It has been an odd and unnerving week in the stock market. While some investors may be experiencing such turbulence for the first time, one who is not is billionaire Warren Buffett.

Buffett has experienced multiple dramatic stock market swings over decades – and used them to his advantage.

As the stock market has swung around this week, I have been bearing in mind some of Buffett’s advice about such moments – one piece in particular.

Imagine the market knocking at your door daily

Buffett got the idea from his teacher Ben Graham and it is one I think is simple, but powerful.

He talked about a person called Mr Market. Nowadays we might also say Ms Market, but here I’ll just refer to him/her as ‘The Market’.

Each day (or at least each day the stock exchange is open), it offers to buy shares from you at a certain price – or sell you the same share at a similar price.

As an investor, you can buy, sell, or do nothing. Year after year, decade after decade, you have the same option.

Here’s why this idea is so powerful

That may sound like a pretty obvious insight. In fact, I do not think so.

Consider the property market, for example. In a tough market, you may list a property for months or years without finding a buyer.

In the art market, you may want to buy a painting. But there is only one and, no matter what you offer, its owner is unwilling to sell.

By contrast, the stock market allows you to buy, sell or simply sit out the storm, as you choose.

So, just because shares tumble in price does not mean an investor needs to do anything when The Market offers a price for selling or buying.

Instead, if they think the investment case is unchanged, they can simply sit back, ignore the market noise and take a long-term view. It is no coincidence that Warren Buffett has described his ideal holding time as “forever”.

Bargain hunting, when it suits you

Equally, an investor can go shopping for bargains when The Market offers a share at a much lower price than before.

This week, I did exactly that and took the opportunity of a sharp fall in price to add to my holding in Filtronic (LSE: FTC).

Over the past year, the share price more than doubled. On a five-year timeline, it has grown over 1,000%. That is the sort of performance even Warren Buffett struggles to achieve!

It reflects the company’s sales and profits growth due to a number of deals for its specialist communication equipment, notably from SpaceX. Last year, revenue leapt 56% while a net loss the prior year gave way to a £3.1m profit.

With the potential for further orders from SpaceX – which has invested in Filtronic – I reckon the business outlook is rosy. But the share price had risen sharply to reflect that.

So, when The Market suddenly offered a much cheaper Filtronic share price this week, I bit its hand off.

The heavy reliance on a single customer is a clear risk and could mean revenues slump if SpaceX stops ordering. So I want to buy at a price I think reflects such risks. Briefly, I had the opportunity!

The Lloyds (LSE:LLOY) share price has endured a volatile start to 2025. It’s been weighed down by the motor finance mis-selling scandal and renewed tariff threats from Donald Trump. These twin pressures have cast a shadow over the bank’s outlook, with regulatory uncertainty and geopolitical risk shaking investor confidence.

Despite a relatively stable macro backdrop in the UK, Lloyds now finds itself navigating a more complex environment. It’s an environment where litigation risk and international trade tensions threaten to eclipse the steady progress seen in its core retail and commercial banking operations.

Looking beyond the noise

Despite recent volatility, Lloyds shares may be poised for a re-rating over the next 24 months. Remember, the stock is up from where it was a couple of years ago, but it’s down over 10 years. The stock just hasn’t had the right conditions to grow.

The current forward price-to-earnings (P/E) ratio of 10.2 times appears elevated due to analysts factoring in provisions for a potential fine (£1.2bn has been set aside) related to the motor finance investigation. However, looking ahead, the forward P/E should decrease to 7.5 times in 2026 and further to 6.2 times in 2027, based on projections, indicating potential undervaluation as earnings normalise.

UK GDP growth forecasts support this optimistic outlook. The Office for Budget Responsibility projects real GDP growth of 1% in 2025, 1.9% in 2026, and 1.8% in 2027. Similarly, S&P Global anticipates GDP growth of 1.5% in 2025, 1.6% in 2026, and 1.5% in 2027. This steady economic expansion could bolster Lloyds’ core retail and commercial banking operations.

With a price-to-book ratio of 0.94 times and an enterprise value to EBIT (earnings before interest and taxation) multiple of 5.04 times, Lloyds shares appear cheap compared to their counterparts. As regulatory pressures subside and the UK economy returns to a more normalised growth trajectory, the stock may experience significant gains.

The interest rate conundrum

Lloyds faces a mixed picture in regards to the interest rate environment through 2027. The bank must balance potential challenges from declining rates while taking opportunities arising from its strategic hedging practices.

