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After Russia invaded Ukraine on 24 February, the volatility of global stock markets surged. Since then, the FTSE 100 index has been as high as 7,499.33 points and as low as 6,787.98. That’s a range of 711.35 points — a swing of 10.5% — in the 11 trading days to Thursday. As I write, the index stands at 7,164.12 points, 523.15 points (-6.8%) below its 52-week high. For a long time, I’ve argued that the FTSE 100 is packed with cheap shares. After recent price falls, I see plenty of blue-chip stocks dumped into Mr Market’s bargain bin. Here are two dirt-cheap shares that I don’t own, but would happily buy today for my family portfolio.

Cheap shares: 1. Rio Tinto

At their 52-week high on May 10 2021, Rio Tinto (LSE: RIO) shares hit 6,587.69p. As I write, the global mining Goliath‘s stock trades at 5,542p. That’s a drop of more than £10 (-15.9%) in 10 months. This values the Anglo-Australian miner of iron ore, aluminium, copper, and lithium at £93.4bn, making it a FTSE 100 super-heavyweight. Though metals prices have surged in 2021-22, Rio’s share price is down 3.4% over the past 12 months. I think its cheap shares offer compelling value, especially for income investors like me.

Thanks to its soaring cash flow, profit, and earnings, Rio shares trade on a price-to-earnings ratio of 5.6 and an earnings yield of 17.8%. What’s more, they offer a dividend yield of 10.4% a year — around 2.6 times the FTSE 100’s 4% cash yield. In 2021, Rio’s total dividend pay-out was $16.8bn (£12.6bn) — more than most UK companies are worth. Though I know from experience that mining stocks can be highly volatile and risky, I plan to buy Rio Tinto’s dirt-cheap shares for my family portfolio.

Income stocks: 2. M&G

The second of my cheap shares lurking in the FTSE 100 index is M&G (LSE: MNG). M&G was founded in 1931 and launched the UK’s first mutual fund that year. Once part of the mighty Prudential group, asset manager M&G was listed in London in October 2019 as a separate company. At their 52-week high on 1 June 2021, M&G shares peaked at 254.3p. As I write, they trade at 221.7p, down 32.6p (-12.8%) from this peak. This values the group at £5.8bn — a mere minnow when compared to its biggest (mostly US) rivals.

Over the past 12 months, the M&G share price has crept up by just 1.1%. To me, this suggests that this stock remains in bargain territory. Looking ahead, these cheap shares trade on a forward price-to-earnings ratio of 10 and a matching earnings yield of 10%. But what really draws me to this stock is its market-beating dividend yield of almost 8.3% a year. That’s more than twice the cash yield of the wider FTSE 100. Of course, share dividends are never guaranteed, as they can be cut or cancelled at any time. Even so — and despite stock markets being shaky lately — I will soon add this dividend dynamo to my family portfolio for its passive income!

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

In the past month, the FTSE 100 is down by more than 6%. So if I were to follow Sir John Templeton’s advice that “The time of maximum pessimism is the best time to buy“, then now’s a great time for me to buy shares, right?

But wait — since the beginning of the week, the Footsie is now up by 2.8%! So has the time of “maximum pessimism” been and gone, and I’ve missed my buying opportunity?

Well, no. But you knew that from the headline I wrote, didn’t you?

A brief history of recent times

It’s clear to all that the stock market is turbulent right now, and realistically it has been pretty erratic for the past two years.

First Covid-19 (leading to falling markets), then progress on vaccines being developed (seeing an upswing in the FTSE 100’s chart).

Followed by new variants and further lockdowns placed on Brits (another trough) before the economy showed signs of recovery (leading to a peak not far off all-time highs).

And now Russian President Vladimir Putin’s invasion of Ukraine causing near-daily swings in global markets…

Stocks under the microscope

One of the last times in recent years we saw such choppiness was between June 2015 and February 2016, when the FTSE 100 lost 20% in value, dropping to 5,537 on 11th Feb ’16 from 6,953 on 1st Jun ’15.

So did anyone buying shares after February 2016 — arguably the end of “maximum pessimism” in that period of time — mistime the market? Let’s take a look at a handful of examples:

Beginning 11th March 2015 — this time seven years ago — Greggs shares rode the volatility and by April the following year were only up 1%. Fast forward to today, the share price has increased by almost 130%!

From brick-and-mortar to the internet, let’s look at Rightmove now. From today’s date in 2015, its share price bucked the trend showed by the FTSE 100 and was up around 40% by March 2016. But over the past seven years, the shares have more than doubled!

