I hold Persimmon (LSE: PSN) shares for the dividends, which I expect to keep ahead of inflation. That’s probably just as well really, as the Persimmon share price has lost 25% over the past 12 months. But I don’t necessarily see that fall as bad news, not as a long-term investor.

No, I see it as an opportunity to purchase more. Buying in the dips brings two benefits when it comes to dividends shares. One is that by hopefully buying in cheap I’ll enjoy some share price recovery. But the main one is that I’ll get to lock in higher effective dividend yields. So what does the dividend look like?

In its latest full-year results, Persimmon declared an ordinary annual dividend of 125p per share. On top of that, shareholders will pocket an additional 110p as part of the company’s return of surplus capital.

Dividends beating inflation

On the current Persimmon share price, that’s an ordinary yield of 5.9% and a total yield of 11%. But how long the surplus capital return will continue is uncertain, with the company saying it is “subject to continuous review, in line with the group’s strategy“.

But while we have it for the year just ended (and, hopefully, a bit more for the current year), it helps us keep ahead of inflation. January inflation in the UK hit 5.5%, and rising prices on the back of the Russian war in Ukraine may well push it higher.

Even with that, Persimmon’s ordinary dividend is close to coping. And the special payments help take me way ahead of inflation in my dividend income this year.

Over the longer term, I see inflation falling again. And I reckon there’s a good chance Persimmon’s ordinary dividend will keep me ahead of it.

A strong 2021

Despite rising mortgage costs and the financial squeeze hitting the housing market, Persimmon saw its number of completions rise in 2021. From 13,575 in 2020, the 2021 count reached 14,551. Prices are holding up too, with an average selling price of £237,078 (from £230,534).

Underlying pre-tax profit for 2021 rose to £937m (from £863m). And the company ended the year holding cash of £1,247m (from £1,234m). I reckon that is good news for future dividend prospects.

So why does the Persimmon share price remain weak? Its forward sales position at the end of December had slipped a little, down to £2.21bn from the previous year’s £2.27bn. And the number of UK developments had also dropped from 300 to 290. That, I think, hints at the potential downside for a Persimmon investment over the next couple of years.

Persimmon share price pressure

Rising inflation will inevitably lead to rising interest rates. That’s going to increase mortgage costs, which in turn will put pressure on the housing market. The UK’s housebuilders have had a few strong years now, despite the pandemic. So I fear we could be seeing the current Persimmon share price weakness turning into something of a cyclical downturn.

Still, I’m investing with a 10-year horizon, not one or two years. And while I’m still seeing healthy cash generation and dividend strength, I want to buy more.

Alan Oscroft owns Persimmon. 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 Lloyds (LSE:LLOY) share price has recently been on a bit of a downward spiral. After the company released its full-year results for 2021 on 24 February, the stock took quite a tumble. And since then, it’s down by almost 15% (but up by 10% over the past year). What was in these results that has investors so upset? And is this secretly a buying opportunity for my portfolio? Let’s explore.

The Lloyds share price versus earnings

Despite what the share price would indicate, earnings weren’t seemingly all that bad. Net interest income from its issued loans grew by a mediocre 4%. But with Covid-19-related impairment charges virtually nowhere to be seen, pre-tax profits came in at a massive £6.9bn. That’s up from £1.2bn a year ago and is even higher than the £4.4bn reported in 2019.

Given this is obviously positive news, why did the Lloyds share price drop? From what I can tell, two primary factors explain the downward momentum. The first is the generally jittery market environment investors are currently in. But the second is simply that these results weren’t quite good enough to keep shareholders happy.

The consensus from analysts placed the forecast for pre-tax profits at £7.2bn, meaning Lloyds missed expectations target by around £300m. And it’s not uncommon for stocks to take a hit following disappointing results. But is this a buying opportunity or a sign of trouble ahead?

Time to buy?

At a price-to-earnings ratio of 6, the Lloyds share price is starting to look relatively cheap, in my opinion. But there could be a good reason why the market has priced the business so low. When looking at the full-year results, the main culprit behind the missed earnings target was a spike in total costs – specifically a £1.3bn remediation charge.

What’s this? Basically, it’s a fine the bank has to pay for breaking the rules. Around £510m is related to legacy issues that have already been largely resolved. But the remaining £790m is the group’s full liability to victims of the HBOS Reading fraud.

