BAE Systems (LSE: BA) suffered in the stock market crash, along with fellow aerospace engineer Rolls-Royce. But the similarity largely ends there, and shows the defensive nature of the, erm, defence industry compared to companies reliant on discretionary consumer spending. While Rolls shares are down more than 50% over the past five years, the BAE Systems share price has lost only 3%.

That’s still a bit behind the FTSE 100, up 4% over the same timescale. But over the past 12 months, BAE has put on 27%, almost exactly double the Footsie’s gain. It appears positive investor sentiment is returning to BAE. And I think we could be in for a few years of outperformance. Here’s why.

Firstly, I think the pandemic downturn has had a possibly long-term effect on a lot of investors. As a result, I believe we could be in for a few years of focus on safety. That helped companies like Tesco and Unilever, to hold up when when all around were crashing. But more than that, I’m increasingly hearing talk that suggests investors are becoming more aware of the best time to buy safety stocks. It’s not after a crash has happened, and it’s not when we’re in the middle of a slump.

No, the best time to buy defensive shares is surely before the next crash, before the next economic slide, before the next oil price shock. But how do we know when those things are going to happen? We don’t. But that just means the best time to invest defensively is… all the time. And hold on for the long term.

A good decade ahead?

Do I think BAE has defensive qualities, and do I expect the BAE share price to do well over the next decade? I do, and it’s more than just changes in sentiment. There are two fundamental things about BAE that make me like it — earnings and dividends. BAE has been generating strong earnings for years, and has been paying a generally progressive dividend.

The nature of the business, with multi-year, long-term contracts, means earnings can be erratic on a year-by-year basis. And BAE Systems deferred its 2019 dividend, as did many others after Covid-19 struck. But the 7.7% yield paid in 2020 included a compensating amount, which made up for the brief pause.

BAE share price too low?

BAE is also doing something that I like, and that’s buying back its own shares. That, in my view, is almost always a good thing. I saw almost, because companies sometimes have more focus on their own share prices for my liking, rather than concentrating 100% on the business itself. But I’ve always seen BAE as conservatively managed. And if the board thinks repurchasing shares is the best thing to do with surplus capital, then I’m confident that they genuinely see the stock as undervalued.

What’s the downside with the BAE share price? The company’s exposure to the US market adds risk, as any weakening in defence spending there could hit overseas suppliers disproportionately. I also sometimes feel a bit twitchy over the company’s close ties to Saudi Arabia. Price-to-earnings multiples in the sector are often lower than the FTSE average too, so I expect valuations to remain unexciting. But BAE is definitely on my buy list.

Alan Oscroft owns Unilever. The Motley Fool UK has recommended Tesco 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.

So far it has not been a bad year for the FTSE 100. Well, not bad by comparison to the other major indexes of the world. While the FTSE 100’s 2.24% increase since the opening of trading on 4 January 2022 seems mediocre, at least it’s not the dismal -15.5% or -10.25% the NASDAQ and S&P 500 have experienced in the same period. Closer to home, the EURO STOXX 50 is down almost 6% since the beginning of the year. 

The FTSE 100’s top three so far this year have a good deal to do with the index remaining on the positive side of 0%. Here they are in all their share price appreciation glory.

Wars and rumours of wars

In third place on the FTSE 100 is Shell Plc (LSE: SHEL), with 21% share price appreciation in 2022 so far. Yesterday, news broke that Russia has officially moved into Ukraine. Both Ukraine and Russia are critical to Europe’s energy supply chain. With rumours of the conflict milling around since late last year, the key question, naturally, was what effect this would have on energy prices.

The likely response to Russian-aimed sanctions by the West will be that Russia may cut off gas to Europe (at least in part) and energy prices will naturally go up as a result. Shell could benefit financially, but for me the danger of buying this stock is that it will likely experience massive volatility in the months and (maybe even) years to come. 

Dial-a-dividend

Vodafone (LSE: VOD) is next up, having appreciated 21.5% this year. To be completely honest, I cannot see why. From a valuation perspective, it is quite cheap with a price-to-book ratio of just 0.8. It also pays a very impressive 5.4% dividend. But apart from that, there’s very little in the way of substantive reason for this FTSE 100 stock to be performing well. 

Vodafone is saddled with debt — £97bn worth of it to be exact. That chunky dividend I mentioned earlier is not covered by earnings, as the company is essentially unprofitable. It just barely netted a profit in 2021 and made losses in four of the five years before that. The advent of 5G presents a massive opportunity for telecommunications companies. It is, however, doubtful to what extent Vodafone can capitalise on this given its current state. I will be steering clear.

