Life insurer Phoenix (LSE: PHNX) already has one of the highest dividend yields in the FTSE 100, at 10.6%. But forecasts suggest the company’s payout will continue to rise, meaning that today’s buyers could soon enjoy a yield of 11% on the original cost of their investment.

Here are the latest broker consensus dividend forecasts for Phoenix:

Year	Dividend per share	Dividend Growth	Dividend yield
2024	54.1p	+2.7%	10.7%
2025	55.2p	+2.2%	10.9%
2026	56.8p	+2.8%	11.2%

For some companies, I would see such a high yield as a warning that a cut’s likely. But in recent years, Phoenix’s dividend has been consistently covered by the surplus cash it generates. I think the payout looks fairly safe.

In my view, Phoenix’s super-high yield reflects two other factors. One is that slow-growing life insurers are out of fashion with investors.The other is the market view that life insurers should offer higher yields than the 5% or so that’s available from UK government bonds.

Should we worry about bond yields?

The rising yields on UK government bonds (known as gilts) have featured in a lot of newspaper headlines recently. Higher yields can have an impact on life insurers such as Phoenix, who are big gilt buyers.

The cash income provided by a bond is normally fixed through its lifespan. This means that for the yield to rise, the market price of the bond must fall. For Phoenix, rising yields mean that the market value of its bonds is falling. The company has to report this lower value in its accounts. This can lead to scary-sounding losses, on paper.

In reality, there shouldn’t be any losses. Life insurers like Phoenix normally hold most of their bonds until they mature and are repaid by the borrower – in this case the UK government. At maturity, Phoenix will be repaid the full value of its bond, regardless of prices in the secondary market. Assuming the UK government doesn’t default on its debts, Phoenix shouldn’t lose any money because of rising bond yields.

In fact, rising yields may be good news for Phoenix. As its existing bonds are repaid, the company will be able to reinvest this cash in higher-yielding bonds. In turn, these will generate a higher investment income to support the insurer’s liabilities, such as annuities and pensions.

Phoenix dividend: totally safe?

No dividend’s completely safe. Payouts can always be cut and share prices may fall if unexpected problems emerge. Phoenix is no exception. One particular risk is that each year, some of its pensions and life insurance policies mature. In effect, the business shrinks.

To offset this and support continued dividend growth, it needs to continue buying new policies. Phoenix does this either by buying existing polices from other insurers, or by selling new products under its Standard Life brand.

It’s a competitive market. There’s always a risk growth will fall short of expectations.

My verdict

Phoenix stock has not been a great performer since its 2010 flotation.

However, I think the company’s income record is excellent. The dividend hasn’t been cut since 2010. My sums show Phoenix has delivered an annualised income of 7% a year since that time.

I think this FTSE financial stock is worth considering as a long-term income buy.

Rolls-Royce (LSE: RR) shares have been unstoppable in recent times. They’re up 441% in two years and 364% over three! But what about the next five years? Well, this is where things get a bit murkier.

The stock is just off an all-time high at 587p. That doesn’t mean it can’t go higher, of course. But it does mean that there are lofty expectations baked in, with its forward price-to-earnings (P/E) ratio of 27.

Were the FTSE 100 engine maker to miss a beat with its earnings, even slightly, the share price could quickly lose altitude.

Mind you, as a Rolls shareholder myself, I love the company’s trajectory under CEO Tufan Erginbilgiç. It has attractive opportunities due to expanding global aircraft fleets, rising defence budgets, and the long-term potential of small modular reactors (SMRs).  

Nevertheless, there are other UK stocks that I think are set for higher growth over the next five years.

AI boom

One of them is Polar Capital Technology Trust (LSE: PCT). Admittedly, this FTSE 250 technology investment trust is also near a record high, with its shares surging 45% in the past year alone.

But given the focus on technology and the quality of its portfolio, I fully expect more gains ahead.

Why? Put simply, we’re in the midst of a powerful technological revolution, with rapid advances being made in artificial intelligence (AI). Even non-tech Footsie blue chips are utilising AI to improve their operations. For example, AstraZeneca is using it to identify small molecules that could become the next blockbuster drugs.

Polar Capital Technology Trust owns many of the firms already benefiting from the rise of AI, including Nvidia and Microsoft. But there are more than just the Magnificent Seven tech stocks. Another top holding is Taiwan Semiconductor Manufacturing (TSMC), the world’s leading contract chipmaker.

