The Royal Mail (LSE:RMG) share price had quite an impressive run since the pandemic started. With demand for parcel delivery skyrocketing in line with e-commerce adoption during lockdowns, the company quickly began watching profits roll back in. So it’s hardly surprising the stock surged 220% between March 2020 and the end of 2021.

But this performance has taken a hit in 2022, due to the various macro-economic factors plaguing the market today. However yesterday, the Royal Mail share price took a near double-digit hit following a downgrade from analysts at the investment bank Liberum. Is there something to worry about? Or is this actually a buying opportunity? Let’s explore.

The tumbling Royal Mail share price

It’s no secret that the firm’s relationship with its employees, specifically the unions, is quite strained. After two years of an adversarial dispute, the Communication Workers Union (CWU) successfully secured pay rises for Royal Mail workers in December 2020.

Matter resolved, right? No. The CWU recently returned, demanding additional and unconditional pay rises for workers to match today’s elevated level of inflation. Regardless of whether these demands are reasonable, it does pose a problem.

According to the Bank of England, inflation will level out at 6% in spring 2022 and then steadily fall. Should Royal Mail agree to raise wages by the same amount, profitability will likely drain away. Let’s not forget that the company’s operating margins, even after deploying more efficient facilities, still stand at a meagre 7.9%. That’s obviously bad news for the Royal Mail share price.

But what if the company decides to reject the pay demands? That way, there’s no longer a problem, right? No. I think it would be more than likely worker strikes or other disruptions are likely to emerge as a consequence. And again, that’s bad news for the Royal Mail share price.

This is the argument presented by Liberum, which decided to downgrade the stock from ‘hold’ to ‘sell’ on the back of this news.

Taking a step back

As frustrating and concerning as the situation may be, there are some additional factors to consider. Firstly, if I assume Liberum is accurate in its assessment, then a buying opportunity may soon emerge if the Royal Mail share price continues its downward trajectory.

Today, the stock is trading at 359p. By comparison, the investment bank has placed its renewed valuation at 355p. That means shares could have already finished their tumble and could begin a steady recovery as this situation progresses and the two parties meet up at the negotiating table.

In the meantime, management’s ambitious international expansion plans are proceeding on schedule. Its GLS division is growing faster than the UK division and operates with higher margins. Over time, this segment could become the primary source of income and help offset any margin pressure from the proposed pay rises.

The bottom line

All things considered, the recent fall in the Royal Mail share price doesn’t concern me too much as a long-term investor. Having said that, I’m not in any hurry to buy the shares, given the level of uncertainty around the situation. Once the dust settles, I may leverage this as a buying opportunity, but I’m keeping the stock 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.

I reckon UK dividend stocks are possibly the best way to generate passive income in retirement. Better still, I can take that tax-free inside my Stocks and Shares ISA portfolio. Here’s how I’m going about it.

To generate around £800 a month in tax-free passive income, I need ISA savings of £240,000. How do I know that? Thanks to an often overlooked investment benchmark called the 4% rule. Put simply, this states that if I withdraw 4% of my retirement portfolio as income each year, my pot will never run dry.

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.

How I’m building a passive income for retirement

The 4% rule assumes average investment growth of 7% a year, including dividends. If I withdraw 4% a year and inflation averages 3%, my portfolio will stay roughly the same size. Of course, none of those figures are guaranteed, but a target of £240,000 in ISAs looks just about doable, at a stretch. And 4% of that is £9,600 a year, or £800 of monthly passive income. It’s not riches, but it’s better than relying purely on the State Pension.

So much for rules. I will also have to knuckle down and build enough ISA savings to generate my target income. There’s still a way to go, but I’m taking advantage of current stock market volatility to top up my portfolio. I need to act fast, because the annual ISA deadline is just one month away, at midnight on 5 April.

The FTSE 100 is one of the best stock markets in the world for dividends, and I’m underpinning my portfolio with a couple of top equity income funds. I’m a long-standing fan of the City of London Investment Trust, and it’s about time I bought it. Its current yield is a rather splendid 4.48%. The ongoing charge is just 0.38%, so I’d get to keep most of that juicy passive income for myself.

I’m also investing in FTSE 100 stocks

City of London has even started to generate some growth, as the FTSE 100 swings back into favour, rising 15.4% in a year. I’ve been investing in the Rathbone Income fund for years. Its yield is lower at 4.06% and charges are higher at 0.75%, so I may rethink this choice, but it has grown steadily for the 15 years I’ve held it, and I’m reluctant to let it go.

To generate the rest of my passive income, I would look to build a portfolio of individual FTSE 100 stocks. I like the look of Lloyds Banking Group right now, as rising interest rates should boost its net lending margins. Yet it still trades at a dirt-cheap P/E of just 6.1 times earnings. The dividend yield is now 4.34%, and I expect that to continue climbing.

Oil giants BP and Shell are rising along with the oil price, and I’d buy them both, along with passive income heroes including mining giant Rio Tinto, financial firms M&G and Phoenix Group Holdings, housebuilder Persimmon and mobile phone operator Vodafone.

