As stock markets crashed this morning, there aren’t many places for investors to hide. One exception is FTSE 100 defence giant BAE Systems (LSE: BA). Somewhat predictably, its shares are firmly in positive territory. Regardless of what happens next in Eastern Europe, I think this remains a great stock to hold for the passive income it generates.

Results

Although unlikely to be the main catalyst for today’s rise in the share price (+5%, as I type), it’s worth touching on today’s unintentionally well-timed full-year results.

At £21.3bn, sales rose by 5% in 2021. Underlying earnings moved 13% higher to £2.21bn. Positively, the company also reduced its net debt pile down to £2.16bn from £2.72bn the year before. This is something I particularly like to see any company doing, even though I doubt this burden has caused investors any sleepless nights. 

On a statutory basis, revenue rose slightly to £19.5bn and operating profit jumped by almost 24% to £2.39bn. BAE’s order book decreased slightly to £35.5bn. 

As a whole, I see all this as a decent set of numbers from the FTSE 100 giant. Then again, I strongly suspect the share price would have moved higher today anyway. 

Dividend delight

Looking ahead, BAE said it expected total sales to grow between 2% to 4% in 2022. Encouragingly, roughly 75% of these are “already in the order backlog“.

Out of interest, its Maritime and Cyber & Intelligence divisions are likely to experience the biggest rise in sales. The latter comes as no surprise to me considering yesterday’s report from the Department for Digital, Culture, Media and Sport. It stated the UK cybersecurity sector achieved double-digit growth last year. As I’ve stated previously, I believe this will be one of the biggest investment themes of the next decade.

Importantly for income hunters, the FTSE 100 member said free cash flow in 2022 was now likely to be “in excess of £1bn“. That should mean that the dividend stream — BAE’s biggest attraction, in my opinion — should be just fine. 

Speaking of which, BAE announced a final dividend of 15.2p this morning. This brings the total cash return for FY21 to 25.1p per share. At the current share price, that equates to a trailing yield of 4%. Although nothing is guaranteed, analysts have the company hiking the dividend by another 5.5% this year.   

Safe haven?

The invasion of Ukraine by Russian forces is clearly worrying at a human level. Seen purely from an investment perspective however, there are certainly worse places to park my capital than BAE Systems. 

This is not to say the shares won’t experience some volatility in the weeks and months ahead. When times are tough, traders exit first and ask questions later. And right now, there’s no telling when this stock market crash will end. That’s hard to endure as an investor, even if it may lead to some great buying opportunities.

In addition to this, I should mention that the BAE share price is barely higher today compared to where it was five years ago. As well as going some way to justifying the stock’s relatively low valuation (12 times earnings), this also shows just how important those dividends are to the investment case. Without them, I’d be far less inclined to invest, as good as the aforementioned growth prospects for its cybersecurity arm are.  

Paul Summers owns no share 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.

A market crash can be a scary thing to see, let alone experience personally. It can lead to a dramatic swing in one’s paper wealth and a sudden change in how investors see the prospects of some or even most companies.

When markets nosedive – even if only briefly – I think it can be useful to learn from how top investors manage their psychology.

Focus on long-term value

Warren Buffett imagines the market as an individual, Mr Market. He learnt this approach from investment guru Benjamin Graham. Basically, every day Mr Market offers a price at which he is willing to buy or sell shares. If I want to buy or sell at that price, I can. Otherwise I can ignore it. Indeed, Buffett has said that if the stock market closed for years and Mr Market was no longer busy each day offering prices, it would not bother him.

That is because Buffett and Graham reckon that in the end, value will out itself. If I invest in high-quality companies at attractive prices, on this view, then their value ought to be the same even if Mr Market suddenly marks them down or up. That is why Graham said: “In the short run, the market is a voting machine but in the long run it is a weighing machine”. It can be hard to ignore the temptations of following short-term shifts in share prices. Indeed, they can sometimes provide incredible windows of opportunity. But top investors like Buffett ignore the market noise during a crash – and indeed a bubble – and keep laser-focused on long-term value.

Preparing for a market crash

Top investors are never surprised that the market crashes, although they may be caught off guard by the timing. That is because they understand that markets are cyclical, so over the course of time they move up and down.

A market moving down rapidly can present a great buying opportunity. For example, the shares in ExxonMobil I bought when the market slumped in 2020 have more than doubled in value. But such windows of opportunity can be short-lived. That is why top investors often have a shopping list of companies they regard as potentially great investments at the right price. That way, if there is a sudden market crash, they can stay calm and act immediately.

