Key points

• I’m looking for stocks with inflation-beating dividend growth
• Gaming, consumer goods and banking stocks are among my choices
• One of these companies has a 30-year track record of dividend growth

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When I’m buying dividend stocks, I always take a look at the yield they offer. But with inflation expected to hit 5% in the coming months, I reckon dividend growth is more important than ever. A flat dividend income means my spending power will fall in the future. 

What I really want to do is to build a portfolio of shares that will deliver reliable dividend growth, year after year. Here are five income shares I’d consider buying for raising dividends in 2022 and beyond.

US growth story tempts me

Home emergency repair service provider Homeserve (LSE: HSV) is best known in the UK for the insurance policies it sells through utility partnerships. However, the real growth story here is the US market, where membership services are more popular than in the UK or Europe.

During the six months to 30 September, profits from Homeserve’s US business rose 11% to £32.5m, while customer numbers rose 8% to 4.8m.  This business generated 65% of the group’s operating profit during the period.

My main concern as a potential buyer is Homeserve’s rising level of debt. This has lifted sharply in recent years as the group has funded acquisitions and new projects.

However, I’m still comfortable with the risk, given the group’s strong cash generation. Homeserve’s recent share price slide prices the stock on 14 times earnings, which looks reasonable to me. The shares also offer a 3.8% dividend yield that’s expected to rise by 11% this year. This dividend stock is on my shortlist to buy for my portfolio.

A top choice for gamers

Shares in wargaming specialist Games Workshop (LSE: GAW) have risen by 880% over the last five years. This impressive share price performance means that this old-school company has significantly outperformed popular video gaming stocks such as Keyword Studios (+310%) and Team17 (+210%) since 2017.

Games Workshop relies on an unusual combination of shops and online presence to draw customers.

An additional profit stream comes from royalties. Games Workshop is starting to exploit the potential of its intellectual property through video game and television deals. Royalty payments doubled from £9m to £20m during the six months to 28 November.

The main risk I can see for shareholders is that sales growth recorded in recent years won’t be sustainable. I don’t know how likely this is — I’m not a customer.

However, the company’s high profit margins, excellent cash generation and long track record suggest to me that Games Workshop could remain an attractive dividend stock. The dividend is expected to rise by 11% this year, giving a 3% yield. I’m definitely interested.

A defensive dividend stock

FTSE 250 firm Cranswick (LSE: CWK) doesn’t get many headlines. But this meat producer has delivered unbroken dividend growth every year since 1988. Over the last six years, dividends have risen by an average of 13% per year, providing excellent protection against inflation.

Of course, there’s no guarantee Cranswick’s performance will be sustainable. Growing concerns about the environmental impact of large-scale meat production are a potential worry. And I’m not totally sure that the company’s recent decision to expand into pet food is a good idea.

However, Cranswick’s long track record of growth is attractive to me. I’m also tempted by the defensive nature of the group’s products. The group is a big supplier to supermarkets and sales are generally stable, even during a recession.

Cranswick shares don’t look especially cheap to me, trading on 17 times forecast earnings with a 2% dividend yield. But the group’s 30-year track record of dividend growth is unusual in the UK. This is a stock I’d like to own.

The best bank?

The big FTSE 100 banks tend to grab most of the headlines. But they haven’t delivered very good results for shareholders since 2008. For my portfolio, I’ve chosen to own FTSE 250 merchant bank Close Brothers (LSE: CBG).

Close Brothers’ share price has risen by 145% since February 2009, compared to a gain of just 50% for Lloyds Banking Group.

This group has been in business since 1878 and specialises in commercial lending and automotive finance. Profit margins are much higher than at high street rivals and the bank’s management has avoided the costly mistakes made by larger peers.

Shareholders have benefited from this careful management. Close Brothers didn’t cut its dividend during the financial crisis. Indeed, until the pandemic, the bank hadn’t cut its payout for more than 30 years.

Future dividends are never guaranteed and Close’s exposure to property and business lending could lead to big losses during a recession. But the bank’s long track record gives me confidence. I’m also tempted by this stock’s 5% dividend yield and expected growth. I’m happy to have this banking share in my portfolio.

An overlooked dividend stock?

My final pick is consumer goods group PZ Cussons (LSE: PZC). This business is known for brands such as Carex and Imperial Leather and operates globally.

Profits have dipped this year as sales of Carex sanitiser and handwash return to normal levels after record sales during the pandemic. But the performance of the group’s remaining business is improving under newish chief executive Jonathan Myers.