Never too late

So to recap:

• not buying shares in quality companies just because you think you’ve missed out on the bottom of the market is foolish;
• having a Foolish, buy-and-hold investing mindset can lead to huge gains over the long term.

Whenever I have money to spare — that I won’t need in the next five years — I will likely always put it to good work in the stock market. Not for me, the paltry interest rates on savings accounts.

And while I’m fully aware that investing in shares puts my capital at risk and I may get back less than I invested, I’m confident that spending time in the market is a far better strategy for me than trying to time the market.

After all, who’s got time for that? I’d rather buy shares in quality companies, no matter the state of the market.

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

A lot of people like the idea of passive income but do not make moves to start earning it. I think an ISA can provide passive income streams not only now, but hopefully long into the future. Indeed, if I invest today in a wide variety of income shares and hold them, hopefully I can earn dividend income for decades to come.

Here is how I would invest £20,000 in a Stocks and Shares ISA before next month’s annual deadline, aiming to generate passive income for life.

Yield and passive income

The concept of dividend yield is important when it comes to passive income. The longer the time period, the more important it becomes. Here is why.

Yield is the dividend income I expect each year from a share, expressed as a percentage of the purchase price. So, for example, currently the yield on BP is 4.4%. That means that if I invested £1,000 into BP shares, I would expect to earn around £44 in dividends nest year.

In practice, that might not happen. BP could raise its dividend, giving me more dividend income. It could also cut its dividend. But right now the yield is 4.4%, so that is what I would expect to get from buying BP shares today. Compare that to competitor Shell. Its yield is 3.3%. That does not sound very different to BP – over a year, investing £1,000 should only earn me £11 less passive income than putting the money into rival BP.

But what about the next 10 years? The difference from the two yields for a £1,000 investment would be £110. Over 20 years, it would be £220. That is if I invest £1,000. If I invested all of my £20,000 into shares with the same yield as Shell, my projected dividend income over the next 20 years would be £4,400 lower than if I invested in shares with an average yield at BP’s level.

Managing risks

So, to try and set up passive income streams for life, I would earn more if I owned higher yielding shares. But that is only part of the story. Today’s yield is no guarantee of future dividend. Maybe BP’s higher yield reflects concerns that a fire sale of its Russian assets could hurt future profitability — and its dividend. A lower oil price might hurt profits at both companies.

Therefore, I do not just focus on yield when assessing dividend companies I could buy for my ISA. Instead, I try to choose businesses with a sustainable competitive advantage that I think could help them sustain or grow profits over time for years to come. I also reduce my risk by spreading the £20,000 across a diversified group of companies operating in different business areas. Specifically, I would invest £2,000 into each of 10 companies.

UK dividend shares to buy now

I would start in the financial services sector. Investment manager M&G reported its annual results this week, which included a small dividend raise. That means that the company now offers a yield of 8.3%. The results showed a small inflow in funds. One of the risks of a company like M&G is that clients withdraw funds, for example due to weak performance, leading to revenues and profits falling. So I was pleased to see the inflow. I think the company’s strong brand could help it continue to attract and retain customers.

The same is true for insurer and financial services provider Legal & General with its multi-coloured umbrella. The company yields 6.9% currently and has set out plans to keep growing its dividend in coming years. But one risk is the impact of insurance pricing rules introduced this year. That might push down profit margins.

Tobacco giants

I would also invest in the two main UK tobacco companies, British American Tobacco and Imperial Brands. They yield 6.9% and 9.0% respectively.

Tobacco generates large cash flows, which can be used to fund dividends. Declining cigarette usage in many developed markets could hurt both companies. Revenues could fall and, although pricing increases may offset some risk, ultimately I think profits could also decline.

The companies are reacting in different ways: British American is spending heavily to build its non-cigarette range of tobacco products, while Imperial is trying to grow market share in its key cigarette markets. I think the risks are reflected in the yields and hold both shares in my ISA.

Consumer goods

Recent price falls have meant some consumer goods companies offer yields I find attractive.

For example, Marmite and Dove owner Unilever yields 4.3% following a 13% share price fall in the past year. The business faces challenges, such as cost price inflation that could hurt profit margins. But its portfolio of premium brands gives it pricing power. I think many of its products, such as shampoo and cleaning products, should benefit from resilient demand.