The Bank of England’s base rate, currently at 4.5%. This is projected to decrease over the coming years. Currently, most forecasts suggest a move to 3.5% by the end of the year, but there’s a lot of economic data that could influence that.

Oxford Economics anticipates a further decline to 2.5% by 2027. The group note structural factors like demographic shifts and subdued productivity growth. These projections suggest a prolonged period of lower interest rates, which could compress net interest margins for banks reliant on traditional lending.

However, Lloyds and its UK peers have proactively managed this risk through structural hedging strategies. By employing interest rate swaps to balance liabilities such as customer deposits and shareholder equity, Lloyds aims to stabilise revenues amid rate fluctuations. This approach, often referred to as ‘the caterpillar’, allows for consistent replacement of swaps, making interest income more predictable.

Personally, I’m being quite cautious during this period of volatility. However, I still believe Lloyds shares aren’t overpriced. Assuming no major hiccups, I’d expect to see the stock trading around 80p-85p. That’s based on a forward P/E of 7.5-8 times for 2027 — using the current forecast.

Aston Martin Lagonda (LSE:AML) shares recently plunged on fears over US tariffs on car imports. Two Fools talk about whether this could be a buying opportunity to consider.

Note: return data correct as of time of recording.

Transcript:

CHRIS: Hi Fools, Chris Nials here and I’m joined by Motley Fool analyst Zaven Boyrazian. Morning Zaven!

ZAVEN: Hello!

CHRIS: We’re going to be talking about Aston Martin today, and how fears over US tariffs on car imports have sent its share price tumbling. Zaven, what’s been happening?

ZAVEN:  Well Chris, we’ll get to the tariff talk in just a moment, but before we do it’s important to point out that Aston Martin Lagonda shares have actually been stuck in reverse (if you’ll excuse the pun) over the last year or so.

The FTSE 250 carmaker now deals at 70.2p per share, a whopping 59.5% lower than it was 12 months ago. So someone who bought £10,000 worth of shares back then would have seen the value of their investment tumble to £4,046. They wouldn’t even have received any dividends to help soften the blow, either.

But while Aston Martin’s share price sits significantly below the 661.9p it was at five years ago, there’s no doubt that it could yield sterling potential returns if it recovers. But that looks like quite a significant ‘if’ to me right now.

CHRIS: That sounds somewhat ominous!  So do you think that investors should consider buying Aston Martin shares today?

ZAVEN:  Well I think it’s easy on one hand to see the company’s incredible appeal. Its products are the epitome of style, speed. sophistication, and let’s face it, sex appeal.

Aston Martin’s had an association with the likes of James Bond since the mid-1960s, and the brand’s involvement in the dynamic world of Formula One haven’t done it any harm, either.

But while its label and products are highly desirable, the same certainly can’t be said for the company itself, at least in my view. So what’s the problem?

The issue is that Aston Martin is fighting fires on a number of fronts. Last year, pre-tax losses rose by 21% to £289.1m, partly due to a 9% drop in wholesale volumes. Sales declined on the back of supply chain disruptions and tough conditions in China, troubles that still persist.

As a result, net debt — which was already pretty concerning — shot up sharply. At the end of 2024, Aston had net debt of £1.2bn, up 43% year on year. And so the spectre of fresh rights issues and debt issuances still looms large.

CHRIS: And as if Aston Martin didn’t have enough problems, President Trump has of course drawn global carmakers further into his escalating trade battle, and AML are certainly not immune to these.

ZAVEN: Yes that’s right – so as everyone watching will no doubt have seen, the US has slapped heavy tariffs on all imported cars, putting a hefty premium on already-expensive marquee car manufacturers like Aston Martin.

On the plus side though, the delays to previously announced tariffs from the US may suggest that this thumping import tax isn’t a done deal. In addition, the UK chancellor Rachel Reeves has said the government is “in intense negotiations” with Washington to avoid any car tariffs.

But just the mere threat of trade tariffs is enough to chill my bones and I’m sure that’s the same for any investors watching who own shares in Aston Martin. Last year, sales to the Americas — dominated by demand from US customers — accounted for 40% of group revenues, making it by far the company’s single largest market.

With all of its manufacturing located in the UK, Aston Martin would be especially vulnerable to any ‘Trump Tariffs.’

CHRIS: Ok great – thanks so much for the insight Zaven, So what’s next for Aston Martin then?