This year, TSMC is guiding for mid-20% growth in sales, driven by AI chips. And Wall Street is expecting compounded annual revenue growth of 20% through to 2029!

Elsewhere in the portfolio, I like the prospects of Cloudflare. This edge computing player is arguably the most important internet company that people have never heard of. As of September, 35% of the Fortune 500 were paying Cloudflare customers.

Trading at a discount

The key risk here is the trust’s sole focus on technology. If this sector were to suffer a meltdown, as happened in 2022, then the portfolio and share price would underperform badly.

Another thing to note is that the shares are currently trading at an 11.2% discount to the net asset value per share of the fund. While this could be a bargain hiding in plain sight, there’s no guarantee that the discount will narrow. Indeed, due to the nature of investment trusts, it could always widen.

Looking forward to 2030 though, I expect the AI revolution to advance and productivity gains to start translating into expanding profit margins for some companies. Even the Labour government is now pinning its hopes for UK growth on the technology!

Naturally, there will be periods of volatility ahead, meaning the FTSE 250 trust’s share price won’t go up in a straight line. But I expect it to generate stronger overall returns than Rolls-Royce over the next five years. I think it’s worth considering.

Searching for the best high-yield passive income shares to buy for long-term dividends? Here are four of my favourites.

Cash machine

Small-cap miners aren’t often famed for their large dividends. But strong cash generation and zero debt means Central Asia Metals has long delivered market-beating cash rewards.

For 2025, its dividend yield is a whopping 11%.

Profit-sapping volatility on commodity markets can make mining stocks a risk. But that robust balance sheet means Central Asia — which owns copper and lead-zinc deposits in Kazakhstan and North Macedonia — still looks in good shape to deliver big rewards.

It had cash in the bank of $67.6m as of December. That was up from £56.3m six months earlier.

Top trust

Real estate investment trusts (REITs) like Assura are required to distribute 90% of rental profits out in dividends. And so the forward dividend yield here is a healthy 9%.

However, there are other reasons why this particular trust’s a reliable passive income share. It operates in the highly stable medical property sector, where rents are underpinned by government bodies. A large percentage of its rental contracts are also inflation linked, allowing it to offset the impact of rising costs on earnings.

Assura has a strong record of dividend growth, too, which I believe should continue as the UK’s ageing population drives healthcare demand.

That said, the company’s aim to boost earnings with acquisitions does come with risks. Acquisitions that don’t work out can be extremely costly.

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.

Super star

As one might assume from its grandiose title, the Global X SuperDividend ETF (LSE:SDIP) boasts one of the highest dividend yields on the London Stock Exchange. It currently clocks in at 11.5%.

High-yield stocks can carry hidden risks. Companies often offer generous dividends to attract investors, even when facing challenges like weak earnings or increasing debt. High shareholder payouts can be difficult to maintain, potentially leading to dividend cuts later on.

Investing in an exchange-traded fund (ETF) doesn’t eliminate this threat. But it can help to significantly reduce the risk by spreading cash across a variety of shares.

The GlobalX SuperDividend ETF invests in more than 100 companies, and what’s more, its holdings span multiple sectors and all four corners of the globe. Major holdings include telecoms provider HKBN, iron ore producer Vale, and asset manager M&G.

This level of diversification provides even more protection for investors seeking a large and reliable dividend income over time.

Power up

The Octopus Renewables Infrastructure Trust invests in green energy projects across Europe. These include (but are not limited to) onshore and offshore wind farms in Sweden, Germany, and the UK, along with solar power assets in France and Ireland.

Unlike with fossil fuels, the electricity generated from ‘clean’ sources can be highly variable depending on weather conditions. But Octopus, with its wide range of technologies and broad geographic wingspan, lessens (if not completely eliminates) this threat to group earnings.

Given the stable nature of energy demand, I think this trust is — on balance — a good option to consider for investors trying to target a large and dependable passive income.

Its dividend yield for 2025 is an enormous 9.5%.

The FTSE 100 rose over 6% in 2024. The FTSE 250 was only just behind it, lifting over 5%. Plenty of big-name constituents fared poorly, of course — but there are some stocks that our free-site writers believe can easily regain their 2024 losses this year, presenting possible value entry points right now!

B&M European Value Retail

What it does: Operates various retail outlets in the UK and France, including B&M, Heron Foods and B&M Express.