I would also consider putting £2,000 into drinks maker Diageo. The yield here is a smaller 2.2% But the Guinness brewer has a very cash generative business model. That has enabled it to raise its dividend annually for over three decades, one of a small number of UK shares to do so. Diageo also could see cost inflation eating into profit margins and faces risks to revenues from an increase in the percentage of young people who shun alcohol. But I like its portfolio of premium brands and its strong potential for future income growth.

Utilities and telecoms

I would also consider investing some of my ISA in Vodafone. The telecoms operator yields 6.4%. It does have a lot of debt and needs to keep investing large amounts in capital expenditure to keep its networks up to date. That could hurt profits. On the other hand, it has a huge customer base and well-established brand that could help it generate substantial earnings in future.

Another pick for my ISA is electricity network operator National Grid. The company typically raises its dividend annually and currently yields 4.4%. Like Vodafone, the costs of keeping a large infrastructure network up to date could eat into profits. But the company has a strong market position. It should keep benefiting from robust customer demand.

Passive income from high yielders

I would also buy the venture capital trust Income & Growth for my ISA, with its 10% yield. It owns stakes in a variety of early stage companies. If they fare badly, the trust’s income will fall. But its track record of choosing companies is good and the double-digit yield attracts me.

Finally, I would invest in housebuilder Persimmon. It yields 10.9%. Dividend coverage is weak, so a fall in the housing market could hurt profits and endanger the dividend. But I think the high yield already reflects that risk.

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

As a stock market correction looms and global markets continue their volatile swings, I believe there are still opportunities to be seized and cheap shares around to hold through thick and thin. This FTSE 250 company has a strong balance sheet and has a positive outlook – despite any forthcoming volatility. Do I think it’s a safe buy for my portfolio?

Online trading provider IG Group (LSE:IGG) saw profits grow by 52% in 2021 as a result of a surge in transactions from a growing number of retail investor clients. The company noted in its last annual report that increased market volatility over the last couple of years have boosted the demand for trading services, as clients aim to seize volatility-related opportunities. As a stock market correction and volatility returns, I believe IG Group will see a surge in transaction volume once more and enjoy another lift to the bottom line.

A FTSE 250 company with international ambitions

In the last couple of years, IG Group has undergone an expansion away from the UK into new markets and bought US brokerage Tastytrade to capture more US clientele. Tastytrade saw revenue growth of 29% in the last five months and has also benefitted from retail investors and high options demand.

The continuing expansion is leading to increased business costs and harming profit margins in the short term. However, as the expansion slows, IG Group will likely see a fall in expansion costs while maintaining high revenues from foreign business ventures.

Robust finances

IG Group’s finances are certainly not in a bad place, with debt of £300m easily covered by the company’s cash and cash equivalents of around £660m. The company also sustains an impressive 5.7% dividend while still only paying out 44% of earnings, meaning that most earnings are reinvested into expansion and other business ventures. As expansion costs decrease, the company has the option to raise dividends slightly and reward loyal shareholders.

The UK share is currently trading with a price-to-earnings ratio of only 7.8 and has returned a robust 22% return-on-equity in the last year. Alongside this, the market has pushed the stock down 11% in the last six months, which I believe does not fit with the current narrative. 

Caution ahead?

It would be wrong for me to suggest that IG Group is completely immune to the effects of a stock market correction. If a fall in the markets scares investors and drives them away from trading, the demand for the company’s trading services would fall and profits would be harmed. The company is also highly sensitive to UK regulations surrounding the financial derivatives it sells, which creates risks outside of business control.

Despite the small risks associated with this share, I still believe that IG Group is in a good place to profit from the current stock market volatility. Strong financial foundations, an impressive dividend, and a compression of the share price in recent months further increased my confidence and encouraged me to add this cheap UK share to my portfolio.

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

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The Wizz Air (LSE: WIZZ) share price rose by more than 10% on Friday afternoon as investors rushed back to travel and leisure stocks amid a period of considerable market turbulence triggered by Russia’s invasion of Ukraine in late February.

Investors, including myself, have been on the hunt for bargains amid this current period of market volatility, and on face value, Wizz Air — which is down 50% over the year — offers huge upside potential.

However, I’m not too optimistic about this stock’s short-term outlook. Despite holding Wizz Air in my Fund & Share Account, I’m not expecting the share price to hit 2021 heights any time soon.

Wizz Air is also not a good option for me as a passive income stock, as it is not offering any dividends to its shareholders at the moment.

Cause for concern

The Budapest-headquartered budget airline has been considerably more afflicted by the ongoing conflict in Ukraine than its peers, including easyJet and International Airlines Group, and there’s a number of reasons for this.