ZAVEN: Well it’s hoped that a string of new car launches (including the recently revamped Vanquish and the upcoming Valhalla) could revive the company’s fortunes. But the highly competitive nature of the car market means that success is by no means guaranteed.

And on top of that, Aston Martin’s recovery is made even more difficult given those challenging economic conditions in key markets that we’ve already talked about. On balance, I believe that this is a FTSE 250 share that investors should strongly consider steering well clear of.

CHRIS: Thanks so much again Zaven, and thanks so much to everyone watching. Fool on!

Tesco (LSE: TSCO) shares have taken quite a tumble, falling 17% in the last month alone. That’s big for a company many think of as one of the safer picks on the FTSE 100, but we all know the reason. 

In this volatile new world sparked by Donald Trump’s latest round of tariffs, even reliable, cash-generating businesses like Tesco are feeling the squeeze. Over the past year, the shares are now up just 6%, and that gain is fast evaporating.

For bargain hunters, this could be the opportunity they’ve been waiting for. Tesco’s price-to-earnings ratio has dropped to just 11.3. Just a few weeks ago it was trading closer to 15 or 16 times earnings.

Is this FTSE 100 star a bargain?

Meanwhile, the dividend yield has crept back up to 4.28%. Tempting as that may sound, nothing’s without risk in these mad times.

We got an early signal from Kantar on 1 April when it reported that annual sales growth at UK supermarkets had slowed to their weakest pace in 10 months.

There were promotions aplenty as retailers fought for shoppers’ wallets. Despite that, Tesco managed to increase its market share to 27.9% with sales of £9.68bn over the period. By contrast, Asda saw its sales fall 5.6%, so the competitive pressures are real and biting hard.

Tesco’s own update on 10 April was a mixed bag. While 2024 profits rose 10.6% to £3.13bn the board warned things might not be so rosy amid rising “competitive intensity” and the added cost of employer’s National Insurance hikes, Minimum Wage increases, packaging taxes, and more.

Commentators were split. Garry White at Charles Stanley was concerned by warnings that management expects profit will fall in the current year. “Tesco’s guidance could prove to be conservative, but it will be a while before we know”, he said.

Tesco facing margin squeeze

Aarin Chiekrie at Hargreaves Lansdown highlighted Tesco’s strong position and loyal customer base, suggesting that despite a “slight pullback in its share price of late, the underlying story looks good as revenue and profits motor higher”.

Even if the price war intensifies, customers should stay loyal “helped by the Aldi price match and Clubcard prices keeping customers loyal”, Chiekrie added.

The 13 brokers offering one-year share price targets have a median estimate of just under 395p. If that plays out, it would mark a healthy gain of more than 22% from current levels. 

Of the 16 analysts offering ratings, 10 say Strong Buy, three say Buy, and three Hold. Nobody’s calling it a Sell.

Broker predictions can never be relied upon, of course, and most will have been made before Trump lit the tariff fuse. The next year or two could be volatile for just about every stock, and Tesco won’t be exempt. If a recession takes hold, shoppers will feel the pinch and so will Tesco.

Still, with a lower valuation, decent dividend and market leadership, Tesco shares are worth considering today. As ever, investors should aim to hold for a minimal of five years, while hoping the outlook is a little brighter by then.

As Warren Buffett says, when others are fearful it is the time for an investor to be greedy. Fear has been stalking the markets in the past few days and many leading FTSE 100 shares have been on the sharp end of a wave of selling.

One well-known FTSE 100 share has seen its price collapse 39% over the past year alone.

It is a share I have held for a while already. But last week I took the opportunity of a tumbling price to buy some more – and this week, as the price headed even lower, I did the same again.

Keeping a rational head in turbulent markets

That sort of behaviour can be wealth-building, but it can also be risky. While stock market turbulence pushing down a share price can lead to a bargain-hunting opportunity, it might also be reflecting some simple economic realities. Maybe the driver for a stock market correction has also reduced the long-term value of a business, something that is then reflected in its share price.

During market turbulence, there might not be time to do detailed research. So I think a smart investor is always prepared in advance, ready to pounce when they see a buying opportunity that may be short-lived.

Defying the wider market

The specific share in question, by the way, is JD Sports (LSE: JD). As the wider FTSE 100 tumbled last Wednesday (9 April), it defied the gloom and moved up sharply following a trading update.

That came after some sharp falls in the weeks before – and that was when I made my purchases.

At face value, the trading update might not seem great. The sportswear retailer said it was too early to provide clear guidance on what US tariffs may mean for its business. It reported that last year’s performance came in line with expectations and that the current year’s outlook is for a decline in like-for-like revenues.

