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Shares in educational publishing specialist Pearson (LSE: PSON) first climbed a few percent on Friday morning, with no apparent news behind the increase. That was quickly followed by a 20% jump in the Pearson share price, as the reason emerged.

A late morning announcement told us that “Apollo Global Management, Inc. and its subsidiaries (Apollo), on behalf of certain of its affiliated funds, notes the recent market speculation in relation to Pearson and confirms that Apollo is in the preliminary stages of evaluating a possible cash offer by certain of Apollo’s affiliated funds for Pearson.”

The share price had been in a bit of a slump. A nine-month trading update in October disappointed the market, and led to a rapid sell-off. But prior to that, the stock had been in a decline following years of falling revenues. Even a brief spike following full-year results in February quickly reversed. Over the past 12 months, Pearson stock is down 21%, even after Friday morning’s jump.

For the year to December 2021, Pearson reported a 33% rise in adjusted underlying operating profit. The adjusted and underlying nature of that does add risk of uncertainty. But I found it encouraging.

Pearson share price valuation

On adjusted full-year earnings, the current Pearson share price (after Friday’s hike) suggests a trailing P/E of 22. On the face of it, that doesn’t look like a screaming bargain to me. The full-year dividend yield came in at 2.6%. Again, that’s perhaps not immediately attractive. But if growth is back on the cards, I reckon it could be the start of a healthy long-term income stream.

Tellingly, the company also announced a £350m buyback programme to commence in 2022. That suggests Pearson sees its own shares as undervalued. And the fact that it has capital to return in this manner indicates confidence in its long-term outlook.

That buyback hasn’t started yet. And with Apollo confirming there’s a possible cash offer on the cards, it might never happen now. But the talk of an offer does indicate one thing — there are others who see the Pearson share price as too low. 

Waiting time

While Apollo’s announcement gave the Pearson share price a boost, it contained no hint of a possible offer price. The release told us: “There can be no certainty that any offer will be made, nor as to the terms on which any such offer might be made.” And that’s pretty standard when a possible takeover is in the making.

About the only thing we can be sure of is that the clock has started on any offer timescale. According to the takeover code, Apollo now has until 8 April to to announce a firm intention to make an offer, or to tell us there’s not going to be one.

Either way, we’ll know within the next 28 days.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson. 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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Key points

• In a trading update for the three months to 31 December 2021, net sales rose 7% year on year
• Adjusted earnings for the year ended 28 February 2022 are expected to be £125m
• The firm has a compound annual EPS growth rate of nearly 32%

Online fashion giant Boohoo (LSE:BOO) owns a number of recognisable brands such as PrettyLittleThing and Debenhams. Yesterday, the Boohoo share price was up 13% after a trading update. It currently trades at 87.5p. I want to know more about this update and how the firm is performing over the longer term. While I already own shares in the business, should I now buy more? Let’s take a closer look.

Why did the Boohoo share price jump?

The company released a trading update yesterday for the three months to 31 December 2021. Striking a positive note, it stated that net sales for the period rose by 7%, year on year. On a two-year comparison, net sales increased by 48%.

Furthermore, gross sales rose by 26% with 57% growth on a two-year basis. For the full 2021 calendar year, overall sales grew by 14%. Compared with the 2019 calendar year, this was a 61% rise. This suggests that the firm is exhibiting consistent and sustained sales growth.

On the other hand, the update stated that operations were still “being impacted by higher returns rates”. This is not a new problem and it prompted Barclays to downgrade the company to ‘underweight’. Cutting its target price from 135p to 85p, the investment bank believes the firm is “coming out of the pandemic with the challenge of sustaining elevated growth”.

However, the trading statement also explained that the business expects adjusted earnings of £125m for the year ended 28 February 2022. This was in line with prior guidance and investors reacted with some excitement yesterday.   

Historical results and wider issues

Looking further back, Boohoo also has a strong results record. Between 2017 and 2021, for the years ended 28 February, revenue increased from £294m to £1.7bn. Furthermore, earning per share (EPS) rose from 2.23p to 8.89p.