Learn the lessons

No matter how well-prepared one is for a market crash, it can still be a difficult time. Even with a portfolio of companies chosen for their long-term potential, a crash can destroy a lot of value. The Japanese Nikkei index hit an all-time high late in 1989. After a serious market crash, it is yet to reach those levels again more than three decades later.

One positive thing about a market crash is that it is a valuable learning opportunity, albeit sometimes a costly one. Taking time after a crash to take stock of what one has learned can help improve future performance. No two investors are exactly the same, so I find it helpful to do this specifically with regard to my own portfolio. Hopefully that way I can turn the pain of the last market crash into my advantage as an investor when the next one arrives.

Christopher Ruane owns shares in ExxonMobil. 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.

Key points

• Revenue and profits are still increasing compared with pre-pandemic results
• A higher forward P/E ratio may suggest the firm is overvalued
• Full-year revenue guidance is expected to be at the higher end of £270m to £285m

Having hit a high of 493p in June 2021, the Moonpig Group (LSE: MOON) share price is currently trading at a  52-week low of around 250p. As a card and gifts service operating in the UK and the Netherlands, this company only publicly listed in February 2021. It has performed well during the pandemic, but the FTSE 250 firm’s share price has fallen as pandemic restrictions have eased. Should I be looking to this business for a long-term investment? Let’s take a closer look. 

A FTSE 250 stock underpinned by strong results?

In results issued for the six months to 31 December 2021, Moonpig’s revenue was £142.6m. This had more than doubled when compared with the same period in 2019, demonstrating the company’s strong performance during the pandemic. A year-on-year comparison, however, shows that revenue declined by 8.5%. The profit figures display a similar trend. A two-year comparisons shows a rise from £9.4m to £18.7m. Year-on-year, however, profit plunged from £33m.

How do I account for this? It seems that the firm benefited from a massive increase in online shopping during the height of the pandemic. This would explain the high numbers for the 2020 figures. Although revenue and profits fell in 2021, this may simply be the company returning to a more ‘normal’ performance  rather than repeating the meteoric rise of a year earlier.

But I feel the company is in a strong position going forward. Moonpig’s ‘reminders database’, a metric by which we gauge its customer base, had grown to over 50m by the end of April 2021. Furthermore, the firm increased its revenue guidance for full-year results to the higher end of £270m-£285m. With a trading update due on 5 April, I will be watching very closely indeed.

Are the shares cheap?

A metric used to judge if a share price is over- or undervalued is the company’s price-to-earnings (P/E) ratio. Moonpig’s forward P/E, that uses estimated net earnings over the next year, stands at 23.7. On its own, this tells us very little. Compared to a major competitor, however, it may indicate that the shares are expensive.

Card Factory, another big player in the cards and gifts space, has a forward P/E ratio of 10.83. This may suggest Moonpig shares remain overvalued, despite falling to a 52-week low.  

On the other hand, investment bank Berenberg gave the firm a ‘buy’ rating in January and issued a target price of 430p. What’s more, independent non-executive director Niall Wass increased his own holding by 76% at the end of last month. This was at a price of 304p.

Moonpig, as a business, has performed well recently. But I won’t buy any of its shares at the moment. I want to wait for the next set of results to ensure the company is still going in the right direction. I won’t rule out a purchase in the future though.

Andrew Woods 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.

From a long-term perspective, one of the things I like about investing in dividend shares is the ability for my passive income streams to grow over time. As I put more money into them, my holdings will get bigger. But hopefully the dividends themselves may also grow. That is not always the case and indeed sometimes dividends are cancelled. But I reckon I can set up passive income streams with an eye to long-term growth, for £5 a day. Here is how.

Dividend shares as passive income ideas

Dividends are basically a share of the profits a company makes. So if the profits grow over time, the dividends will hopefully also grow.

That is why I sometimes invest in companies with dividends that are modest now but look set to grow in future. An example of a company I think has strong dividend growth prospects is fuel and computing conglomerate DCC. The company’s business model is highly cash generative. That has enabled it to increase its dividend annually for well over two decades.

Past performance is not necessarily a guide to what will happen next. But the company raised its interim dividend for the current year by an impressive 7.5%. At the moment the shares yield 2.8%, so if I invested £1,000 in them I would expect annual passive income of £28. But if dividend raises keep coming at 7.5% each year, then after 10 years my £1,000 should be earning £58 of income annually. Another 10 years after that I should be earning £119 in passive income per year just from the basic £1,000 I had invested 20 years previously.