Why was the market excited, then? Following multiple profit warnings and downgraded expectations, JD simply delivering in line with revised expectations for last year. And that was a relief.

Looking ahead, while like-for-like sales may decline, the FTSE 100 firm still expects significant revenue growth (around 14%), thanks to prior acquisitions and an expanded store footprint.

Meanwhile, JD plans to reduce its future store estate expansion activity. That should mean lower capital expenditures, so hopefully a higher proportion of operating profits will feed into the post-tax profit.

Quality company at a knockdown price

Despite that, JD Sports has a market capitalisation of less than £4bn. The retailer ended its most recent financial year with net cash, before lease liabilities. It expects 2026 profit before tax and adjusting items to be in line with consensus estimates, of £920m.

That price-to-earnings ratio looks very low to me for a solidly profitable FTSE 100 company with strong growth prospects.

Yes, tariffs are a risk given JD’s large US footprint. A weak economy could hurt consumer confidence, damaging sales and profits. But as a long-term investor I am looking beyond the short-term economic outlook.

I reckon JD Sports is a FTSE 100 bargain hiding in plain sight and have been building up my shareholding because of that.

I always keep a list of shares I would like to own if I could buy them at an attractive price. During the market turbulence in recent weeks, I have bought some of those shares, such as JD Sports and Filtronic. Rolls-Royce (LSE: RR) is also on my list. But the Rolls-Royce share price has not yet fallen to a point where I think it is attractively enough priced to add to my portfolio.

Why not?

Thinking about risks and rewards

All shares offer (or appear to offer) some potential for reward, otherwise investors would not buy them.

But all shares also involve risk. In some cases that is far, far higher than in others. But it is important to remember that even the most stable of shares involves risks.

Rolls-Royce faces risks of external demand shocks

If you do not know what an external demand shock is, the past couple of weeks have provided a very helpful practical demonstration.

A demand shock is when a market for a product or service suddenly encounters less collective demand from would-be customers. That can be because of things it has done itself, such as raising prices or reducing its distribution.

But it can also be because of an external factor. Tariffs are one and they are certainly a risk for Rolls-Royce, given its global footprint.

But there are other potential external demand shocks that I see as risks for both revenues and profits at Rolls-Royce.

Pandemic-era travel restrictions illustrates this perfectly. Demand for civil aviation cratered, driving down demand for aircraft sales and servicing. Rolls-Royce lost lots of money — and its share price was in pennies.

A fundamentally attractive business model

How times change!

The Rolls-Royce share price has soared 471% in the past five years, even when allowing for a 16% correction since the middle of last month.

Fundamentally, I think there is a lot to like about the aircraft engine business. High technical and capital requirements act as barriers to entry, giving manufacturers pricing power. Rolls has a large installed base of engines, helping provide substantial servicing revenues.

It has a strong reputation and is also benefiting from increased defence spending by many governments.

I’m still not ready to buy…

But while those factors make the business attractive to me, I would only want to invest at a price I feel offers me sufficient margin of safety when considering the risks Rolls faces.

The current price-to-earnings ratio of 23 looks high to me, although it partly reflects City expectations of earnings growth.

At a couple of pounds a share, I would be happy with the margin of safety on offer – and quite possibly also at £3 a share if business performance stayed as strong as it has lately.

Currently, though, the Rolls-Royce share price is closer to £7. For now, it will remain on my watchlist but I will not be investing.

International Consolidated Airlines (LSE:IAG) shares have delivered a tasty return over the last year. Someone who invested £10k in the FTSE 100 business 12 months ago would have seen the value of their investment rise to £13,817.

They’d also have received dividends totalling roughly £147 in that time.

But IAG shares have been in a sharp descent in recent weeks, reflecting worries over the economic environment and mounting competition.

Can the British Airways owner rise once again? And should investors consider buying IAG shares for their portfolios?

US threats

Airlines are among the most cyclical companies out there. So it’s no surprise to see them falling sharply in value as intensifying trade wars have darkened an already fragile outlook for the global economy.

In December, The International Air Transport Association (IATA) had predicted revenues and passenger numbers above $1trn and 5bn respectively for the first time in 2025. Now those forecasts are looking shaky, and particularly so as recessionary risks mount in the US, the industry’s most profitable market.

IAG, which has significant exposure to the US through its British Airways, Iberia, Level and Aer Lingus brands, would be especially vulnerable to a US downturn. Just under a third of the company’s air capacity is allocated to its Stateside routes.