The CEO took over at a difficult time for the group. PZ Cussons’ product portfolio had become confused, there were problems in Africa, and growth had stalled. It’s too soon to be certain that Myers simplification strategy will return the business to growth. But my impressions so far are positive.

After surging higher during the pandemic, PZ Cussons’ share price has pulled back. The stock now trades on 14 times forecast earnings, with an expected dividend yield of 3.3%.

Although dividend growth is expected to be limited this year, I see this business as a good long-term pick for inflation protection, due to the essential nature of many of its products.

Roland Head owns Close Brothers Group and PZ Cussons. The Motley Fool UK has recommended Games Workshop, Homeserve, Keywords Studios, Lloyds Banking Group, and PZ Cussons. 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 usually looking for UK stocks to buy with a view to holding them for the long haul. In practice, that means acquiring shares I think will provide great returns over 10 years, maybe even longer.

But there are some stocks I’m happy to buy for a shorter space of time. Here are three great British shares I think could make me a stack of cash over the next half a decade. Who knows? They could significantly power my wealth into the 2030s too!

Redcentric

The number of people working from home has been steadily growing for years now. The onset of the pandemic though, has prompted a sea change in the way many of us expect to work in the future. A survey by the Institute of Directors suggests that 79% of companies plan to adopt flexible working over the long term.

I’d buy shares in Redcentric to exploit this workplace revolution. This IT business develops network and cloud computing software that allows workers to set up base wherever they fancy.

It also provides cybersecurity products that help keep firms and their employees protected. I’d buy Redcentric even though demand for its services could fall during economic downturns.

Hochschild Mining

Getting exposure to silver could be a good idea too, given its essential role in renewable energy. The metal is a critical component in the production of solar panels, an industry that’s growing rapidly due to the climate crisis. The Silver Institute expects 2022 physical silver demand to hit record highs of 1.112bn ounces as a result.

I wouldn’t buy silver, or a financial instrument like an ETF to capitalise on this however. I’d invest in mining business Hochschild Mining instead which operates two underground mines in Peru and one in Argentina.

This way I can expect a dividend as well (the forward yield here sits at 3.2%). The ever-present threat of production stoppages could hit earnings hard. But, overall, I think this UK stock could make me money.

Wizz Air

The travel industry isn’t out of the woods yet as the pandemic rolls on in parts of the world. But easing restrictions in Europe provide hope that the continent’s low-cost airlines could be past the worst.  I think now could be a good time for me to invest in Hungarian airline Wizz Air.

The survivors of the Covid-19 crisis have the benefit of reduced competition. They also have opportunities to take up the routes and the airport slots that the casualties have vacated.

I like Wizz Air in particular because of its focus on fast-growing economies of Central and Eastern Europe. I also like the company’s strong commitment to expansion — it ordered 196 Airbus planes in November to help it meet its target of 500 aircraft by 2030. It also either added new bases or expanded existing bases in almost a dozen destinations in the three months to December.

Royston Wild 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.

Trying to guess when the next stock market crash will occur is an impossible task. There is no telling what will cause the market to panic next. 

So rather than wasting my time trying to predict the next slump, I focus on looking for the stocks I would like to acquire in a market crash. 

I think this strategy meets two aims. It allows me to prepare in advance for something impossible to predict. It also helps me focus on buying my favourite stocks at the right prices.

I believe that if I have a roadmap ready for any downturn, I can avoid becoming distracted by other opportunities along the way. That is the theory anyway. In practice, there is no telling how I will react in a downturn and if the companies I want to buy will become cheap. 

Still, as I noted above, there is no harm in preparing. As such, here is the strategy I would use to invest £10k in a stock market crash. 

Taking advantage of the opportunity 

One of the sectors I would target for my portfolio is the real estate sector. In a stock market crash scenario, shares in real estate investment trusts (REITs) can fall in line with the market, but their underlying property values are less volatile.

For example, in the last market slump, the value of some REIT shares fell more than 50% in a few weeks. In most cases, the values of their underlying property portfolios only recorded modest declines. 

Therefore, in a stock market crash, I would acquire a diversified REIT such as British Land. While the company could come under pressure from risk factors such as higher interest rates and falling property prices over the next couple of years, I think its diversification across the industrial, commercial and office property markets is a desirable quality.

The stock also offers a dividend yield of 3.1% at current prices. If the stock falls in value, this yield could rise even further. 