Of course, I have to remember that each of these stocks comes with risks, both sector- and company-specific. But I feel that owning a basket of them mitigates some of the risk for me.

I hope that the 4% rule will serve me well when the time comes to retire.

Harvey Jones holds Rathbone Income but 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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In the past few years, Rolls-Royce (LSE: RR) has not been an investment for the light-hearted. The company diluted shareholders by issuing new shares to boost liquidity. It also saw its share price collapse, before starting to recover. Lately, though, the Rolls-Royce share price has been moving down again and now trades as a penny share.

Given the share price level, could this be the time to buy Rolls-Royce for my portfolio with the intention of holding it in the coming years? I think the answer could be yes – here is why.

Business fundamentals and the market

Lately the market has been nervous, with prices seesawing in unpredictable ways. Rolls-Royce is certainly sensitive to current nervousness, both because of its exposure to defence clients and its civil aviation business. If geopolitical risks lead to fewer passengers flying again, that could hurt revenues and profits at the aerospace engineer.

Given all that, it is understandable that the Rolls-Royce share price has been falling lately. Things have not been helped by the announcement that the company’s chief executive will leave. Nonetheless, I feel the shares have been hit by broader market concerns without the company’s improving business prospects being properly considered.

In its annual results last month, Rolls-Royce announced that it had returned to profitability. It also said that it is once more generating free cash flow. That reduces the risk of liquidity worries leading to another rights issue. Given how tough things have been for aircraft engine makers like Rolls-Royce in the past couple of years, I think that business turnaround is a significant achievement.

Is the Rolls-Royce share price a bargain?

Over the past year, the Rolls-Royce share price has fallen 12%. It remains a long way above its pandemic lows, though. It is almost 150% above where it stood in October 2020.

I still see possible value here for my portfolio. Rolls-Royce’s prospects now look very different to October 2020. If the company can continue its turnaround – which admittedly is not certain – I expect to see strong earnings growth over the next few years. There is substantial demand from customers, which could help boost both revenues and profits. Indeed, in its full-year results, the company said that it expects to see “positive momentum in our financial performance in 2022 despite the challenges and risks”.

The market for aircraft engine sales and servicing is likely to grow in coming years. In fact, I expect it to grow for decades albeit with the occasional bump. Only a handful of companies have the expertise to make and service large aircraft engines. Rolls-Royce is one, which I think gives the company a long-term competitive advantage. 

My next move

I have been considering adding Rolls-Royce to my portfolio lately. I am still thinking about whether to do so. I recognise the risks involved, many of which are outside of Rolls-Royce’s control.

But it is a well-established company with a large installed customer base, specialist expertise, and a sustainable competitive advantage. As a long-term investor, those qualities make it a good fit for my portfolio at the current price.

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.

One of my favourite ways to earn passive income is buying dividend shares. By carefully selecting a few of the best ones, I aim to maximise my dividends and grow my investment over time.

The average FTSE 100 dividend yield is currently 3.7%. That’s much better passive income than I’d get from money in the bank. A word of warning, however. Investing in stocks and shares involves more risk than bank savings, so it’s not the fairest comparison.

Now, a 3.7% yield might sound ok, but I prefer to aim higher. There are several UK-based shares that yield 5%-10% and I’m on a mission to find the best ones.

Top passive income pick

This month, I’ve come across several opportunities to buy or add to my portfolio of stocks. The first share I’d buy in March is housebuilder Persimmon (LSE:PSN). It’s a company that I’ve followed for many years and it currently offers a dividend yield of a whopping 10%. Persimmon is a well-managed and established housebuilder that has a history of distributing much of its earnings to shareholders. As I’m targeting passive income, that’s something I like to see. Last year it gave out £750m in dividends and it expects to do the same in 2022.

To maintain its generous dividend yield, it will need to ensure that its earnings keep pace. So it’s encouraging to see that it posted a 23% rise in annual profit and it expects to build 4%-7% more homes in 2022.

That said, as with so many companies right now, costs are rising. But it expects to mitigate higher build costs by increasing selling prices. I reckon it should be able to do so. Housing market activity is robust. In fact, a recent Nationwide report showed that UK house price growth accelerated in February and the average house price now exceeds £260,000. This should bode well for Persimmon.

9% dividend yield

Another passive income pick that I’d consider for March is mining giant Rio Tinto (LSE:RIO). With a current dividend yield of 9%, it’s one of the strongest dividend payers in the FTSE 100. What I like about Rio right now is that it’s a leading stock in a promising sector. It should benefit from rising commodity prices. Iron ore accounts for 66% of its sales, and it’s up by almost 20% this year. The tragic events in Ukraine could extend this trend. Russia is the fifth-largest iron ore producer in the world, and any supply issues could cause prices to rise further.