Dividend growth or high yield

There is no guarantee that DCC will keep increasing its dividend, or if it does so that it will be at the same rate as this year. But I think the hypothetical example helps illustrate an important point.

Investing in companies that grow their dividends substantially could make for meaty passive income streams for me in future, even if the yield today looks middling. While I like Imperial Brands as a passive income idea, with its 8.1% yield, last year the dividend only grew 1%. So in the long term, its attractiveness as a passive income stock may decline compared to companies with fast-growing businesses that can support strong dividend growth.

Passive income streams for a fiver a day

In my example above, I talked about investing £1,000. That may be a lot. But if I put aside just £5 a day from today, I will have £1,000 to invest before the end of September.

Just as DCC’s steady annual dividend increases have added up over the past several decades, saving even £5 a day could soon start to add up. Within a year I would have over £1,800 that I could invest in setting up passive income streams.

I would spread the money across various shares to reduce the risk if one or more performed worse than I expected, which is always a risk. With £1,800 invested in dividend shares earning around a 4% yield – close to the FTSE 100 average – I would expect my passive income streams to be around £72 a year. Hopefully, with a long-term approach, they would grow from there.

Christopher Ruane owns shares in Imperial Brands. 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.

I’m on the prowl for the best UK shares to buy, now that inflation has hit its highest point since 1997. According to the Office for National Statistics, inflation hit 5.5% in January. That’s up from 5.4% in December and 5.1% in November.

Fortunately, the growth rate seems to be levelling out. But even if it remains stable, the increase in prices will undoubtedly eat into wealth. Even more so in the short term now that interest rates are also on the rise.

But I’ve spotted two businesses I believe could be resistant to the effects of inflation, and they might even profit from it. Let’s explore.

An inflation-busting leader in consumer goods

While the cost of raw materials might be on the rise, it’s only an issue for the businesses unable to pass those costs onto customers. Looking at Unilever (LSE:ULVR), the firm doesn’t seem to have that problem. That’s why I think it could be one of the best inflation-busting UK shares to buy now for my portfolio.

As a reminder, this is the company behind most of the brands found in supermarkets across the country. The list includes Vaseline, Magnum, Dove, and Cif, just to name a few. And these reputable brands naturally command some significant pricing power that management is already exercising in the fight against inflation.

Product price increases will undoubtedly harm sales volumes. And it’s possible that consumers may permanently switch to cheaper competing products to minimise the shopping bill. But even with this risk, Unilever looks perfectly positioned to deal with the impact of inflation. At least, that’s what I think. And it’s why the shares of this UK business are on my ‘buy’ list.

Is this a good hedge against inflation?

While Unilever makes strategic moves to mitigate the effects of inflation, banks like Lloyds (LSE:LLOY) welcome it with open arms. Or rather, they welcome the subsequent interest rate hikes by the Bank of England to tackle it.

Like most retail banks, Lloyds accepts deposits and uses the capital to issue loans to individuals and businesses, profiting by charging interest. But margins have been pretty tight on its lending activities over the last decade since interest rates have been kept so low.

With these now on the rise, profits might be about to surge. And with pandemic-related loan impairments no longer causing problems, the Lloyds share price could be set to enjoy a lot of upward momentum, in my opinion.

Nothing is risk-free, of course. If inflation continues to climb, it could start harming the UK economy, triggering a slowdown in growth. Needless to say, if business across the country begins to slow, finding customers to lend money to could become quite challenging. So even if margins are up, overall profits could still fall.

So far, the evidence suggests inflation has already begun to level out. And assuming it stays that way, I think Lloyds could be one of the best UK shares for me to buy right now to profit from the more stable inflationary environment.

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

Passive income is very attainable. I think even with a small starting sum, a decent, growing passive income can be created. And over time it can snowball because of compounding – when dividends are reinvested to create more income year after year.

Investing a small sum in the UK stock market

One of the great things about investing in the UK stock market is there’s almost no amount too small to start with. Provided the money isn’t needed for living – as we should only really invest what we can afford to lose – then it’s possible to set aside any amount to buy shares with. This makes investing in shares much more accessible than other forms of investing.

What’s important though is to really learn about the market. This will help maximise the chances of success and avoid basic mistakes like over-trading or buying overly indebted companies. 