By my calculation, this means that the firm has a compound annual EPS growth rate of nearly 32%. This strong record gives me great confidence in the company. It should be noted, however, that past performance is not always a reliable indicator of future performance.  

In addition, the firm announced the completion of its Agenda for Change this month. This puts into practice some recommendations from the 2020 Independent Review into how the company operated. For instance, workers’ pay at factories used by Boohoo is now more transparent to ensure it meets minimum wage rules and suppliers not complying with this have had contracts terminated. The business also opened its own factory in Leicester and production started in January. 

Overall, I like this company. It has a strong and consistent earnings record. While there have been shortcomings in the past, the firm genuinely seems to have addressed recommendations. I will be adding to my holding at the current Boohoo share price. 

Andrew Woods owns shares in boohoo group. The Motley Fool UK has recommended Barclays and boohoo group. 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.

NIO (NYSE: NIO) shares had yet another disappointing day of trading yesterday, closing 11% lower at $17.77. Over the past 30 days, the stock has fallen 26% and year-to-date returns are even bleaker, with the share price falling over 46%.

The primary reason for the drop in NIO shares yesterday was tied to the Hong Kong Stock Exchange. NIO decided to list secondary shares on that exchange to help mitigate the risk of Chinese regulatory pressures. This news was initially met with optimism, as the shares rose by double-digits on March 9, the day before being listed. However, after its debut trading day there, the shares closed 0.7% lower. This poor result seems to have spilled over into the American market, pushing NIO shares down.

I’ve been a holder of the stock for some time, so the recent share price movements have been pretty painful to watch. However, I am still a firm believer that the shares could offer long-term growth. As such, is now a good time for me to load up on more? Or should I steer clear of the Chinese EV powerhouse?

Electric growth

In its February 2022 delivery update, NIO announced it had delivered 6,131 vehicles, up just under 10% year-on-year. In addition to this, total deliveries for 2022 so far are up 23.3% compared to the same period in 2021. This momentous yearly growth is not exclusive to 2022 either. In fact, the firm’s deliveries for 2021 were over 109% higher than in 2020. If NIO can keep delivering stellar figures like these, I think investors will feel more positive about the shares.

Risks for NIO shares

Regardless of the exceptional growth at the firm, there are still a number of headwinds the business needs to overcome before it can be said to be plain sailing. Firstly, the EV industry is becoming extremely competitive. NIO has direct competitors such as Xpeng and Li Auto, which both saw 100%+ sales increases in January.

In addition to this, more established big names such as Ford and General Motors are pouring billions into building all-electric fleets with mass-scale existing manufacturing. For context, BDO reported that the top 20 global carmakers spent a combined £71.7bn on EV R&D from 2019-2020.

Rising interest rates are also a direct threat to NIO shares too. Firstly, high growth stocks are hit hardest when rates rise, due to decreased investor confidence. Secondly, it magnifies debts. NIO currently has almost $6bn of long-term debt on its balance sheet and hence rising rates could pose a big threat to the company.

What I’m doing now

NIO shares suffered due to a disappointing debut trading day on the Hong Kong exchange. However, I won’t be using this dip to add more shares to my portfolio. In my opinion, the current headwinds the firm must face are simply too risky to ignore.

Dylan Hood owns shares of NIO Inc. 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.

Of all possible passive income ideas, one of my favourites is buying dividend shares. That is because I can start with hardly any money, and gradually build up stakes in successful, profitable companies. Over time, if they pay dividends, I will hopefully see my passive income streams build up.

One way to do this would be to start saving a small amount regularly, such as £5 a day, in a Stocks and Shares ISA. Here is how I would do it.

Saving a little, often

£5 a day might sound too little an amount to be worth investing. But in fact it soon adds up. If I started today then by the end of 2022 I would already have almost £1,500 to invest. That is a significant amount, in my view. If I invested it in dividend shares with an average yield of 5%, I could hopefully expect around £75 in passive income from dividends next year.