Stock market crash wishlist 

As well as buying exposure to the property sector, I would also try and snap up shares in a tech champion like Rightmove. This company has a vast competitive advantage. It is one of the most visited websites in the country.

It is unlikely consumers will stop using the platform just because the stock market falls 20% or 40%. Use could drop off a cliff if there is a property market crash. This is probably the most considerable risk facing the business right now. 

Thanks to its strong brand and competitive advantage, the stock rarely trades at what I would consider to be an attractive valuation. That could change in a stock market crash. This is why shares in the online property portal are on my watchlist. 

As well as these single stocks, I would also acquire an investment trust. Buying a trust in a stock market crash would enable me to quickly invest a large lump sum in a basket of companies. The drawback of this approach is that trusts usually charge management fees, and I will be giving up some control over my money.

Still, I think the diversification benefits outweigh the risks of investing. That is why I would invest £5k of my £10k crash portfolio in the BlackRock Throgmorton Trust. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended British Land Co and Rightmove. 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 earnings derived from an activity or enterprise without being actively involved.

Cool, right? Earnings with no effort. Get rich while we sleep. The lazy person’s rout to wealth. Count me in!

Routes to passive income

But how can we get it? One method is to stash some money in a cash savings account and harvest the interest. But there’s a problem with that one — bank interest rates are so low that my earnings won’t keep pace with inflation and I’ll end up losing some of the spending power of my money.

I could rent out a room in my home. That would do it. But not without consequences. For example, wear and tear to fixtures and fittings could add up to a ‘hidden’ cost over time. And then there’s the loss of privacy. That one’s not for me.

How about writing a hit pop song and collecting the royalties? Perfect! But that won’t work for everyone. And neither will writing a book and earning royalties on ongoing sales until the end of time.

I could patent an invention and earn royalties every time someone uses it. But, again, such a route is only open to the well-placed few, and not to the many.

One approach taken by many people is to buy an investment property and collect rents. But there’s actually quite a lot of work that comes with a business like that. It’s almost impossible to be inactive while holding physical property. So it barely qualifies as passive income.

The supreme strategy for me

But one strategy I will follow for my £5-a-day passive income plan is to invest in dividend-paying stocks. Companies are great because they run businesses that generate income streams with the potential to grow while I own their shares.

Although I can passively sit back once I’ve bought shares, the businesses behind them will be active. And their over-riding mission in life will be to increase the passive income they are paying to me and the other shareholders.

And I don’t even have to go to all the trouble of selecting which shares to buy. My favoured approach would be to invest regular sums of money into low-cost index tracker funds, such as those that follow the fortunes of the FTSE 100, FTSE 250 and small-cap indices. And I’d diversify by country as well and track America’s S&P 500 index, among others.

One of the useful things about tracker funds is that they are underpinned by many stocks. So, by selecting trackers, I’m getting wide diversification. And when my funds have built up a bit, I’d likely diversify into some stalwart stocks of individual companies, such as Unilever and GlaxoSmithKline.

A £5-a-day investment would give me around £153 to invest every month and that’s a useful sum to get started. There are no guarantees of positive returns from stock market investing. But the activity has a good long-term record and my expectation is that my passive income strategy would be successful over time.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline 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.

Throughout 2020, as the coronavirus pandemic ravaged the global economy, I highlighted the Lloyds (LSE: LLOY) share price as one of my favourite recovery investments. 

This turned out to be quite literally on the money. Since the end of September 2020, the stock has returned 130%. Over the past year, the shares have returned 41%, as investors have returned to the UK banking sector. 

Initially, I believed that the lender’s competitive advantages, namely its size and position in the UK domestic banking market, would help it weather the pandemic and emerge stronger on the other side.

That is precisely what has happened, although the picture may have been a bit different if it were not for the actions of central banks, which stepped in to stabilise markets in the first half of 2021. 

Still, what happened happened. As investors, we have to look to the future, not the past. And the future for the Lloyds share price seems incredibly exciting. 

Multiple tailwinds 

After more than a decade of ultra-low interest rates, the Bank of England is finally raising them. Rates have already returned to 0.5%, and there is speculation they could hit 1.5% before the end of the year. 

Higher interest rates allow lenders like Lloyds to charge customers more to borrow money. They also mean the bank might have to pay more interest to depositors but, broadly speaking, higher rates are generally favourable for the banking sector. 

At the same time, the group could benefit from improving consumer sentiment. The latest data shows that consumers are spending more on their credit cards after knuckling down in the pandemic to conserve cash. This could generate additional credit card interest and fees for the company. 