By Mark David Hartley. Looking at a B&M European Value Retail (LSE: BME) price chart, it seems to follow a cyclical pattern of growth and then recovery. Now near the bottom of a dip, it looks ready for another growth period. But past performance doesn’t guarantee anything. A better gauge is the company’s valuation. The stock exhibits good value, with an average price-to-earnings (P/E) ratio of 13 for the past few years. Combined with projected earnings growth of 11.2%, it looks set for a good 2025.

There are some risks, of course. With over £900m in debt and about £740m in equity, it has a slightly strained balance sheet. That could threaten profits if earnings slip and interest eats into profits. Also, recent results weren’t great, with earnings down 25% and a profit margin of only 4.6%. Despite this, return on equity (ROE) is forecast to be 69.3% in three years.

Mark David Hartley does not own shares in B&M European Value Retail.

Burberry

What it does: Burberry is a London-based luxury fashion house, with a high-profile global brand.

By Alan Oscroft. Burberry Group (LSE: BRBY) shares were down much as 60% at one point in 2024. They’ve picked up from the bottom, but are still well below the highs of early 2023.

Some think there’s further to fall. But I’m going to go out on a limb and say I think we could see a solid recovery starting in 2025.

There’s a loss per share on the cards for this year. But analysts predict a return to earnings growth that could put the price-to-earnings (P/E) ratio at around 20 in 2026.

That might still look high, and there might not be much safety in that valuation. And the fashion business is at far more risk from sentiment than just about any other.

But I was recently reminded of why I think this is too iconic a fashion brand to not bounce back. Watching something on YouTube set in China, what did I see? Young professionals wearing Burberry check, in November 2024.

Alan Oscroft has no position in Burberry.

Burberry

What it does: Burberry is a UK-based global luxury goods manufacturer, retailer and wholesaler 

By Paul Summers. To say that 2024 has been a bad year for luxury brand Burberry is putting it mildly. An extended cost-of-living crisis has hammered sales and, quite understandably, investor sentiment. Back in September, this pushed the shares down to lows not seen since 2010.

As dire as things seem, I’m encouraged by new CEO Joshua Schulman’s ‘back to basics’ strategy. This includes targeting £40m in annual cost-savings and re-focusing on core products such as scarves and trench coats.

Sure, Burberry can do everything right and still be impacted by things beyond its control, such as a stuttering Chinese economy and/or new import duties to the US. 

But I have trouble believing that a company with such a rich heritage won’t recover its mojo over the long term. Actually, I wonder if the biggest risk facing holders right now is being snapped up on the cheap.

Paul Summers has no position in Burberry

Kainos Group

What it does: Kainos is a software and services business that helps companies digitalise and automate operations to boost efficiency.

By Zaven Boyrazian. Kainos (LSE:KNOS) has long been a tech stock darling in the UK. But in recent years, the digitalisation expert has seen its growth take a hit, and with it, its share price.

Uncertainty surrounding the political landscape in the UK, as well as higher interest rates, has put a lot of corporate and public spending on hold. Needless to say, that’s been less than ideal for Kainos.

However, with a new government in power and the national budget outlined paired with steadily falling interest rates, the group’s operating environment is steadily improving. And with UK AI spending expected to surge in 2025, Kainos’ impressive track record of double-digit growth may be on the verge of returning.

Kainos isn’t the only enterprise looking to profit from this incoming catalyst. And the exact timing of when customers will start ramping budgets back up is unknown. However, with shares trading firmly below their historical average P/E ratio, shares of Kainos look relatively cheap considering the potential growth that could be just around the corner.

Zaven Boyrazian owns shares in Kainos.

Does it take thousands of pounds to start investing in the stock market? No. In fact, it does not even take one thousand pounds.

Here is how someone who had not bought shares before could start investing with less this month.

Principles of good investment

Although it is possible to start investing with a few hundred pounds, that does not mean it is a good idea to plunge headlong into the stock market without understanding it.

In fact, that strikes me as a very bad idea – and a likely way to lose money. The point of investing is the opposite, trying to build not destroy wealth.

So I think it makes sense for the would-be investor to learn about how the stock market works and also some principles of good investing, like diversifying across different shares.

Setting up a share-dealing account

It would also be necessary to set up a way to invest, such as share-dealing account or Stocks and Shares ISA. With lots of different options, it is worth spending time to make the best choice for individual circumstances.

There can be a lag between starting this process and having cash put into the account available to invest, so it seems smart to do this even before choosing particular shares to buy.

How to invest on a limited budget

Having less than £1,000 to invest does mean that any beginner’s mistakes would hopefully be less costly than with £1k at stake.