Passive income tips

To really make the most of an amount like £100 per month I’d start by identifying which shares could be solid passive income payers. I’d want a yield that’s way above current bank interest rates and one that’s preferably been growing for the last five years. Examples of UK shares meeting these criteria are Rio Tinto, Redrow, Legal & General and Synthomer. All these shares also happen to have at least double-digit earnings per share growth, which is positive. They are also all very established and profitable. 

The second tip for making the most passive income possible is to make sure the company is in an industry that can keep growing, or at least isn’t shrinking. So I’d avoid cinemas, for instance. Legal & General, to take one of the examples, has a good runway for growth because of an ageing population, creating demand for its retirement products.

My third consideration would be to make consistent contributions. If my chosen amount is £100, it should be that each and every month. Or if that’s not possible, at least as often as is feasible. Investing consistently and over a long period of time are two of the major factors affecting how big an investment pot will grow. Discipline is a vital ingredient in making investments of £100 per month turn into something that down the line can snowball into a much larger portfolio.

Potential income stream

So I’d identify top shares, make sure the industries my investments sit in don’t face major challenges and I’d be consistent. 

To show what’s possible, here’s what could be created with just £100 per month, over the course of a working life of, say, 45 years. With just £100 per month, and starting with nothing, it could grow to £324,000 if a 7.5% return was achieved on average each year. If I then took out 4% a year, my passive income could be more than £1,000 a moth. And if I started with £10,000, the value of the total pot could jump up to £509,000. 

Of course, I might not achieve that and have to accept that my capital is always at risk.

But I really do believe that with £100 per month it is possible to create a good passive income, with the caveat that the money needs to be invested consistently and well, and allowed to grow and snowball. That’s the beauty of compounding.

Andy Ross owns shares in Legal & General. The Motley Fool UK has recommended Redrow and Synthomer. 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 threat of ever-growing inflation has been sending markets into a frenzy and hammering growth shares around the world. Despite this, a high-yield FTSE 100 energy share should be able to help ease my inflation-related fears while also offering solid growth prospects.

Scottish-based FTSE 100 energy giant SSE (LSE: SSE) is one company performing well at the moment. For example, it recently raised its full-year earnings guidance to 90p per share from 83p per share. This was the result of strong performance from its gas-fired power stations, which have made up for poor renewables performances that resulted from a dry and still summer. Alongside the current strong performance, energy utilities have been shown to fare well and often profit off rises in inflation while other sectors suffer. I believe this puts SSE in good stead to deal with inflation uncertainty over the next few months.

A FTSE 100 share for the long run?

SSE is not just a share for the short term. It’s committed to paying out a consistently high dividend with a current yield of 5.3%, and it saw an incredible 39% return on equity in the last financial year. Alongside all this, SSE’s CEO Alistair Phillips-Davies has pledged a £12.5bn increase in renewables investment over the next five years. This will shift the company towards net zero and safeguard its future in an evolving UK energy market. As the second largest UK energy supplier, SSE already has an established position in the market and can build on this over the next few years as it continue its shift towards renewables.  

Despite all this promising news, the shares are down 4% year-to-date. The disparity between the company’s performance and its share price could mean that it’s ready to surge in the near future. This is especially true as investors continue to migrate away from higher-risk FTSE 100 growth shares in the wake of inflationary pressures.

Future concerns?

SSE’s shift towards renewable energy has been the result of pressure from activist hedge fund Elliot Management. There is some concern that SSE is divesting from profitable areas of its business to fund the renewables shift. In the summer of 2021, it sold its stake in Scottish Gas Networks, an asset that would’ve performed well over recent months considering the performance of gas-fired power stations. SSE will also likely be forced to lower dividend pay-outs slightly over the next few years to finance investments into new wind farms.

Despite these worries, I believe that the shift to renewables is an important step in adapting to the UK’s future energy demands and is worth any drop in dividend pay-out or divestment in gas power plants. Its current high earnings, positive outlook, and ability to thrive under inflationary pressures make this FTSE 100 share one I’m strongly considering for my portfolio with my next available chunk of savings.

Finlay Blair 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 Rolls-Royce (LSE:RR) share price crashed by nearly 15% this morning after management released its full-year results for 2021. What was in this report that has investors so freaked out? And should I be steering clear of this business or use today’s collapse as a buying opportunity for my portfolio? Let’s explore.

Rolls-Royce share price volatility

Despite what the Rolls-Royce share price would indicate, the latest results were actually pretty encouraging, in my opinion. After being decimated by the pandemic, the business has undergone some significant restructuring to cut costs. And it seems those efforts are paying off.

