It hasn’t escaped my notice that inflation is running a bit high at the moment. And with the value of savings eroding by the day, I think it’s more important than ever to avoid keeping anything beyond an emergency fund in a Cash ISA. After all, even the best-paying instant account returns a paltry 0.61% right now. Even though Cash ISAs are ‘safer’, I think the best place for my money is the stock market, especially as there are lots of cheap dividend stocks to buy out there.

Let’s look at a couple, one of which reported to the market this morning.

Cheap dividend stock

I think self-styled “purpose-led global financial technology business“ IG Group (LSE: IGG) is a great way of tackling inflation. The online trading provider has actually been a core holding in my own Stock and Shares ISA for quite a while, partly due to the cash it keeps churning out. And based on today’s half-year results, I have no concerns about this trend continuing.

This morning, IG announced a record first-half performance. Net trading revenue increased 16% to £471.9m over the six months to the end of November. Pre-tax profit also rose 8% to £245.2m. That’s pretty impressive stuff considering that markets were fairly stable over the period (IG makes money when traders try to capitalise on volatility).

As encouraging as all this is, it’s the dividends I’m after. Today, the FTSE 250 member elected to keep its interim payout steady at 12.96p per share. Assuming the full-year cash return stays at 43.2p, that means IG yields 4.9% — eight times what the best Cash ISA will give me.

Will this be sufficient to beat inflation? I don’t know. But it’s definitely worth the extra risk that comes with investing, in my opinion. This is especially true given how much (or how little) buyers are being asked to pay to acquire this quality stock.

At yesterday’s close, IG shares traded at just 11 times earnings. While the threat of further industry regulation may go some way to explaining this valuation (and dividends are never guaranteed), I’d have no issue buying more. 

Another option

Of course, IG isn’t the only cheap dividend stock out there. Shares in Polar Capital Holdings (LSE: POLR) also grab my attention.

The fund manager’s price has tumbled 19% in 2022 to date as investors have become increasingly skittish. As far as I can see, it’s nothing to do with Polar itself.

To be frank, none of this should really bother me if I’m looking to generate passive income and/or beat inflation. Analysts believe Polar will return 42.4p to investors in the current financial year. At today’s share price, that becomes a monster yield of 6.6%. 

Too good to be true? Well, the recent volatility in markets will likely mean that the mid-cap’s next set of numbers may not impress. Asset managers typically don’t do very well when clients are clamouring to withdraw their cash. 

Still, the extent to which dividends will be covered by expected profits (1.4 times) looks reasonable. Polar is not one to slash its payout anyway. Based on its track record over recent years, the company is more likely to maintain rather than reduce cash returns when times get tough.

Also changing hands for 11 times earnings, I’d be happy to add Polar Capital to my ISA today.

Paul Summers owns shares in IG Group. The Motley Fool UK has recommended Polar Capital Holdings. 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. Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, nor 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.

There’s an increased level of volatility in UK shares at the moment. While the FTSE 100 has been climbing in the right direction, the same cannot be said for all high-growth stocks over the last couple of months. Yet, the drop in price for some of these businesses could be the perfect opportunity for me to snatch up some shares at a discount before they recover. Let’s explore two of these opportunities.

A credit data giant

Shares of the UK credit data provider Experian (LSE:EXPN) have had a fairly rough time lately. Its 12-month performance is still up by 13%. But since the start of 2022, the stock has dropped like a stone by 20%.

As growth stocks lose their favour with investors, high-flying UK shares like Experian are the first to get hit. And it’s possible that further price declines could be on the horizon. Why? Because even after the disappointing performance seen so far this year, the shares continue to trade at a price-to-earnings ratio of 38. And that leaves the door open to further volatility.

But despite the direction of the share price, the latest earnings report from management was quite encouraging. Revenue in its third-quarter grew by 15% on a constant currency basis versus a year ago. As a result, revenue growth is expected to be around 16-17% for its full fiscal year ending in March. 

That looks promising to me, especially since most of the growth originates from organic sources. That’s why I think the recent tumble is a perfect buying opportunity for my portfolio, despite the valuation risk.