Cashing in on rate hikes

Right at the top of the FTSE 100 heap, we find Standard Chartered Plc (LSE: STAN). It’s an unlikely leader because banking stocks haven’t exactly been trendy lately. However, with 29.5% share price appreciation this year, this banking stock is soaring. In recent years investors have been clamouring for more growth. The necessary interest rate hikes on the horizon may be just what this bank needs.

Standard Chartered was among the worst-performing banking stocks in 2021. However, the stock has shot up significantly this year as investors anticipate rate hikes both in the UK and other economies. Interest rates could peak at 7.25% this year, which would be great for both Standard Chartered and UK banks in general. The danger is that decreased borrowing could mean fewer consumer borrowers. I will be buying this stock though as I believe the increased spread will mean stronger earnings.

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

With a bit of spare cash to hand, I think it is possible to set up passive income streams by investing in dividend shares. It is an approach I like as it allows me to benefit from the hard work and success of big companies listed on the stock market.

If I had £300 and decided to use it to start building passive income streams today, here are two shares I would buy.

Direct Line

Insurer and financial services company Direct Line (LSE: DLG) is a household name. Thanks to its red telephone logo and extensive advertising, it has built a powerful presence in the minds of millions of people. That is good from a business perspective because it reduces the need to spend vast sums building a customer base.

Insurance is often a lucrative industry. There can be surprises though. For example, one risk at the moment to insurers like Direct Line is that increasing second hand car prices will hurt profits. But typically, the economics of insurance are attractive and and straightforward. People have to insure their vehicles and most insure their homes, so there is a constant stream of revenue. Insurers like Direct Line have sophisticated models to estimate how much they will need to pay out in claims, so they can typically make a healthy profit.

At Direct Line that also makes for a juicy yield. Currently, the firm’s dividend yield is 7.4%. So if I invested a spare £150 into it, I would hope for around £11.10 a year in passive income.

Imperial Brands

I would invest the other £150 into tobacco manufacturer Imperial Brands (LSE: IMB). Its portfolio includes well-known names like John Player Special and Lambert & Butler. Thanks to this premium portfolio, the company has pricing power. That enables it to raise prices to help offset the impact of inflation or a fall in the number of cigarette smokers.

Such falling numbers remain a big risk for the company though. It is currently focussed on increasing its market share in a handful of cigarette markets. That buys it time while cigarette demand declines in many markets. But in the long term, it may need to spend more heavily on newer formats like smoking alternatives.

Meanwhile the company continues to generate huge sums in free cash flow. That funds a dividend yield of 8%. By putting £150 into Imperial today, I would therefore hope to generate £12 a year in dividends.

Making a move on passive income

Simply thinking about buying shares will not earn me any money. But if I move to action and split £300 evenly across Direct Line and Imperial Brands, I would hopefully start earning around £23 a year in passive income for doing nothing.

Dividends are never guaranteed, so they could be cut if a business runs into difficulties. That is why I would spread the money across two shares rather than put it all in one.

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.

As a Lloyds Banking Group (LSE: LLOY) shareholder, it’s a question I often ask myself. What will it take to get the Lloyds share price climbing again?

I know Lloyds shares have gained 30% over the past 12 months. But they’re still below their pre-pandemic price, and 25% down over the past five years.

I keep thinking the next set of results will get the shares moving. But time after time, I’m disappointed. I see even less reason now to continue with the same hopes, after reading of Barclays’ expectation-busting Q4 figures.

Profit in the quarter more than quadrupled, with full-year net profit reaching a record £6.3bn. And the bank released more reserves it had set aside against bad loan potential as a result of the pandemic.

In addition, Barclays revealed a 6p per share dividend for the full year. On the current share price, that’s only a modest yield of 3.1%. But I see it as excellent progress as we head away from the Covid years.

Unenthusiastic reaction

Did the Barclays share price soar on the news? No. We just saw a gentle improvement.  The mediocre response is probably due to the quarter’s figures being boosted by one-offs. And investment banking revenues dipped. So how might all of this reflect on Lloyds?

Well, Lloyds brought us a promising Q3 update. And I expect full-year results to reflect similarly improving fortunes to Barclays. I also hope to see similar dividend progress. Lloyds, meanwhile, is not exposed to the investment banking business, so there will be no performance disappointment there. 