So far, £1.3bn of annualised savings have been achieved a year ahead of schedule. Even though revenue continued to suffer by around 2%, due to pandemic-related disruptions, these reduced costs enabled the group to eke out a tiny profit of £124m. By comparison, in 2020, Rolls-Royce reported a massive loss of £3.1bn! That’s quite the improvement.

While free cash flow remains in the red at around minus £1.5bn, this is drastically better than the minus £4.3bn seen in 2020. Overall, this business still has a long way to go on its road to recovery. However, I think it’s fair to say things are moving in the right direction. So the question is, why did the Rolls-Royce share price crash on what was seemingly a favourable report?

Potential trouble ahead

Despite these impressive figures, the news was overshadowed by another announcement. After eight years of running the show as CEO, Warren East has announced he will be stepping down from his position at the end of 2022.

In my experience, seeing a captain abandon ship in the middle of a turnaround strategy is a troubling sight. This is often a move taken when a CEO doesn’t have faith in the business they are leading anymore. To be fair, there is no evidence of this, and it’s possible East could be simply wanting to move on to other things in his life.

However, even if this is the case, it still creates a pretty big distraction for the management team, which should be focused on bringing Rolls-Royce back to its former glory rather than finding a suitable successor in the middle of a storm. Therefore, I’m not surprised to see the Rolls-Royce share price take a nosedive today.

A buying opportunity?

My opinion of this business has substantially improved over the last few quarters. And on the back of these latest results, my opinion has improved further still. However, with a long road ahead, I’ve always thought there are better opportunities for my portfolio elsewhere. Today, my stance hasn’t changed.

Even if the Rolls-Royce share price is now cheap, the shake-up in leadership adds a lot of uncertainty, so I’m not interested in adding to my investments.

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.

These FTSE 100 shares all have dividend yields in excess of 5%, relatively low P/E ratios and have at least 5% dividend growth. So, they combine a good dividend with value, which in turn might make them very good investments for me.

Rio Tinto (LSE: RIO) is a well-known mining company. It’s is a major iron ore miner, so from that respect is tied to steel production and in turn, to some extent, Chinese economic growth. But it is also more than an iron ore miner.

It digs for copper, aluminium, silver, gold, bauxite and diamonds too. At the end of last year, on 21 December, the miner announced it had entered into a binding agreement to acquire the Rincon lithium project for $825m. It says Rincon is one of the largest undeveloped lithium brine projects in the world. This should position it well for expanding electric vehicle manufacturing.

The challenge is for Rio Tinto to keep producing when the prices of commodities fall. It also has to watch for ESG issues, especially on the environmental front (that’s the ‘E’ in ESG). 

Overall with a P/E of 10 and a dividend yield of 9%, there’s a lot I like about this FTSE 100 share.

Two good value FTSE 100 stocks that provide income

Housebuilder Persimmon (LSE: PSN) and insurer Admiral (LSE: ADM) are two other FTSE 100 shares I think could reward me long term. The former has a dividend yield of 10% and a P/E of 11, while Admiral has a dividend yield of 5% and a P/E of 18.

While Persimmon’s business could be hurt by higher interest rates, for now, house prices keep rising. That said, demand may weaken as support schemes like Help to Buy end. But if higher interest rates do dent the housing market, the government may step in to help first-time buyers again in future.

Persimmon is a high-margin, high-return-on-capital business, it has a 24% operating margin and a return on capital employed (ROCE) of 25%. If one looks at Barratt Developments for comparison, it’s 18% and 13%, respectively. That’s quite a difference. I think it comes down to Persimmon’s focus on family homes outside the capital and its better supply chain – for example, it owns its own a timber frame, wall panel and roof cassette manufacturing facility and has built its own brickworks and tileworks facilities. It may also just buy land for future development at better prices.

The third of my FTSE 100 shares

Lastly, just a quick word on Admiral. It’s a steady business. Insurance is needed even when inflation is high so it should do ok whatever the economic backdrop is. On top of that, Admiral has a good brand. But insurance is also a competitive industry where the main differentiator is price. That makes it hard to raise prices. The industry also has to adapt to new rules on not offering cheaper prices to new customers over loyal ones. 

When I look at the fundamentals, Rio Tinto, Persimmon and Admiral are up there among the very best FTSE 100 companies to invest in right now. Rio Tinto and Admiral — as an extra bonus — should also do fairly well in this inflationary environment. 

I’d buy all three for my portfolio.

Andy Ross owns shares in Persimmon. The Motley Fool UK has recommended Admiral 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.

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