A UK growth share that’s lost a lot of love

The pandemic has enabled the gaming sector to rapidly accelerate its growth. Renewed forecasts now expect the market opportunity to reach nearly $240bn (£179bn) by 2026. With that in mind, I think it’s easy to see why investors got excited by the growth prospects of Frontier Developments (LSE:FDEV) in 2020.

Unfortunately, the UK firm’s recent financial performance has caused a 60% decline in its share price over the last 12 months. The PC launch of its latest title, Jurassic World: Evolution 2, didn’t meet sales expectations, despite it receiving critical acclaim. As a consequence, management cut guidance, and shareholders had a bit of a meltdown.

This reaction wasn’t too surprising to me. Like many growth stocks, investor excitement had pushed the valuation to fairly lofty heights. But I think investors may have gone from one extreme to another. The studio has a long line-up of new titles coming out in 2022 and 2023, including games for popular franchises like Formula One and Warhammer. Combined, these soon-to-be-released projects could deliver enormous long-term growth, making the recent short-term issues less important. Therefore, while Frontier does carry more risk, I’m considering adding some more shares to my portfolio today.

Zaven Boyrazian owns Frontier Developments. The Motley Fool UK has recommended Experian and Frontier Developments. 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 like searching for great penny stocks to buy. It gives me a chance to find the growth heroes of tomorrow and to pick them up for little cost. Here’s a cheap UK share I think could provide terrific returns now and in the years ahead.

Home comforts

Residential rents in the UK continue to rise at an eye-popping rate. According to Rightmove the average asking rent leapt 9.9% year-on-year in the final quarter of 2021. This was the biggest jump on record. At the same time, tenant costs in London are also sitting around all-time highs as people return to their workplaces en masse.

Rightmove said that the “imbalance between high tenant demand and low rental stock is supporting asking rent rises, and has led to competition between tenants for the rental properties available nearly doubling compared to the same period last year.” This imbalance will take many years to resolve and landlords could expect top-end rents for the foreseeable future.

I personally would seek to capitalise on this theme by buying a property stock like Residential Secure Income (LSE: RESI). Owning shares in a commercial landlord like this saves me the hassle of day-to-day property management that buy-to-let investors have to endure. It can also prove much more cost effective following recent tax and regulation changes to buy-to-let.

BIG dividends on the horizon

I also like Residential Secure Income because it’s classified as a real estate investment trust (or REIT). This means that, just like buy-to-let, investors here can expect to receive a decent level of income. REIT rules state that a company must distribute at least 90% of yearly profits to shareholders by way of dividends.

And Residential Secure Income offers up some pretty fatty dividends right now. At a price of 111p per share this UK property share boasts a 4.7% dividend yield for this financial year (to September 2022). The dial moves to 4.8% for financial 2023 as well.

In my opinion Residential Secure Income also offers brilliant value from a growth perspective. City analysts think earnings at this ‘nearly’ penny stock will soar 26% this year alone. This leaves the firm trading on a forward price-to-earnings growth (PEG) ratio of 0.8. Investing theory states that a reading below 1 suggests a stock could be undervalued by the market. By the way, profits are tipped to increase 6% in financial 2023 too.

A ‘nearly’ penny stock offering big rewards

Like any share, Residential Secure Income isn’t without its risks. The rising cost of building materials threatens to take a bite out of profits. Demand for rental properties might also dip if the Bank of England helps people buy homes by loosening mortgage lending rules later this year.

Still, it’s my opinion that the potential rewards of owning Residential Secure Income outweighs the risks.  I’d happily buy it for my own UK shares portfolio right now.

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

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Key Points

• Many growth shares have suffered double-digit declines making them look relatively cheap.
• The convenience store market size is £44.3bn, which one rising FinTech stock is capitalising on.
• The surging demand for battery metals is sending cobalt prices through the roof, leading to record-breaking revenue for a UK mining business.