Long-term outlook

But I do think investors are moving away from short-term hopes for the Lloyds share price, and are looking at the wider economic picture. And our post-Brexit future is still very much uncertain, even without the two-year pummelling handed out by that virus.

I remain convinced that Lloyds is still a good long-term investment. But what do I think it will take to get it back into investors’ good books?

I can’t help thinking we’ll need to get beyond our current topsy-turvy state of economic growth, inflation and interest rates. Short-term growth has been strong, but coming out of period of contraction that’s nothing special.

Higher interest rates should certainly help Lloyds. But the Bank of England (BoE) is being understandably careful not to raise them too high too soon. We really don’t want to choke off those first shoots of economic recovery.

Lloyds share price uncertainty

I reckon we’ll need to regain some degree of clarity. And I can’t see that happening until economic growth reaches a sustainable post-pandemic outlook, inflation settles into its new trend, and the BoE can see enough to know where medium-term interest rates really should be.

And for Lloyds specifically, I want to see what a sustainable and progressive dividend is going to look like.

I think that could easily take another year. And I envisage gradual gains in the Lloyds share price rather than any strong bull phase. There’s plenty of risk investing in Lloyds right now, for sure. But I see that risk subsiding over the longer term.

Alan Oscroft owns Lloyds Banking Group. The Motley Fool UK has recommended Barclays and 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.

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Mining giant Rio Tinto (LSE: RIO) has already made huge payouts to shareholders in recent years. So today’s news that the latest Rio Tinto dividend is a whopping $10.40 (around £7.64) per share should not come as much of a surprise. With the announcement of its highest dividend ever, I continue to be tempted to add Rio Tinto to my portfolio for its income potential.

But I am going to wait before I do that. This is why.

Massive Rio Tinto dividend

A dividend of over £7 per share is unusual. It would make a lot of income investors very happy. Rio Tinto is a mining giant and with demand for its products booming, it has been able to fund a big payout. Last year it generated $25bn in net operating cash flow, a 60% jump on the prior year. It has increased its ordinary dividend by 71% and special dividend by 166%, meaning that the total annual dividend is 87% higher than the year before.

Investor expectations were already high. Indeed, the Rio Tinto share price barely moved in this morning’s trading. Over the past year it has fallen 10%. That means, based on the dividend declared today, the Rio Tinto dividend yield is now 7.4%. That sounds attractive and I would be happy to be earning it.

Cyclical industry

A 7.4% yield already sounds pretty good. But if I had bought Rio Tinto shares six years ago, when they briefly traded at 30% of their current price, I would now be yielding an incredible 24.7%. Earning a 20%+ yield from a FTSE 100 giant is very unusual.

So, why did the shares more than triple in six years? The movement reflects the highly cyclical nature of the mining industry. Typically, a strong economy leads to a surge in demand for metals and other commodities. That leads to prices soaring. As the prices surge, mining projects that would otherwise be loss-making become viable. So supply starts to increase, just as demand falls – and prices can crash. Mines may be closed, supply tightens and a few years later, the whole cycle starts again.

Waiting for a downturn

Right now, prices are strong in mining. They may remain that way for some time, so if I bought Rio Tinto shares today I could possible have several more years of bumper dividends. But my concern is that the next time the mining cycle goes downwards, the Rio Tinto share price could fall and the dividend will be cut.

The current dividend is over six times as high as the payout back in 2016, when the mining industry was in a cyclical downturn. The next time that happens, I expect the dividend to fall again. That could drive the share price down. In fact, I think that explains why the Rio Tinto share price has fallen over the past year, despite blockbuster results.  

My next move on the Rio Tinto dividend

I would like to have the juicy Rio Tinto dividend in my portfolio. But I do not want to buy shares at or near the top of the mining cycle.

I plan to wait –probably for some years – until the mining cycle falls again. I will be looking for headlines about miners like Rio slashing their dividends and their share prices tumbling. At that point, I will be keen to add Rio Tinto to my long-term 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.

Even though the weather is still fairly miserable, winter is almost behind us. In three months’ time we’ll be enjoying the late May bank holiday and hopefully looking forward to a long summer. Regarding my investments, the summer could also bode well for certain sectors and companies. With that in mind, I want to try and jump the gun and buy the FTSE 100 growth stocks that could do well this year.

More events, more revenue opportunities

The first company I’m considering is Flutter Entertainment (LSE:FLTR). The bookmaking company owns brands such as Paddy Power and Betfair. It also recently purchased the online bingo company Tombola. The share price is down 26% over one year.