But there are less attractive practical implications too. One is the potential for minimum fees to eat up a proportionately bigger amount of an ISA than if it had a larger sum (one reason why spending time finding the right ISA can be a good investment in itself).

Another is diversification. It is harder to spread, say, £800 across a range of shares than investing a larger amount. It is still possible though, and diversification is a sensible risk-reduction strategy for investors at all levels.

Erring towards simplicity, not complication

When people start investing they can make the mistake of trying to find little-known companies in the hope they become huge. I say “mistake” because, although that strategy can sometimes work, it can also be an abysmal failure.

My own approach is to start with a product I understand, like soap powder, and then look for a business that has a sustainable competitive advantage in that field. Unilever (LSE: ULVR) is an example, thanks to its strong portfolio of premium brands and proprietary technology (another is Reckitt).

I then consider the company’s balance sheet to see how healthy its debt position is. I also consider risks. Based on all this, I make a judgment about whether I would like to own a stake in the company.

If so, I decide what I think is a reasonable price and if the share costs more, it will go on my watchlist but not my shopping list.

While I like Unilever, its price-to-earnings ratio of 20 is higher than I would like, given risks such as ongoing uncertainty about whether spinning off its ice cream division will create or destroy value.

So I have no plans to buy the share. But the reason why illustrates my thought process when investing.

Some passive income ideas are simpler than others – a lot simpler.

For example, my own approach is buying blue-chip shares in proven business I hope can pay me regular dividends for years or even decades to come without me lifting a finger.

I like the fact that I benefit financially from large-scale businesses that have already proven they can make money.

But what if I earn some passive income only then to have to hand a big chunk of it back to the taxman? To avoid that, I use a Stocks and Shares ISA.

Even in an ISA, though, fees and costs can eat into dividend income. So I think it makes sense for each investor to make their own choice about what ISA might best suit their individual situation.

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. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Determining the size of dividend income

There are three factors at play when determining how much passive income someone can expect to receive from shares they own.

First is how much someone invests. In this example, that is £20k.

Secondly comes the average dividend yield earned on a portfolio. That is the annual dividends as a percentage of what is invested. So, for example, £500 per year equates to a yield of 2.5% on £20k. That strikes me as easily achievable and is in fact well below the average yield of FTSE 100 shares right now.

By contrast, £5,000 would mean a yield of 25%. Not only is that far higher than any FTSE 100 share offers, it is so high I see it as a red flag. If a share offers a 25% yield (and some occasionally do), it often suggests that the market is expecting a dividend cut.

But there is a third factor at play – how long an investor holds the shares.

If an investor reinvests dividends initially (a simple but powerful financial technique known as compounding), the long-term yield could be higher than the current one.

For example, compounding a £20k ISA at 7% annually, after 19 years it ought to be producing over £5,000 per year in passive income.

Yes, that is a long time to wait. But this is a serious long-term investing approach, not some ridiculous get rich quick scheme.

Finding shares to buy

The good news is that I think today’s market offers opportunities realistically to target a 7% average annual yield while sticking to blue-chip FTSE 100 shares.

Investing in multiple different shares reduces the risk if one disappoints, for example, by reducing its dividend.

One dividend share I think investors should consider is M&G (LSE: MNG).

M&G’s yield stands at 10%. It aims to maintain or grow its dividend each year. That is not guaranteed to happen in practice, but the asset manager has increased its dividend per share annually in recent years.

With a large target market, millions of clients spread across multiple markets, a strong brand, and deep industry experience, I think M&G could well keep delivering the goods.

One risk is clients pulling out more funds than they put in. That happened in the core business in the first half of last year and is a risk I am keeping an eye on.

Meanwhile, as an M&G shareholder myself, I remain attracted by the passive income prospects.

With a Cash ISA or a Stocks and Shares ISA, UK residents can retain 100% of the capital gains they earn tax-free. But that doesn’t mean they offer the same value in terms of potential returns.

Studies show that over 10 years, a Stocks and Shares ISA can return up to four times more on average than a Cash ISA. Recently, high interest rates have made Cash ISAs more attractive. But with the Bank of England eyeing further interest rate cuts, those days may soon be over.

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. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Of course, it’s not that black and white. Self-directed investments in stocks carry risk, particularly for inexperienced investors. To avoid getting stuck in a value trap, it’s critical to conduct sufficient market research and pick the right stocks.

Cash ISA returns

With a Cash ISA, investors will be able to net interest of around 4.5% at current rates. Even if that rate held, about £400,000 would need to be held in the ISA to return £50 per day (£1,500 a month).