The low-cost carrier has slashed its business growth target after stopping the sale of flights to and from Russia and Ukraine. Wizz Air was the only EU carrier to have a base in Ukraine and operated 45 routes out of the country. The company has also shifted flights into and out of Moldova to neighbouring Romania.

Beyond the operational disruption, Wizz Air was poorly positioned to absorb soaring fuel prices. Global jet fuel prices surged to near 14-year highs this week as Western nations introduced sanctions on Russian oil and gas.

But while most major airlines had hedging strategies to protect them against severe fluctuations, Wizz Air had stopped hedging, leaving it phenomenally exposed to the current price spike. The airline has even had to cut 7% of its flights in March due to its lack of forward planning.

Recent performance

The current headwinds follow two tough years for the company, although it’s true to say that other airlines fared worse during the pandemic.

Despite returning a profit during the summer, in November the Hungarian group warned that the winter period would likely be difficult, predicting a sizeable operating loss of €200m in the run up to Christmas amid the emergence of the Omicron variant.

However, 2022 started positively for Wizz Air, with a 318% year-on-year increase in passenger numbers for January as air travel surged following the emergence of new and relatively positive data about Omicron.

Outlook

During the pandemic, the airline invested heavily in new aircraft and added new routes in an effort to emerge from the Covid-induced disruption as a market leader, and take advantage of pent-up demand.

However, it is now looking likely that Wizz’s exposure to soaring fuel prices will impact operating profits. This could be particularly damaging if the prices endure into the highly anticipated summer months.

Will I buy more Wizz Air stock?

The short answer is “no”. Despite the very obvious upside potential, I’m concerned that the airline’s recovery will be hampered by the impact of fuel prices on the bottom line and a loss of business in Ukraine and Russia. In the long term, the airline may fare better, but I’d prefer to be cautious on this one.

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

As inflation continues its upward trend, I am looking for a home for my hard-earned cash. Like so many others, I still have a large part of my savings stashed away in a cash ISA earning a pittance of an interest. Although I expect interest rates to rise in the coming years, it will be too late to protect a large part of my savings from the ravages of inflation.

Hardly surprising, therefore, that I am always on the lookout for high-quality FTSE 100 income champions with proven business models and a stated aim of paying out a large chunk of their profits in the form of dividends. At present, I have identified one such company that I believe stands head and shoulders above many of its peers.

Passive income champion

The company in question is Legal & General (LSE: LGEN). Although it offers a very generous 7.2% dividend yield, I never simply take the headline figure as the primary basis for my investment decision. If that was the case, I would look elsewhere, as there are several FTSE 100 firms that offer higher rates.

Far more important to me, is whether the company has a growth mindset that will allow it to maintain and potentially increase dividend payouts in the future. L&G certainly ticks the box here.

Over the period 2020-2024 it has a stated ambition for cash, capital generation, and earnings per share (EPS) to grow faster than dividend payouts. In its 2021 results, it achieved 12% growth in both cash and capital generation. It also has a very good track record of growing its dividend. Since 2011, both EPS and dividend per share have grown at a compount annual growth rate (CAGR) of 11%.

The business also expects dividends to increase between 3% and 6% per annum to 2024. Confidence in meeting these targets is backed up by the Legal & General’s strong balance sheet, which shows a capital surplus of £8.2bn to meet its regulatory obligations in the event of an economic downturn.

Diversified business model

Most people think of L&G as a life insurance and pension provider. However, it is a lot more than that.

It has £1.4trn of assets under management with expertise across both defined benefit and defined contribution pensions. Its largest business division, generating 43% of its operating profits, is its management of institutional pension risk transfer. With an ageing population and people becoming increasingly interested in active management of their pension nest eggs, I expect continued growth in the years ahead.

The more cyclical and exciting proposition is L&G Capital. Here, earnings increased 68% in 2021. Investing across commercial real estate, clean energy, and housing, it provides huge untapped potential for the business.

Consider the government’s levelling up agenda in the north of England. Delivering on this strategy will require new assets across physical and digital infrastructure together with urban regeneration. This will require huge inward investment to create these thriving, so-called smart cities. L&G Capital is well placed to benefit from this interconnected urban model.

Of course, there are risks. Primarily, investment markets are affected by the broader economic outlook. Rising inflation together with interest rate movements can have a large effect on the value of investments the company holds. Despite this risk, with the sell-off over the last two weeks, I think the shares offer an attractive income, and I intend to buy more.

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