I also like that Rio is profitable and cash-generative. Some things to bear in mind however. As commodity prices are currently reflecting geopolitical factors, Rio’s share price could be volatile in the short term. Another factor to keep an eye on is that a weaker property sector in China could put a cap on steel prices. Overall though, I’d consider adding it to my portfolio this month.

Harshil Patel 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.

When it comes to searching for the best UK stocks to buy in March 2022, I’d turn to the wisdom of billionaire investor Warren Buffett.

The world’s most successful and enduring long-term general investor recently released another instalment of investment insights. And he did so via his 2021 letter to the shareholders of Berkshire Hathaway. The American company is his investment vehicle. It’s a conglomerate of businesses owned outright. And it also has a portfolio of stocks listed on public stock markets.

Generously, Buffett makes his shareholder letters available for all to read. And you can check out the archive by following this link if you want to.

Buffett’s a business-picker

In the 2021 letter, Buffett took issue with being labelled as a stock picker. He isn’t, he insists. Instead, he sees himself as a business picker. And that’s a crucial difference that goes a long way towards explaining the phenomenal track record of success he’s generated over decades.

The legendary stock trader Jesse Livermore once underlined the difference between businesses and their stocks as well. But unlike Buffett, Livermore was interested in timing his speculative positions in stocks. Buffett, on the other hand, is interested in owning great businesses or part owning them via stocks.

Both Livermore and Buffett realised that share price movements can become divorced from the fundamentals of their underlying businesses from time to time. And Buffett reconnects the two by focusing on valuation. When stocks move down in price, they sometimes go so far that the valuation understates the true value of a business. And that’s when Buffett tends to strike by buying a stock.

By doing so, there’s then a potential double impetus to drive stocks higher when he’s holding them. The first is a tendency for valuations to correct over time to better reflect the true value of businesses. And the second is the ongoing growth and operational progress of the underlying business.

A good time to hunt for quality enterprises

And right now is a good time to look for undervalued businesses. There’s a lot of economic uncertainty in the air and we’ve been seeing weakness for the shares of many decent businesses.

For example, my watch list contains some big-cap names that have seen their share prices suppressed in the current environment. I’m focusing on fast-moving consumer goods companies Unilever and Diageo. And in the pharmaceutical and healthcare space, I like the look of GlaxoSmithKline and Smith & Nephew. I’m also targeting global information services company Experian, asset manager Schroders and accounting software company Sage.

Of course, a positive investment outcome isn’t guaranteed just because I like these businesses now. But I see each as a quality operation and believe they’re worthy of deeper research now with a view to owning some of their shares in my long-term diversified portfolio.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended Diageo, Experian, GlaxoSmithKline, Sage Group, Schroders (Non-Voting), Smith & Nephew, and Unilever. 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 Polymetal (LSE: POLY) share price has plunged a staggering 80% over the past year.

The stock was already on the back foot before the awful tragedy began to unfold with Russia’s invasion of Ukraine and the subsequent flurry of economic sanctions placed on the country’s economy. Between the end of May 2021 and the beginning of February this year, shares in the gold miner fell 40%.

Changed dramatically

The environment for the company has changed dramatically over the past couple of days. It operates eight mines and processing plants in Russia and Kazakhstan.

Historically, it has sold most of its gold production to Russian banks. These have then disposed of the asset on the international markets. 

Sanctions on Russian banks and the Russian economy will make it virtually impossible for these buyers to sell their gold onto the global market. 

However, that does not mean it will be impossible for Polymetal to make money. The company also sells ore to buyers in China. And just because Russian banks cannot sell gold on the international markets does not necessarily mean they will stop buying. 

Indeed, Russia’s central bank on Sunday said it would resume gold purchases two years after it ended a long-running buying spree that helped prop up local producers.

Put simply, I do not think it is likely Polymetal will go out of business anytime soon as it is likely the company will continue to find buyers for its gold. 

Nevertheless, I am worried about further sanctions and restrictions the company could face. Polymetal ended 2021 with net debt of $1.7bn. It may struggle to pay these borrowings if it has to accept rubles from Russian buyers. It may also struggle to acquire new machinery and parts. An increasing number of enterprises are avoiding dealing with Russian businesses. 

Polymetal share price risks

Then there is the chance the Russian state could decide to nationalise any businesses with Western connections. This is not an unprecedented move, and it is unlikely shareholders would receive any compensation.

This is the worst-case scenario. In the best-case scenario, Russia and the West will work out their differences over the next couple of years. The company will be able to resume gold sales to international buyers, and the Polymetal share price will recover. 

Unfortunately, I think the chances of this latter scenario playing out are relatively slim. Even if Russia and Ukraine agree on a ceasefire, the damage to both economies has already been done. For companies like Polymetal that have significant operations within Russia, I think the next few years are going to be very difficult. 

With this being the case, I think it is unlikely the Polymetal share price will recover to previous highs any time soon. Considering all of the risks the company is going to have to deal with over the next couple of years, I will be steering clear of this business. 

Rupert Hargreaves 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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