On top of these factors, Lloyds may also benefit from increasing demand for its wealth management services. A joint venture with FTSE 100 peer Schroders could help the lender capitalise on the growing demand for wealth management services in the UK and worldwide. 

These three tailwinds could all support earnings growth at the bank over the next few years.

Lloyds share price valuation 

On the other side of the equation, rising interest rates and the cost of living crisis may lead to more loan losses as consumers struggle to repay their debts. This could hit the bank’s profit margins and capital reserves. It is something I will be keeping an eye on as we advance. 

Still, despite this headwind, City analysts expect the lender to report earnings per share of 6.4p for fiscal 2022.

On this basis, the stock is trading at a forward price-to-earnings (P/E) multiple of 8.3. Moreover, the Lloyds share price is trading at a price-to-book (P/B) value of just 0.7. I think this undervalues the business. Most of the group’s profitable and growing peers are trading at P/B multiples of 1 or more.

As such, I do not think it is unreasonable to say that the Lloyds share price could rise as much as 43% from current levels as the group returns to profitable growth. 

I would be happy to add the stock to my portfolio today, considering this potential. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group and Schroders (Non-Voting). 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 have been looking for dirt-cheap FTSE 250 shares to buy today for my portfolio.

I am searching for companies battling temporary headwinds that may capitalise on the economic recovery over the next few years.

A great example is pub and bar operator Mitchells & Butlers (LSE: MAB). 

FTSE 250 recovery play

This business suffered a 50% drop in sales in its 2021 financial year. However, in its latest trading update, the company told investors that like-for-like sales for the 16 weeks ended January 12 came in just 3.9% lower than pre-pandemic levels. 

Unfortunately, plenty of headwinds could hit growth in the months ahead. The cost of living crisis is the organisation’s main challenge, with wages and costs rising across the business. 

Still, analysts believe the company’s sales will return to, and potentially exceed, pre-pandemic levels over the next two years. Based on these projections, the stock is trading at a forward price-to-earnings (P/E) multiple of just 9.9.

It is also trading at a significant discount to value. The price-to-book (P/B) value of the shares is currently 0.7. In theory, any profitable company should trade at book value, implying the stock is undervalued by around 30%. 

Based on these factors, I would buy the dirt-cheap FTSE 250 company for my portfolio of recovery investments. 

For me, the homebuilding sector also currently looks attractive, despite the government’s threats to force developers to pay for the UK’s cladding crisis. This could inflict a multi-billion pound penalty on the industry. All companies in the sector are now on notice.

Nevertheless, I also believe that the sector benefits from significant favourable tailwinds. These may help it ride out any government action.

One of the best shares to buy today 

Most importantly, the country’s housing market is structurally undersupplied, which will take years to rectify.

In the meantime, it looks as if house prices will continue to rise, benefiting FTSE 250 developers like Redrow (LSE: RDW). These companies should be able to sell more properties at higher prices with the right tailwinds. 

Right now, it looks to me as if the market is ignoring this positive. At the time of writing, the stock is trading at a forward P/E multiple of 6.8. It also supports a dividend yield of nearly 5%. 

According to the company’s latest trading update, Redrow has been rising to the challenge. It added 1,400 plots to its current landbank in the 19 weeks to the beginning of November, with more added to the long-term land bank.

The group has an order backlog of £2.1bn properties and nearly £300m of net cash on the balance sheet. That should keep it snapping up new landholdings and pushing forward with developments. 

Considering the state of the UK housing market, the company’s current valuation and its potential over the next few years, I think this would make a great addition to my portfolio of FTSE 250 shares. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Redrow. 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.

Warren Buffett has repeatedly said that investors should only own companies with a competitive edge. This should be an advantage that helps them stand out from the competition in the aggressive and competitive business world.

Rolls-Royce (LSE: RR) shares exhibit the sort of competitive advantages the ‘Oracle of Omaha’ is looking for. The company’s brand is known the world over, and it is one of the world’s largest manufacturers of engines for the civil aviation industry.

This is not the sort of market where companies are willing to skimp on quality to get a better price. Aircraft manufacturers and owners will pay whatever the company demands to keep their planes in the skies. 

The company is also responsible for maintaining and developing the UK’s nuclear submarine fleet. Once again, this is not the sort of business where the customer can shop around to get a better price. Nuclear technology is closely guarded and regulated. I think it is unlikely Rolls will ever be replaced in this role. 

Buffett has already shown that he has a preference for unique companies in the aerospace industry.