There’s a good chance IAG’s already witnessing weakening transatlantic demand. Tigher immigration rules, and widescale criticism of the controversial Trump presidency, are leading to reduced bookings on US-bound flights across the industry:

Other challenges

Other significant obstacles for IAG and its share price are more traditional. Industry competition remains a substantial threat to revenues and airlines’ profit margins.

This danger took on added significance for the FTSE 100 firm in March too, as it agreed to concessions on lucrative routes to and from Boston, Miami and Chicago. IAG’s British Airways, Aer Lingus and Iberia plan to surrender London airport slots aims to soothe concerns of the UK competition watchdog.

Finally, company profits are vulnerable to travel infrastructure problems over which they have no control. Strikes by airport staff have long been a problem across IAG’s routes. Power outages at Heathrow — and subsequent flight cancellations said to have cost airlines up to £100m — have been a more recent hazard.

Risk vs reward

Yet investing in IAG shares also comes with some opportunities. The global commercial aviation market is tipped to grow substantially over the long term, driven by booming emerging markets. And heavyweight brands like British Airways give the Footsie company a great chance to exploit this.

Airbus also forecasts global air traffic will more than double over the next 20 years.

Yet on balance, I still believe IAG shares carry too much risk, even at current prices. The company now trades on a price-to-earnings (P/E) ratio of 4.2 times, which I think fairly reflects the huge challenges it faces.

There’s no shortage of cheap quality shares to buy following recent market volatility. So I think investors should consider adding other shares to their portfolios.

Stuffing a Stocks and Shares ISA with dividend-paying shares is one way to set up passive income streams. It can potentially be lucrative – but how lucrative?

That depends on a few factors. Let’s go through them in turn.

How much to invest

The first is the amount invested. In this example I use £20k. If someone had less, they could use the same approach to earn passive income from a Stocks and Shares ISA, on a smaller scale.

The investing timescale

Next is the question of how long they will invest for. There are two ways of looking at this and they produce different results. The first is simply to take the dividends out as they come.

A second approach is to reinvest them (known as compounding). That would mean no dividends for some time, during which the investment would hopefully grow, increasing the annual flow of dividends down the line for the patient investor.

Dividend yield

To bring that to life, I will introduce another factor that affects how much passive income an investor could hope to generate from a Stocks and Shares ISA, namely dividend yield.

Yield is basically the annual dividends earned expressed as a percentage of the investment. At the moment, the current FTSE 100 dividend yield is 3.4%. In today’s market, while sticking to quality blue-chip shares, I think it is possible to target a 7% yield.

If drawing dividends as they come, a 7% yield on a £20k Stocks and Shares ISA would mean £1,400 in annual passive income. Compounding for 20 years without withdrawing dividends though, the ISA would grow to a point where 7% each year would equal £5,654 in passive income each year.

That example presumes constant share prices and dividends, by the way. In practice, either could move up – or down. That is one reason I think it is wise to diversify across different shares. And £20k is enough to do that.

Finding shares to buy

One share I think investors should consider is Legal & General (LSE: LGEN). The FTSE 100 financial services powerhouse plans to grow its dividend by 2% annually in years to come. Whether it manages to do that depends on business performance. One risk I see is turbulent markets scaring investors and leading them to withdraw funds, hurting profits.

But the company has a large target market, sizeable customer base and powerful brand build over centuries. While earnings have weakened in recent years and the company has a proven business model and is solidly profitable.

Note that I did not start with yield. Remember, dividends are never guaranteed and my primary focus is identifying solid companies with attractive share prices. Only then do I pay attention to yield.

Still, Legal & General’s 9.3% dividend yield is well above the 7% target in my example.

Keeping fees and costs under control

Another variable is how much of the Stocks and Shares ISA gets eaten up with fees, charges, commissions, stamp duty and other costs. So it makes sense for an investor to compare some of the many Stocks and Shares ISAs available when deciding which one is most appropriate for their own circumstances.

The standard way to invest in a recession is to buy shares in companies that make things people need and stay away from cyclicals. But with the S&P 500, things aren’t so simple.

There’s no question the US has some quality defensive names, but these often come with prohibitively high price tags. There’s one however, that I think’s worth a look. 

Rubbish

Even in a recession, people keep producing rubbish. And Waste Management‘s (NYSE:WM) the biggest business that makes money by dealing with this.