As a reminder, HBOS is one of Lloyd’s insurance subsidiaries acquired in 2009. It was discovered that corrupt staff were miss-designating hundreds of businesses as impaired, allowing the group to illegally seize assets. This is arguably one of the worst banking scandals in recent years. However, it’s worth mentioning that the fine is ultimately a one-time charge. So, from a purely financial perspective, it seems the Lloyds share price is currently being affected by a short-term issue.

Fraud is hardly a new concept in the world of banking. And it’s a leading reason why some investors boycott the industry entirely. But regardless of the moral argument, banks like Lloyds ultimately provide services that enable businesses and consumers alike to grow capital.

Now, with interest rates rising, the bank’s lending margins are set to expand. And pairing increased profitability with a low share price makes Lloyds potentially one of the best UK shares for me to buy now. At least, that’s what I think.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking 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.

People often look for passive income as a way to improve their financial situation. But many passive income plans require lots of money to start with — which many people do not have. That is one reason I like the approach of investing in dividend shares. I could do that beginning with nothing, and using just a few pounds a day to build up my income-generating resources.

Here is an example that requires me to put aside £5 a day.

Building up investment funds

To buy dividend shares, I will need money. That is where the £5 a day comes in. I can save that up, day after day and week after week. It should soon start to pile up. Over a year, that level of daily saving adds up to over £1,800.

The regular discipline should help me get into a habit and hopefully barely notice that I have £5 a day less in my wallet. But starting to build up these investment funds is critical. It will be the foundation of my long-term passive income plan.

Investing in dividend shares

That income will hopefully come in the form of dividends from companies. Not all listed firms pay dividends – and their historic performance is no guarantee of what they will do next.

So, when looking for dividend shares to buy, I would hunt for companies with business models I reckon ought to help them generate large free cash flows in the years to come. Such free cash flows could be paid out to shareholders as dividends in future.

For example, electricity distributor National Grid has limited competition and demand for electricity distribution should remain robust. Cigarette maker British American Tobacco has been mitigating the risk of declining cigarette volumes by raising prices, as well as introducing new product formats. Insurer Legal & General has an iconic brand in a market that I expect to continue seeing strong demand.

But things can always go wrong, sometimes in ways no one expects. Maybe shifting patterns of electricity use will mean National Grid needs to boost spending on its infrastructure, for example, hurting profits. Legal & General could see its profits suffer if a new market entrant starts a price war to attract customers. So, I would diversify my portfolio across different companies and business sectors. That way, if one of them suddenly cuts or cancels its dividend, the impact on my overall portfolio will be reduced.

Is this a viable passive income plan?

If I invested one year’s savings in a diverse portfolio of dividend shares yielding an average of 4% (meaning their annual dividend was 4% of what I paid for the shares), I would expect passive income of around £73 per year.

I could try to get more by investing in higher-yielding shares. But sometimes high yields signal an elevated risk, so I would need to do my research carefully. Remember, my priority is finding companies with resilient business models that I think could generate substantial free cash flows for years to come.

Over time, hopefully, this straightforward passive income plan would see me grow my earnings without needing to work for them. But one thing I need to do is make a start. If it stays as a plan, without being put into action, it will not earn me even a penny of passive income.

Christopher Ruane owns shares in British American Tobacco. The Motley Fool UK has recommended British American Tobacco. 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.

That stock markets have been in a difficult place recently is no secret. But progress can be made even during challenging times. Let me give you an example. I had long had paper and packaging provider Smurfit Kappa Group (LSE: SKG) on my investing wish list. But somehow or the other, I never seemed to get around to actually buying the FTSE 100 growth stock.

Smurfit Kappa’s share price dip 

Until now, that is. In the recent stock market correction, it dipped pretty dramatically. It lost almost half of its value in the span of a month. I can see why this has happened. The company had been warning of increasing cost inflation for a while now, including in its latest update. Yet going by its share price trends, investors appeared to be confident in the FTSE 100 growth stock. 

And then the war happened, which has made the inflationary threat even bigger. While many other FTSE 100 stocks have corrected too, this is probably most evident in those affected by commodity prices. So, it is no surprise really, that other packaging providers like Mondi and DS Smith have seen a significant fall as well. 