Warren Buffett’s aerospace engineer

Several years ago, Buffett’s company, Berkshire Hathaway, acquired aerospace engineer Precision Castparts Corp. This enterprise exhibits similar qualities to Rolls-Royce, although it does not have any exposure to the nuclear industry. 

Considering all of the above, I do not think it is unreasonable to say that Buffett could be interested in Rolls-Royce. However, the company does have some issues, which may take time to overcome. 

For example, during the pandemic, the business took on a lot of debt to keep the lights on. It could take years for it to reduce these obligations. At the same time, the firm had to lay off thousands of workers to lower costs. Its smaller footprint could hold back growth in the years ahead, even though the firm may have larger profit margins. 

I also need to consider the competitive environment. While Rolls is one of the largest manufacturers of engines for the civil aviation industry globally, it is not the only company in the space. If the enterprise struggles to meet rising demand due to its lower headcount, it could lose market share. 

Despite these challenges, I think the company looks attractive as a speculative economic recovery play over the next few years.

The outlook for Rolls-Royce shares

As I have explained above, the group exhibits several Buffett-like qualities and competitive advantages which could work in its favour and help support growth as the economy recovers after the pandemic. Therefore, I would follow Warren Buffett’s advice to invest in high-quality companies and buy Rolls for my portfolio. 

While the company will almost certainly face some challenges as planes return to the skies, this should act as a tailwind for growth in the years ahead.

Over the long term, the group should be able to capitalise on its competitive advantages, build on its existing footprint, and expand into new markets worldwide. 

Rupert Hargreaves owns Berkshire Hathaway (B shares). 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 think these penny stocks could help me make excellent returns. Here’s why I’d buy them today.

Ready to shine

I think Serabi Gold  (LSE: SRB) is a great defensive share to own as insurance for when times go bad. History shows that on average a bear market happens every seven years or so. So there’s a pretty good chance that having exposure to gold — an asset which tends to rise strongly when economic conditions become tough — will pay off big time.

My main concern with owning Serabi shares is the possibility that central banks might raise rates more sharply than expected. Such a scenario would curb inflation, a natural driver for precious metal prices. On Thursday, US Federal Reserve official James Bullard said he’d like to see the central bank raise interest rates by a further 1% between now and July. This could be seriously damaging for precious metal values.

However, from a long-term perspective I still think Serabi Gold’s an attractive share to own. Forget for a moment its role as an insurance policy for investors. I’m looking beyond the possibility that gold prices could march higher if inflationary pressure keeps increasing.

I’m encouraged by the significant improvement of grades at Serabi’s Palito gold mine and the promising results from recent exploration work there. And I’m excited as the business prepares to start constructing its Coringa asset later this year. Serabi hopes to eventually produce 100,000 ounces of the yellow metal each year (the Brazilian miner produced 33,848 ounces in 2021).

At current prices of 54.5p per share Serabi trades on a forward price-to-earnings ratio of just 4.7 times. I think this is far too cheap given the company’s impressive production performance of late and its bright growth prospects. City analysts think earnings will rise 4% in 2022 before shooting 29% higher next year.

Another dirt-cheap penny stock I’d buy

I believe DP Eurasia (LSE: DPEU) is another bargain penny stock worth serious attention today. Forecasters think earnings here will rise around 500% in 2022 and by a further 50% next year. This leaves the takeaway giant trading on a forward price-to-earnings growth (PEG) ratio of 0.1 at its current price of 81p. A reminder that any reading below 1 suggests a stock could be undervalued.

I like DP Eurasia for various reasons. The online food delivery market is expected to continue rising strongly in the post-pandemic era. Growth is tipped to be especially strong in emerging markets where personal wealth levels are rising, too. Indeed, sales at DP Eurasia — which operates in Turkey, Russia, Azerbaijan, and Georgia — soared 51.5% in 2021.

I’m also a big fan of DP Eurasia because its products are especially popular with the public. As the master franchisee of the Domino’s Pizza brand in all four of its markets, it commands a considerable brand power advantage over its rivals. It’s true that the business operates in a highly-competitive arena. And consequently it will have to work tirelessly to grow profits. But I still think it could significantly bolster my wealth in the years ahead.

Royston Wild 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 tax advantages of a Stocks and Shares ISA mean that it is the perfect vehicle to own income and growth investments. Income or capital gains earned on assets held within one of these wrappers is entirely tax-free. I try to take advantage of this strategy by acquiring dividend growth stocks and investment trusts.

