITs worth considering for passive income in 2025.

Primary Health Properties

For investors looking for stability, Primary Health Properties (LSE:PHP) is a good option to consider. It focuses on medical centres and NHS-backed properties, providing essential infrastructure that generates consistent rental income.

The yield’s higher than most, at around 7.5%, having risen from only 4% in 2020. The company’s also increased dividends consecutively for 27 years at an average of 3.3% a year.

However, the high yield’s largely a result of the share price declining 41.6% over the past five years.

High inflation and rising bond yields have suppressed property valuations, leading to a drop in PHP’s net asset value (NAV). The Bank of England’s hinted at rate cuts this year but if they don’t materialise, there’s a risk the price could fall further. 

However, should it recover, the current low valuation could be an opportunity to grab some shares at a low price.

Tritax Big Box REIT

Tritax Big Box (LSE: BBOX) is a logistics-focused REIT that’s popular among dividend-focused investors. It owns large-scale warehouses essential for supply chains, so its tenants are usually well-established companies that sign long-term leases.

Historically, it’s enjoyed annualised rental growth of 5.1% and maintains near 100% occupancy at most times. The yield’s a bit smaller at 5.25% but its price is more stable, up 2.5% in five years. Barring a minor reduction in 2020, the yield has been increasing for 10 years.

But like any property investment, it faces risks from interest rate hikes, tenant stability and rental growth. If construction and labour costs rise faster than rental income, it could squeeze profits and reduce dividends.

Some notable tenants include Amazon, Tesco and Ocado.

PRS REIT

PRS REIT focuses on the private rental sector (PRS), providing exposure to the growing demand for high-quality, affordable rental housing in the UK.

With property prices soaring, the demand for affordable rental housing’s on the up. PRS’ noted this need and positioned itself to benefit from long-term rental income.

At only 3.8%, it has the lowest dividend of the lot but the price is up 17% in the past five years.

Investing in REITs

FTSE 250 REITs offer attractive opportunities to earn passive income from property without the high cost of direct ownership. Whether aiming for high-yield dividends, inflation protection or long-term growth, the above options each offer a unique investment case.

As always, it’s crucial to consider the risks and assess individual investment goals. But for those seeking passive income, REITs are worth considering as part of a well-diversified portfolio

Warren Buffett has been investing in stocks longer than I’ve been alive. Given that fact, he has seen various new technology cycles hit the stock market, with the resulting rush to buy related companies to try and profit from the advancements. With AI looking like a theme that will continue to drive markets in 2025, here are two pieces of advice I’m taking to heart on this topic.

Invest in what I understand

One of the famous quotes from Buffett is to “never invest in a business you cannot understand”. That’s one reason why some of his long-term holdings include the likes of Coca-Cola and American Express. Both these companies operate relatively straightforward business models. As a result, he’s able to easily grasp any strategy changes. From there, he can factor in his thoughts on what it could mean for company finances.

This applies to me when it comes to AI. I do get the premise of AI and the role that some companies play with hardware. However, there are some AI-related stocks where I don’t really see where the driving force for the use of the tech is coming from. Some software providers that are quite specialist in providing help for training models also go over my head.

On that basis, I’m trying to resist the urge to buy shares that are going up based on AI speculation simply due to fear of missing out (FOMO).

Focus on value, not hype

Buffett once said that “the stock market is designed to transfer money from the active to the patient”. Given that the sector is developing at such a rapid pace, there can be the temptation to be buying and selling day by day to try and capture profitable swings.

Instead, I want to try and imitate his advice by being patient. I’ll focus on allocating my money to established companies that should be AI winners in the long run. For example, I own shares in Tesla (NASDAQ:TSLA). The business released results earlier this week (29 January), showing that the push on robotaxis and other autonomous driving tech is really gathering pace. It expects to trial robotaxis in Austin, Texas, as early as June. More cities are due to follow by the end of the year.

I think the company is well set to make progress in this area, with it already having a strong base with existing electric vehicle design and production. Further, it has been involved in AI for some time already, meaning it will unlikely be a flash-in-the-pan. Over the past year, the growth stock is up 103%.

One risk is that management must keep a lid on costs. It’s fine to invest heavily in R&D but they need to ensure this doesn’t compromise profitability too much in the process.

By trying to apply the thoughts of Buffett, I feel it can make me a better investor. Especially with these new trends, I can try and keep my portfolio profitable!

No FTSE 100 growth share can match the stellar recent performance of private equity giant 3i Group (LSE: III). 

Over the past five years, its share price has soared 253%. It’s even beaten Rolls-Royce, which grew 165% over that period (although Rolls smashes it over three years, rising 430%).

That means a £10,000 investment in 3i Group five years ago would now be worth £35,300, with dividends on top.

Can this share price continue to fly?

I’m thrilled I bought the shares about 18 months ago, and I’m already close to doubling my money. Yet I missed the best bit, with the shares up a relatively modest 57% over the last 12 months. Still, who’s complaining?

So much for past performance. As ever the all-important question is this: are 3i Group shares still a buy for me today? Or should I bank some profits?

Unlike many private equity firms, 3i has solely invested its own capital since 2015, avoiding the volatility of external funding. This strategy has proved incredibly successful, although mostly thanks to its star asset: European discount retailer Action.

Action is the jewel in 3i’s crown. In its latest trading update, published on 30 January, 3i reported that Action’s net sales and operating EBITDA for 2024 were up 22% and 29%, respectively. 

The retailer added a record 352 new stores in the year, driving its expansion.

That success has directly benefited 3i shareholders, as it paid a £215m dividend in December. But it still left Action with an €814m cash balance.

My worry is that it now accounts for more than 70% of 3i’s private equity portfolio. This level of concentration risk is rare in private equity and leaves 3i heavily reliant on just one company for future growth, which is very risky.

Like-for-like sales growth remained strong in 2024 at 10.3%, but that’s down from 16.7% the previous year. I’m concerned the retailer’s best growth years may be behind it.

I’m sticking with it

Beyond Action, 3i has a diverse private equity portfolio that has been resilient in tough economic conditions. 

The company has been able to secure new investments, such as its recent £121m acquisition of WaterWipes. It also realised £280m from the sale of Weener Plastics (WP), achieving an 18% premium on its March 2024 valuation.

From a financial standpoint, 3i remains strong with £792m in gross cash and an undrawn £900m credit facility. This should allow it to continue making strategic investments.

Despite my concerns, I have no intention of selling my 3i shares. But I’m hesitant to buy more. 

With Action’s growth slowing and its valuation making up such a huge portion of 3i’s portfolio, I believe the risks have increased.

Also, thanks to its success, 3i now makes up a meaty chunk of my portfolio. A bit of diversification is called for. I’ve decided to let my winnings roll, even though I don’t expect 3i to repeat the astronomical gains of the past five years.