It’s a time of increased volatility in the stock market. While the FTSE 100 has delivered relatively strong results in recent months, not all stocks have been blessed with the privilege. But in my experience, volatility breeds opportunity. And with that in mind, let’s explore two UK shares I think are looking rather cheap.

A rising FinTech star

One stock that’s had a bit of a rocky journey in recent months is PayPoint (LSE:PAY). The business is a payments and e-commerce solutions provider for convenience store owners. Historically, the group has been highly dependent on cash transactions, which proved problematic when the pandemic struck, and everyone turned to contactless payments.

But PayPoint has now changed tactics, making several acquisitions to reposition the business to become a new leader in digital payments. And looking at the latest results, it seems this new strategy is working. In its third quarter of 2022, ended in December, total revenue came in 21.3% higher than a year ago, putting an end to its long record of stagnant growth.

Acquisitions obviously have their risks. If a target company fails to deliver on expected performance, or complications arise when integrating operations, it can end up destroying shareholder value rather than creating it.

Nevertheless, I remain cautiously optimistic. And with a PE ratio of around 20 versus the £44.3bn market opportunity, the UK share is looking relatively cheap to me.

A cheap UK mining share focusing on battery metals

Inflation may be wreaking havoc on most businesses. But for the mining sector, rising commodity prices are helping to significantly expand profit margins. And the increasing price effect is only amplified for metals related to electric vehicles and renewable energy technology, thanks to surging demand.

This is lovely news for Anglo Pacific Group (LSE:APF). The royalties company has historically been dependent on the sale of thermal coal to drive its bottom line. But over the years, management has begun diversifying the portfolio toward battery metals. Its recent $205m (£152m) acquisition of a cobalt mine royalty is proof of that.

And, so far, this strategy is paying off. Because when looking at the latest quarterly results, portfolio revenue climbed 74% to a record-breaking $23.6m (£17.5m). A lot of this growth can be attributable to price inflation, due to supply chain disruptions. And therefore there is a risk of prices falling again once these disruptions are resolved.

But with demand for battery metals unlikely to disappear any time soon, I think Anglo Pacific could be in for a good run. And with shares still trading below pre-pandemic levels, despite its superior financial position, I believe UK stock is looking rather cheap.

Zaven Boyrazian owns Anglo Pacific and PayPoint. The Motley Fool UK has recommended Anglo Pacific and PayPoint. 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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Investing in real estate investment trusts (REITs) can be a great way to generate passive income. In the UK, REITs are required to distribute 90% of their property income profits to shareholders. As a result, they often tend to be cash cows for investors.

Here, I’m going to highlight two of my favourite UK REITs. I’d be comfortable buying both of these securities for my portfolio today with the aim of generating passive income.

An under-the-radar REIT with a 4.3% yield

Let’s start with Urban Logistics (LSE: SHED). It’s an under-the-radar real estate company that owns a portfolio of strategically located warehouses across the UK. These warehouses are let out to retailers and delivery companies. Tenants include Amazon and XPO.

The reason I like this REIT is that the market for retail warehouse space is absolutely booming right now due to the growth of online shopping. Retailers need warehouse space to store goods before they’re shipped out to consumers, and this is benefiting the companies that operate in this area, including Urban Logistics. Last year, a record 66m square feet of space was taken up in the UK, up 27% year on year.

The dividend yield here is certainly attractive. For the year ending 31 March 2022, analysts expect SHED to reward investors with a dividend of 7.6p per share. At the current share price, that equates to a prospective yield of around 4.3%. Not bad at all in today’s low-interest-rate environment.

The valuation on the stock is also attractive, in my view. At present, it has a forward-looking P/E ratio of about 19 using next year’s earnings forecast. That’s well below that of rival Tritax Big Box.

One risk to consider here is that the company sometimes needs to raise new capital to grow its portfolio. This can hit the share price in the short term. I’m comfortable with this risk, however. I think the key here is to take a long-term view and enjoy the dividend income along the way.