For a dedicated investor who puts £500 a month in the ISA, it would take around 31 years to reach £400k (by compounding the returns).

Stock market returns

Unlike a Cash ISA, returns on stocks are not fixed so we can only work on averages. According to research by AJ Bell, the average rate of return on a Stocks and Shares ISA is 9.6%.

At that rate, it would only need £187,500 invested to return £1,500 a month. By investing £500 a month, it would take 21 years. 

£500 too much? Investing £250 a month would only take 27 years.

At that point, an investor could withdraw £1,500 a month or move the investment into a portfolio of dividend shares that make regular payments.

Again, this is an average and the actual rate an individual investor experiences could be higher or lower. In addition, there’s the added risk of a market crash bringing the entire value down.

Considering stocks

For investors willing to accept the risk, a self-directed ISA is the clear option. One type of asset that many early investors choose to simplify stock picking is an investment trust.

These typically provide exposure to a balanced portfolio of shares picked by an experienced fund manager.

F&C Investment Trust (LSE: FCIT) is one of the longest-running investment trusts in the UK. It was founded in 1868 as the first world’s first collective investment scheme.

The fund invests in a diversified mix of shares and assets, making it more resilient to risk in specific industries or countries. However, it is still weighted more towards US tech stocks than other sectors. Think Nvidia, Apple, Microsoft… the usual suspects. A slump in this sector would hurt the stock price. 

Moreover, there’s always a risk the fund manager makes bad decisions, hurting the fund’s performance. 

The fund also incurs an annual charge of 0.3% and an ongoing charge of 0.8%. Since January 2005, its stock price has climbed 497.4%, equated to an annualised growth of 9.35% per year. In addition to the price growth, it pays a regular and reliable dividend with a yield typically around 1.3%.

I’m yet to invest in the fund as I haven’t got the spare cash currently, but I think it’s a great one to consider for long-term value investors.

It has been a difficult week for JD Sports (LSE: JD). Having issued a profit warning barely two months ago, it issued another one this week.

Predictably – and perhaps rightly – the stock market did not like that and marked the share down sharply. It has fallen 45% since September.

Although the business continues to expect large profits for its current financial year, the shifting goalposts when it comes to expectations do not instil confidence in its management.

That said, the chief executive dipped into his own pocket this week to the tune of £99,000 buying shares in the company after they nosedived following the profit warning.

I also added to my existing shareholding after the profit warning. That is because I think the sports retailer’s share should be able to recover from this latest setback. Yes, it may take some time, but I am a long-term investor.

What’s been going wrong?

The company’s announcement was a bit too self-congratulatory in tone for my taste, something I typically see as raising questions about whether management is really grasping the issues a business faces. But it did contain some hard facts too.

In short, JD said that the market had been tougher than expected – and it expects those tough trading conditions to continue. Like for like revenue fell year-on-year in November but December showed growth.

Although the range of expected profit before tax and adjusting items was lowered, it still sits at £915m—£935m. Set against that, the FTSE 100 firm’s £4.6bn market capitalisation looks very low to me.

Here’s one big concern I have

Clearly though, there are risks. One thing in particular caught my eye in the firm’s statement. It said that the market has been more promotional than it anticipated and that it chose not to participate in that which, in layman’s terms, means it did not lower prices just to match competitors.

I think that is a credible business strategy. But it surprises me that JD, with its massive footprint, had not anticipated in broad terms how promotional its market would be in the period under review.

I am also concerned as to what is driving that promotional activity from rivals. Is it an overhang of unsold inventory, or responding to weaker spending by consumers?

Either explanation could spell trouble for JD in coming months as both suggest that there may be a growing mismatch between supply and demand in the broader market.

JD still has a proven formula

If that happens, it could in due course lead to yet another profit warning from JD – and I think there are only so many profit warnings management can issue before its credibility is shot.

But while I have growing doubts about its current management, the business itself looks robust to me.

The brand is well-established and benefits from a global footprint that gives it economies of scale. It has a proven formula and, even if profits fall, they are still on course to be substantial.

There is certainly risk here, but for the quality of operation JD has proven to be, I think the share price looks too low. That is why I have been buying more of what I see as a FTSE 100 bargain while I can.

Legal & General (LSE:LGEN) shares are the kind of thing my grandfather might have owned in an age before online investing. The company feels like it has been around since 1836 – which it has.

A 9% dividend yield might well catch the eye of retirees looking for extra income in the near future. But is the FTSE 100 stalwart suitable for investors under the age of 70?