Case to buy the FTSE 100 growth stock

But as any investor who has been around for a while knows, the best time to buy high-quality stocks is exactly during such times. This is why I bought Smurfit Kappa and I am already glad I did. Just yesterday, it gained 8%. What is there to complain about? Especially now, when a lot of my other stock investments are looking pretty bad.

Moreover, I reckon its price could rise. One of the simplest ways to estimate this is by considering its market multiples. Its price-to-earnings (P/E) ratio has fallen below that for the FTSE 100 at 14x, making it a cheap stock whose price could potentially rise at least a shade, if not more. At 13.5x, its P/E is slightly higher than that for its FTSE 100 peers. But then its recent numbers are good too, which means that a higher P/E is probably justified. 

What happens next

I do think that these numbers could take a hit if the tragic Russia-Ukraine war continues because it means that prices will rise. And that could impact both its costs and its ability to pass them on, as consumers become more selective over time of what to buy as the real value of money declines. 

But I also believe that over the long term, its prospects look pretty good. One of the big-picture themes I have been tracking for some time now is the e-commerce ecosystem, which is really the future of shopping. 

Companies like Smurfit Kappa play a crucial role in its development, along with others like delivery company Royal Mail, warehousing real estate investment trusts like Segro and of course e-commerce marketplaces like Amazon. I think over the next 10 years, this segment is likely to grow by leaps and bounds, which is why I have bought Smurfit Kappa and will hold it for a long time. 

Manika Premsingh owns Smurfit Kappa 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.

Holders of Argo Blockchain (LSE: ARB) stock have seen the shares move around a lot in the past few days. But over the past year, the overall movement has been mainly in one direction: down. The Argo Blockchain share price has lost 75% of its value in just 12 months.

Could this present a bargain buying opportunity for my portfolio?

Reasons for the fall

The company is heavily exposed to cryptocurrencies such as Bitcoin. It mines crypto itself. It also operates data centres that are optimised for tenants mining crypto. So, a fall in the value of crypto often spills over into the Argo Blockchain share price.

But I do not think that is the whole story. After all, the company’s 75% loss of value in the past year is far greater than the 30% decline in the dollar value of Bitcoin over the same period.

Investors may be reacting to what they perceive as an overvaluation at Argo. Last year its shares soared 196%. But the share price fall may also reflect investor concerns about prospects for the business. A massive new data centre it is building in the US adds substantial costs for the company, at a time when the future of crypto is less clear than ever.

Crypto regulation

That lack of clarity comes from a number of countries banning crypto mining, while others seek to regulate it.

The US has been preparing a strategy for dealing with cryptocurrency, which is due any day now. Anticipation of what it might contain has helped boost the Argo share price this week. If the US decides not to ban crypto outright but rather to regulate it, that could help set a clearer framework for its mining and trading. For Argo, I think that could be positive, not least because the US location of its large new facility could provide a competitive advantage over miners in other countries.

Business performance

What concerns me a bit more about Argo right now is its business performance. Its February mining results were noticeably weaker than the month before. It pinned this on a network difficulty increase – which I think could remain the case in coming months – and cold weather impacting some of its facilities. But those are in Canada and the northern US, so I see that as a problem that could come back every year for the company.

My move now

I continue to see potential in the Argo business. Its data centres mean it could create value aside from its own crypto mining operations. Its strategy of sometimes selling some of its own crypto also means it can generate hard cash. Last month, it appears to have sold 163 Bitcoin or equivalent.

But the risks remain substantial. Not only are those the pricing and regulatory risks that affect all crypto miners. Argo is also taking a risk with the large expense of its new US facility. Depending on crypto pricing, that could turn out to be a very costly white elephant. For now, I am holding my Argo position without increasing it. I am waiting for future news on the US facility’s completion and operation. Given the risks involved, I would not say that the Argo Blockchain share price is a bargain for my portfolio.

Christopher Ruane owns shares in Argo Blockchain. 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.

The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Over the last month, BP (LSE:BP) shares have fallen by just over 10%. That’s not exactly a major crash when compared to other constituents of the FTSE 100. And over the last 12 months, investors have still enjoyed a respectable 18% return. But the stock remains firmly below pre-pandemic levels, despite oil prices being just under $120/barrel versus $65/barrel at the end of 2019. So, is this stock too cheap? Or is this a trap for my portfolio? Let’s explore.