In the Q3 results released in November, it said total revenue was up 9% year-on-year. Part of this was due to the increase in sports events that happened versus the restrictions of 2020. Looking ahead to this summer and beyond, I don’t see Covid-19 being enough of an issue to cause major events to be cancelled.

From that angle, I think that this FTSE 100 growth stock should see revenue rise as we see more sporting events this year. Further, given that the unemployment rate is now 4.1%, it’s almost back at pre-pandemic levels. If this economic data holds firm, then more people in the UK in employment should have disposable income to potentially look to spend with Flutter.

In terms of risks, the latest results showed that revenue growth mostly came from outside of the UK (the US and Australia). Therefore, to have falling revenue in the largest and most competitive market is something that is a worry to me going forward.

Growth stocks with strong results

The second business I’m looking at is Barclays (LSE:BARC).  The share price has risen by 23% over the last year. As one of the largest banks globally, much of the performance depends on the state of the overall world economy. With 2021 results just out, it appears that the bank could do well this summer and beyond.

The 2021 report was impressive, with pre-tax profits soaring from £3.1bn in the previous year to £8.4bn last year. What I also noted was that the growth came from a variety of divisions, ranging from the investment bank to the consumer and wealth management arm. The benefit of this going forward is that earnings are diversified away from one specific group.

I think that the stock could see further gains this year. First, it was able to release £653m set aside for pandemic bad debt. I believe more could be released in coming quarters as the pandemic impact lessens. Second, higher interest rates should help the bank to be more profitable with a higher net interest margin. The Bank of England is forecast to raise rates twice over the summer months.

But I do need to be aware of the potential reputational damage to the bank that could be dug up from the ongoing investigation into former CEO Jes Staley. The ties with Jeffrey Epstein could go deeper than just the former CEO, so I need to be mindful of this.

Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Barclays. 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 growth of homeworking and e-commerce since the Covid-19 outbreak has supercharged the opportunities for cybercrime. An explosion in hacking and fraud has, in turn, driven demand for online security through the roof. Software maker Kape Technologies (LSE: KAPE), for instance, saw organic sales rise 5% in 2021 as individuals and businesses invested in better protection.

Reflecting this fertile environment Kape Technologies’ share price has risen a handsome 61% during the past 12 months. Yet the tech firm has been on the backfoot more recently and, at 318p per share, it was recently trading at a hefty discount to December’s record of 455p. I think this represents a terrific buying opportunity.

Cyber warfare steps up

I’m not just thinking Kape Technologies will thrive as flexible working methods become commonplace and online shopping expands strongly. A steady rise in state-sponsored cyber attacks is another reason why I expect sales of its software to soar.

It’s not just governments and critical infrastructure that are in the crosshairs of such attacks. This week Britain’s National Cyber Security Centre urged all organisations to bolster their cyber defences following the crisis in Eastern Europe, citing a “historical pattern of cyber attacks on Ukraine with international consequences.”  

The increasingly turbulent geopolitical landscape — and the massive sums countries are now spending on their cyber capabilities — means that the internet is likely to become a much more dangerous place for organisations. All this means that demand for Kape Technologies’ products could continue growing strongly. 

Expanding for growth

It’s true that Kape faces massive competition from major US software players like Microsoft and NortonLifeLock, to name just a couple. But I like the steps the business is taking to expand its services and take the fight to its rivals.

Last March the business completed the transformative acquisition of information provider Webselenese for a shade under $150m. This business helps consumers navigate the complex world of web security with its product comparison websites and has a global readership that exceeds 100m.

And in December Kape acquired industry rival ExpressVPN for a cool $936m. This move gives the company considerably more scale (with some 6.5m paying subscribers) and exceptional cross-selling opportunities. It also brings one of the industry’s biggest names under Kape’s wing.

Pleasingly Kape’s excellent cash generation means that it should have the capability to continue investing for growth through more acquisitions as well. Latest numbers on this front showed adjusted operating cash flow leapt 66% year-on-year to $14.6m between January and June 2021.

A top UK share to buy today

As I said at the top, the share price has fallen sharply in 2022. And it’s my opinion that this could make the tech giant too cheap to miss.

City analysts think Kape’s earnings will jump 57% in 2022. This leaves the software giant trading on a price-to-earnings growth (PEG) ratio of 0.2. Any reading below 1 suggests that a stock could be undervalued by the market, according to investing theory. This is a cheap UK share I think would be a brilliant buy for me right now.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Microsoft. 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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