But things get better than that. Once I own shares, if they pay dividends I get them until I sell the shares. So, imagine I keep putting aside £5 a day next year. If I buy more shares with the same average yield of 5%, that will hopefully generate around £91 of dividends annually. But I would also hopefully receive another £75 of dividends from the shares I buy this year. Over time, drip-feeding £5 a day into my Stocks and Shares ISA could help me generate growing passive income streams.

Reward and risk

One temptation some investors face when investing is trying to boost their dividend income by choosing high-yielding shares.

In itself, that can make sense – I own M&G with an 8% yield and 9% yielder Imperial Brands, for example. But it is important not to chase dividend yield and ignore risk. All shares carry risks, but high yields often indicate City scepticism that a company can keep paying out its dividends at the current level. Sometimes, such doubt is misplaced. But on other occasions, a high-yielding share could turn out to be a yield trap, where a high dividend ends up disappearing.

Every investor needs to decide what their own risk tolerance is. But if I was investing for the first time, I would err on the same of being overly cautious when it came to risks. I would also buy a variety of shares across different industries in my Stocks and Shares ISA. That diversification could help lower my risk if a share I bought ended up cutting its dividend.

Keeping or reinvesting passive income

Different Stocks and Shares ISAs have a variety of rules and fees. But typically I could have the choice either to withdraw my passive income as cash, to reinvest it in the shares that gave me dividends, or use it along with my ongoing £5 a day to buy new dividend shares.

Over time, I think I could increase my passive income streams, using just £5 a day. With this year’s Stocks and Shares ISA deadline less than a month away, I would start putting my passive income plan into action today.

Christopher Ruane owns shares in Imperial Brands and M&G. The Motley Fool UK has recommended Imperial Brands. 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.

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.

When holding dividend shares for passive income, a constant risk is that companies will cut their payouts. From tough trading conditions to cash flow problems, there are all sorts of reasons that even the biggest firms cut their dividends sometimes. But one UK dividend share has just announced a double-digit percentage increase in its annual payout. Not only that, the increase marks the 54th year in a row that this company has raised its dividend!

Engineering specialist

The company in question is engineering specialist Spirax-Sarco (LSE: SPX). The company is not a household name, but that is partly because its customer base is commercial.

There is a lot to like about the business model at Spirax-Sarco, in my view. Many of its products are needed for time-critical situations where quality matters, for example replacing a broken part that has caused a production line to stop. So customers are willing to pay premium prices. That can help sustain high profit margins for the company. Last year its post-tax profit margin was 17%.

The company benefits from deep relationships with many customers due to its ability to tailor bespoke solutions for specific needs. That helps build customer loyalty, which in turn should help boost future revenues.

One risk, though, is any cutback in spending by customers if there is a recession. Although some of Spirax-Sarco’s output is essential whatever the economic situation, not all of it is. I think a bad recession could hurt both revenues and profits.

UK dividend share with long track record

The company announced its annual results yesterday, and said it plans to raise its annual dividend by 15%. That is the fourth time in five years that the company has increased its payout by double-digits in percentage terms.

That level of dividend growth would catch my attention at any company. But what is incredible is that Spirax-Sarco has raised its dividend every year on the trot for more than half a century. That is an incredible record and very unusual among UK shares. It is particularly noteworthy given that the recent increases are substantial ones and not just tokenistic efforts to maintain this record.

With the latest dividend covered two-and-a-half times by earnings, the dividend increase looks well supported to me. As with any company, there is no guarantee that the company will keep increasing (or even paying) its dividends in future. However, I would be surprised if management did not at least try to keep the increases coming.

Spirax-Sarco dividend yield

So far, so good – this UK dividend share could easily slot right into my income portfolio if I could buy it at an attractive price.

But other investors also like the income story here. So the shares are not cheap. The Spirax-Sarco share price means that its current dividend yield is only 1.2%, which does not excite me much. The shares have fallen 15% since November but are basically flat over the past year, growing less than 1%. With a price-to-earnings ratio of 35 they look cheaper than before. But they are still too pricey for my tastes, even for such a high-quality company. So for now, I will not be adding Spirax-Sarco to my portfolio.

Christopher Ruane has no position in any of the shares mentioned. 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.