Why BP shares are on a downward trajectory

Understanding the recent tumble of BP shares is hardly difficult. With the tragic geopolitical situation in Ukraine, the group’s Russian assets have become financially and morally compromised. Consequently, management has decided to sever ties with its Russian partners by selling its 19.75% stake in Rosneft. With emotions running high and a sudden asset disposal, I’m not surprised to see the stock take a hit. But is there a valid reason to be concerned? Maybe.

Trying to sell a stake in a Russian business is not exactly an easy thing to do currently. And consequently, BP is actually taking a $25bn hit for doing so, thanks to unfavourable foreign exchange rates as well as impairment charges.

As horrible as that deal sounds, it’s worth remembering this is a one-time expense. And if the situation in Ukraine continues to escalate, the cost of disposal could rise even higher in the future. So, management seems to be just tearing off the plaster, so to speak. But that doesn’t mean the bleeding has stopped.

Rosneft was responsible for around a third of the group’s production capacity. And that translated into 17% of BP’s underlying profits that have just evaporated after management’s decision. Needless to say, a shrinking bottom line is not good news for BP shares.

Taking a step back

Seeing production capacity take a hit when oil prices are at their highest point in years is not exactly an encouraging sight. But after doing some rough calculations, it may not ultimately matter.

Excluding the contributions from Rosneft, in 2019, BP’s upstream production hit 2.6 million barrels of oil equivalents per day. With a 94.4% facility uptime and an average oil price of $61, the upstream revenue can be estimated by simply multiplying these numbers together. In this case, the result is $54.6bn, which is pretty close to the reported value of $54.5bn.

Let’s assume that 2022 non-Rosneft production will return to pre-pandemic levels, upstream plant reliability stays at 94%, and oil prices remain stable at around $120/barrel. Using the same formula, that returns an estimated upstream revenue of $107bn.

I’ve made a lot of assumptions here, and none of this may come to pass. But as a ballpark figure for a best-case scenario, it suggests BP shares could be set to surge even without the contributions from Rosneft.

Time to buy?

As exciting as the chance of the firm’s upstream revenue doubling is, there remain plenty of unknowns. Therefore, even though BP shares might be currently cheap, I’m keeping it on my watchlist for now.

Zaven Boyrazian 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.

The last month hasn’t been the greatest time for the BT (LSE:BT.A) share price. The stock is down nearly 15% despite no new earnings reports or other major announcements by management. So, is this just a case of market volatility? Or is there something else going on? Let’s take a closer look.

The falling BT share price

The last time I looked at BT, I was left quite optimistic about the future of its share price. The group’s third-quarter results showed impressive progress in its 5G and fibre-to-the-premises (FTTP) rollout. Some 6.4 million customers are now leveraging the power of the next-generation telecommunication network. Meanwhile, 6.5 million homes are enjoying superfast internet (mine included), with the firm seemingly on track to hit its 25 million homes target by 2026.

This is obviously good news for shareholders. But since then, not much has really happened in terms of official announcements beyond the negotiations of a BT Sports joint venture with Discovery Inc. So, why is the BT share price currently on a downward trajectory?

Fears of rising competition

While BT may be ramping up its activities, it’s not the only one. Last year two telecommunication giants, Liberty Global and Telefónica, agreed to merge. These companies are the owners of the more commonly known brands, Virgin Media and O2. And recently, the CEO of the new business, Lutz Schüler, said that BT “better watch out, because every day we are trying to challenge them”.

This message seems to have reminded investors that BT is not the only player in the field. So, seeing the the share price stumble as a chief competitor fires shots across the bows is hardly surprising. But is there reason to be worried?

Maybe. As I just said, BT is aiming to equip 25 million homes with fibre by 2026. Virgin Media O2 is looking to do the same with 15.5 million homes by 2028. But the group is also in active discussions with private investors to launch a new joint venture that would boost this figure by another seven million before the end of 2027.

Needless to say, the level of competition is heating up. And BT may start struggling to hit its target in the face of rival expansion, let alone retain its existing market share once the standard 12-month customer contracts expire. After all, more options for consumers undercut pricing power. And many current BT customers may decide to switch to a cheaper alternative in the future.

Time to buy?

The threat of rising competition is nothing new for BT. So, I see the recent tumble as a potential over-reaction by investors. Having said that, my primary concern surrounding this business is the level of debt that continues to be a problem. Therefore, even if this is a buying opportunity, it’s not one that I’m interested in for my portfolio.

Zaven Boyrazian 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.

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