As its name suggests, the company collects and processes waste products. And its no secret that the firm has a dominant market position in an industry that’s likely to grow over time.

The stock generally trades at a price-to-earnings (P/E) ratio well above the S&P 500 average. But despite this, it has generated terrific returns for long-term investors. Over the last five years, the stock’s up 127%, compared to 89% for the index. So the firm’s predictable cash flows haven’t come at the expense of total returns.

Growth and competition

Waste Management might be one of the most difficult businesses to compete with in the S&P 500. Possibly the firm’s biggest competitive advantage is its scale. An extensive network of collection vehicles and processing infrastructure gives the firm an edge when it comes to costs. And it creates a barrier major for competitors.

Waste Management also has scope for growth that shouldn’t be underestimated. Part of this involves increasing prices to offset inflation, but its prospects go much further than this. A global push towards sustainability incentivises the firm to develop initiatives that support this. And this looks like a durable trend that could support long-term growth. 

Risks

It’s difficult to see much to dislike about Waste Management from an investment perspective. It’s hard to compete with and demand isn’t going away. 

The biggest risk, in my view, is regulation. Changing legislation around the way things are disposed of could force the company to invest to change its existing practices. Waste Management isn’t directly regulated like a utilities company. But there’s enough interaction with local governments for this to be a meaningful risk for the firm.

In other words, while the regulated nature of the industry has the effect of raising the barrier to entry for competitors, it’s also a challenge. And investors should keep this in mind. 

Recession resistance

It’s very rare that I think investors should consider paying a high price for predictable earnings. But Waste Management is the exception that proves the rule. The fact a business has been successful in the past is no guarantee of future returns. But it’s hard to see a meaningful challenge to the company’s position any time soon.

That’s why I think the stock might be one for investors looking for recession protection to consider. A strong position in a predictable industry is an asset in any environment.

On paper, Harbour Energy (LSE:HBR) is the best dividend share to own right now. Based on its 2024 payout of 26.19 cents per share (19.96p at current exchange rates), the stock’s currently (11 April) yielding an impressive 12.9%. According to Trading View, this beats all others on the FTSE 350.

As a shareholder, this should make me happy. After all, where else could I earn a return like this? At the moment, high-interest savings accounts, government bonds and rental yields don’t come close to this figure.

But I’m not happy. In fact, I’m a little concerned.

Difficult times

That’s because the stock’s current yield is only relevant for those who buy today.

I first invested a few years ago, when the share price was much higher. Since April 2020, it’s fallen by 75%. Although I’m not sitting on such a big paper loss, my yield’s closer to 6%.

Okay, this is still much better than the FTSE 250 average of 3.65%. But the generous dividends I’ve received don’t adequately compensate me for the loss of capital.

And the sharp decline in the share price shows no sign of slowing. Over the past six months, it’s down over 40%.

Some will point to a fall in the oil price as the principal cause. But this isn’t the full story. Sometimes, stocks fall out of favour for no obvious reason.

Brent crude only started to tumble as a result of President Trump’s on-off tariff policy. Since the start of April, it’s tanked 15%. Until then, it had been relatively stable over the past year or so. However, the threat of a global ‘trade war’ is weighing heavily on the price of oil.

And a falling oil price means lower earnings for Harbour Energy. In March, the group confirmed that, for its 2025 financial year, it intended to return at least $455m to shareholders by way of dividend.

This was underpinned by an expectation — based on an oil price of $80 a barrel and a European gas price of $13 per mscf (thousand standard cubic feet) — that it would generate $1bn of free cash, before shareholder distributions.

However, the company also disclosed that this level of cash will change by +/- $100m for every $5 movement in the oil price and $1 variation in the gas price.

Brent crude is currently trading at $63. If this persists for 12 months, the group’s free cash flow will be $340m lower. Fortunately, gas remains in line with the group’s planning assumption.

What does this mean?

In my opinion, this highlights the biggest risk associated with investing in energy stocks, namely potentially volatile earnings. This makes dividends particularly precarious in the sector.

I still think Harbour Energy has plenty going for it. Following its recent acquisition of the Wintershall Dea portfolio, it’s no longer reliant on the North Sea. Some of its earnings now fall outside the scope of the UK government’s ‘windfall tax’. Also, its operating costs have fallen as a result of the deal.

And although I’m not earning a near-13% yield, income investors could consider the stock for its generous return. However, they should be aware of the industry-specific risks and be mindful that if the oil price remains at its current level (or lower), the group’s dividend may come under pressure.