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.

Investment trusts can be great income investments. These investment companies can hold back a portion of their income every year and use this to cover their payouts in periods of economic stress.

For example, in 2020, when multiple UK companies had to cut their dividends to preserve cash in the pandemic, many investment trusts could dig into this reserve to maintain and even boost their payouts. 

Leading investment trust 

One of the trusts with the best income track records on the market is the Law Debenture Trust (LSE: LWDB). 

This investment company is one of the top holdings in my Stocks and Shares ISA. It is more than just an investment enterprise. 

As well as owning a portfolio of stocks and shares, the enterprise also owns a corporate and pensions services business. It helps other companies manage their pension infrastructure and their corporate structures. 

This kind of business is relatively sticky. Changing providers can be a time-consuming and complex process. In the meantime, Law Debenture can earn a steady recurring revenue from its clients. 

The group can use revenue from this division to support its dividend and provide funds for the investment portfolio. The structure gives the company a unique edge. Rather than focusing on income stocks, it can take a longer-term view and invest some cash in growth investments.

Indeed, one of the best-performing stocks in its portfolio over the past couple of years is the hydrogen fuel cell group Ceres Power. 

Stocks and Shares ISA holding 

The one downside of the company’s investment strategy is the fact that more than 80% of the portfolio is invested in UK stocks. This could hold back returns if the UK market underperforms global equities over the next couple of years.

It has undoubtedly held back performance in the past few years, as the UK equity market has struggled to match the performance of international peers. This is why I own the trust alongside a portfolio of other international investments in my Stocks and Shares ISA. 

Still, despite this drawback, I think the company offers a unique business model that cannot be found elsewhere.

The investment trust and the operating business combination give the firm plenty of flexibility and extra cash to support the dividend. The stock offers a dividend yield of around 2.8%. The trust also charges a relatively inexpensive management fee of 0.5%. Compared to some funds that charge fees of 1% or more, this appears good value for money. 

Rupert Hargreaves owns Law Debenture Corp. 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 Scottish Mortgage (LSE: SMT) share price had a knockout 2020, soaring over 106% during the year. This brought with it much attention from the market and helped the shares climb higher in 2021, peaking at an all-time high of 1,543p in November. However, since the start of 2022, the share price has fallen over 15%. Could this slump mark the next great buying opportunity for my portfolio? Or should I be staying away from SMT? Let’s take a closer look.

Why is the Scottish Mortgage share price falling?

The primary driver behind the falling Scottish Mortgage share price is tied to the current state of the UK economy. In 2020, the Bank of England cut interest rates to just 0.1% in an effort to stimulate the struggling economy. This monetary policy served its purpose. However, a faster-growing economy, coupled with massive supply shortages of the pandemic, meant that prices have been steadily rising. The result of all of this is inflation. For example, the UK Consumer Price Index (the measure of prices of goods in the economy) rose 5.4% year-on-year in December 2021.

So how does this affect the Scottish Mortgage share price? Well, inflation is tackled by central banks raising interest rates to restrict the economy. In a nutshell, this means people can receive higher returns on their savings and hence are less likely to invest in stocks. During these times, high-growth stocks are usually hit the hardest.

Looking at the Scottish Mortgages portfolio, it’s heavily comprised of just this type of stock. For example, its top 10 holdings include NIO (2.5%), NVIDIA (3%), and Illumina (5.5%), which are all high-growth stocks. As inflation continues to climb around the globe, the Scottish Mortgage share price could be at an increased risk as high-growth stocks decline.

Long-term growth

That being said, here at The Motley Fool, we are interested in long-term results. Regardless of the short-term headwinds Scottish Mortgage is facing, I still think it could prove a strong long-term addition to my portfolio.

For example, as my fellow Fool Charlie Keough points out, over the past five years, Scottish Mortgage shares have climbed over 220%. Comparing this to the 5% growth in the FTSE 100, the investment trust’s long-term management becomes evident.

In addition to this, the nature of an investment trust allows me to pool my money into a variety of assets all under one investment. Down the line, this could significantly help reduce volatility and provides exposure to many different sectors and geographies. 

Should I buy now?

Rising interest rates are a threat that Scottish Mortgage must contend with over the coming months. However, the trust isn’t designed to deliver short-term gains. As such, I would be willing to discount the short-term volatility of the shares.

What’s more, the current lower price could provide me with a discounted entry point. Therefore, I would consider adding the shares to my portfolio for long-term growth.  

Dylan Hood 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.