A FTSE 250 healthcare REIT

Another REIT I’d be happy to buy today for passive income is Primary Health Properties (LSE: PHP). It’s a FTSE 250 business that invests in healthcare properties such as GP surgeries. Its portfolio currently consists of around 520 properties across the UK and Ireland.

One reason I like this REIT is that a large chunk of its rental income is backed by the UK government. So, it’s unlikely to find itself in a situation where it’s unable to collect its rents. Another reason I’m bullish here is that the group looks set to benefit from the UK’s ageing population, which is likely to increase demand for healthcare.

PHP has a good long-term dividend track record and has increased its payout at a rate above inflation in recent years. For 2021, the group is expected to pay out 6.2p per share to investors. That translates to a prospective yield of around 4.3% at the current share price.

One risk here is the arrival of virtual healthcare services. This form of healthcare has become more popular during the pandemic due to the convenience it offers and it could potentially reduce the demand for physical GP surgeries going forward.

Overall, however, I think the risk/reward proposition here is attractive. With the stock trading on a P/E ratio of about 22 after a pullback, I see it as a buy.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns shares in Amazon and Tritax Big Box REIT. The Motley Fool UK has recommended Amazon, Primary Health Properties, and Tritax Big Box REIT. 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.

Tesla (NASDAQ: TSLA) stock could be worth watching today after yesterday’s after-hours update on trading. Do some really encouraging numbers, coupled with a substantial fall in its share price in 2022 to date, suggest the company is a bargain?

“Breakthrough year”

Having been accused of running on empty for so long, there can be no doubt that the US giant is now a consistently profitable company. Following a stonking 71% increase in sales to $53.8bn, Tesla brought in $5.5bn in earnings last year. The latter was up almost 59% on 2020 ($3.47bn).

All told, Tesla delivered 936,000 vehicles in 2021 — almost double what it achieved in the previous year. Sales in Q4 also rose to 306,800 vehicles, highlighting just how quickly demand for electric vehicles is growing. No wonder it labelled 2021 as a “breakthrough year” for the company.

Of course, one should only put so much weight on these figures. To make money on Tesla stock from here, I need to know what the outlook is like. 

Perhaps the most striking announcement last night was the Texas-based company’s belief that it will grow sales “comfortably above 50%” this year. That’s despite Tesla, like all car manufacturers, being impacted by the ongoing shortage of semiconductors as a result of demand spiking over the pandemic. 

Whether it can actually hit this target is open to debate. However, the prospect of its Austin factory coming on-line soon bodes well. Although still awaiting a permit to deliver vehicles in Europe, it’s only a matter of time before Tesla’s new factory in Berlin is also operational.  

So, is Tesla stock now a buy?

Based on last night’s update, I think the 22% fall in 2022 so far looks overdone. The prospect of a more affordable model hitting the roads in 2023 should also attract those previously put off by the price tag of its vehicles. Tesla’s finances look strong too, with cash at $17.6bn at the end of the year and minimal debt. 

On the flip side, those ongoing supply chain issues will take a while to correct. Quicker-than-expected interest rate rises could also push more investors to abandon growth stocks — regardless of quality — and focus instead on those that could stage a post-pandemic recovery. They may not be as sexy as Tesla but financials, energy and travel companies may be in greater demand as we move through 2022.

As impressive as his record of proving critics wrong is, CEO Elon Musk also strikes me as a Marmite CEO. You either love his maverick nature or you consider it a liability. Regardless, one does need to be comfortable knowing that a casual tweet from Tesla’s leader can be sufficient to move the needle in either direction.

An alternative solution

Global markets remain volatile. As such, I’m still content to get exposure via FTSE 100 member Scottish Mortgage Investment Trust for now. Based on its most recent factsheet, just over 5% of assets are tied up in the electric vehicle maker. Naturally, this means I won’t get the full benefit if Tesla stock jumps. However, nor will I suffer much if the price keeps falling.  

Notwithstanding this, I do think Tesla’s share price movements over the next few weeks will serve as a useful way of gauging market sentiment. And while I still don’t consider it a bargain today, my hand may be forced if the sell-off continues.

Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK has recommended Tesla. 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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