Long-term investing

There’s a decent case for thinking the stock could work for long-term investors. If Legal & General maintains its dividend, someone who invests £10,000 today could get back £23,450 by 2050.

Furthermore, reinvesting the dividends along the way could result in even bigger returns. Exactly how much depends on the average yield over the next 25 years.

Right now, the dividend yield’s 9.3%. And reinvesting at that rate for two and a half decades results in something generating £8,589 a year in passive income. 

The big thing investors need to think about is the likelihood of the dividend getting cut. And while the business might look about as volatile as a loaf of bread, there’s quite a lot to consider. 

Insurance

Legal & General insures people’s cars, homes, lives, and probably anything else they want covered. None of its business lines could fairly be described as high-octane, but some are riskier than others. 

With car insurance, an underwriter tries to work out the risk of someone being involved in an accident and needing to make a claim. And if they make a mistake, they can price the contract higher next year.

Life insurance isn’t like this. Underestimating the risk of someone getting critically ill can expose an insurer to ongoing liabilities without the chance to increase premiums to offset this.

That – as I see it – is the biggest risk with the stock. With insurance accounting for around half of the company’s revenues, investors should be aware of the inherent dangers involved. 

Pensions

Pensions are another significant part of what Legal & General does. A lot of the company’s recent growth has come from its Pensions Risk Transfer division. This pretty much does what it says – it takes on the potential liabilities of other pension funds in exchange for a fee. So investors should have an idea about what these risks are.

One risk is longer life expectancy resulting in people collecting payments for longer than anticipated. Another’s the possibility of lower interest rates causing the present value of future costs to rise.

Both of these are difficult to predict. So investors who don’t have a working crystal ball should be wary of how much exposure the firm has to risks that can play out over a long time. 

A stock to consider buying?

In the UK stock market, Legal & General stands out as the sensible adult in a room not exactly full of reckless teenagers. But there’s a lot of responsibility on its well-established shoulders. 

The big question is whether a dividend yield of just over 9%’s enough to make up for the long-term risks. But even investors who aren’t looking for instant income should give it some thought.

This time last year, Anglo Asian Mining (LSE: AAZ) was very firmly in penny share territory.

Since then however, the share has jumped a stunning 83% in value. Can this performance help provide me with any lessons for when I am assessing possible penny shares to buy for my portfolio in future?

Right place, right time

The company’s focus on precious metals and copper has positioned it well to benefit from surging metal prices. Last year saw copper prices perform solidly, silver hit an 11-year high, and the yellow metal hit a new all-time high.

So a lot of Anglo Asian’s share price performance reflects the fact that it operates in markets that are riding high. Sometimes it is easy to anticipate that a given market may do well and sometimes it is not.

Ideally though, I prefer not to be too highly exposed to very cyclical markets unless I am confident I am getting in fairly close to the bottom. Even after the recent rise, Anglo Asian shares are 20% lower than five years ago.

Investing is about the future

Anglo Asian’s interim results talked of its ramp-up to full production being underway. But suspension of some activities during the first six months of the year meant that revenues fell by over 50% year-on-year.

A profit in the prior year period was replaced by a loss. Production of all three metals was down markedly.

In many companies, a dramatic cut in production and revenues, accompanied by a loss, would see the share price crash not rise.

But clearly, in recent months Anglo Asian shareholders were looking at the future potential once temporary setbacks were a thing of history and the company could get back to a much higher level of production again.

On top of that, its large copper reserves could be more fully exploited as the company develops more infrastructure at a key site.

Concentration risk

That is interesting as a lot of penny shares – especially in the natural resources sector – are focused on an investment case about future production potential. One thing that helped set Anglo Asian apart, in my view, was the fact that it had already demonstrated it was able to mine and sell at volume.

Indeed, the company announced this week that, after resuming full processing at its key mine in the most recent quarter, production more than doubled compared to the prior quarter.

But — again like many shares in the natural resources sector — the flipside of focusing on just a few metals is that, if prices move down sharply, Anglo Asian’s profitability will likely follow. Its heavy focus on one mining territory (Azerbaijan) is positive in terms of making the business less complex to operate, but ties the firm’s fortunes more closely to geopolitical risks there than if it had a more diversified portfolio.

That — and cyclically high precious metal prices — puts me off buying this one for my portfolio just now.

But some of the factors above that separate it from some other penny shares –such as a proven business at scale – do give me food for thought when assessing penny shares to buy for my portfolio.