Was this article helpful?

YesNo

Was this article helpful?

YesNo

I’m searching for the best FTSE 100 dividend stocks to buy. Here’s why I think these blue-chip UK shares could soar in value in February.

BAE Systems

BAE Systems (LSE: BA) has significantly outperformed the broader FTSE 100 this month. I think it could continue to perform well in February as well if tensions over the Russia-Ukraine crisis continue. So far in January, it’s risen 9% in value while the Footsie has dropped 1%, due to a recent heavy reversal.

Defence shares like this tend to rise when geopolitical tensions move through the roof. Such scenarios boost expectations that weapons system demand will increase. It’s no surprise then that the prospect of the largest European conflict for decades has pushed the BAE Systems share price to its highest since early 2020. 

I’d buy BAE Systems because of its critical supplier status with major Western militaries. As a long-term investor, I’m also encouraged by the increasing amount of business it’s doing with fast-growing emerging markets. I think it’s a top buy, even though unexpected project delays can have a massive impact upon earnings.

Today, BAE Systems trades on an undemanding forward P/E ratio of 12.2 times. The defence titan carries a meaty 4.3% dividend yield too. I think it’s a highly attractive buy for me at current prices.

BP

It’s also possible the BP (LSE: BP) share price could ascend if oil prices soar again in February. The oil major’s share price has retreated sharply in recent sessions as crude values have cooled. However, BP stock is still 14% more expensive that it was at the start of January. And a fresh spike could be just around the corner.

Brent oil prices recently hit their most expensive since 2013, at around $90 per barrel. A charge through $100 is expected sooner rather than later by many analysts as signs of tightening supply emerge.

Crude stockpiles in the US recently dropped to their lowest since 2018. Meanwhile, demand expectations have increased given the milder nature of the Omicron strain and the possibility it’ll have a modest impact on the global economy.

Not even the prospect of a February surge for BP’s share price is enough to tempt me to invest however. Nor is the company’s low earnings multiples or large dividend yields. Today the oilie trades on a P/E ratio of 6.8 times for 2022 and carries a 4.3% dividend yield.

I’m not just put off by the threat that soaring inflation poses to energy demand as the year progresses. I’m also concerned about BP’s profits from a long-term perspective as green energy takes off and fossil fuel usage steadily declines.

BP’s share price also faces significant uncertainty as major institutional investors turn away from heavy polluters in their droves. For these reasons I’d rather buy other FTSE 100 shares like BAE Systems today.

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.

Was this article helpful?

YesNo

Key Points

• Banks and insurance companies generally have large cash holdings
• When interest rates rise this can be good for their profits
• A financial services ETF can be used to invest in a large number of these firms by holding a single share

It’s widely believed that there are going to be at least three US interest rate rises this year. This has caused global stock markets to plummet in recent days. As the Federal Reserve meets this week to give further guidance on increases to the cost of borrowing in the US market, I’m now looking at this financial services exchange traded fund (ETF).

How banks can benefit

Increasing interest rates are generally thought of as negative for the stock market. However, one exception is the financial services sector.

Banks are usually sitting on piles of cash from depositors and from their other business activities. They earn money from taking these funds and either lending them out or investing them.

When interest rates rise, financial institutions can benefit in two ways.

First, banks can charge more on loans and mortgages, but don’t usually pay savers much more interest. This means their profits should rise as they collect more money from borrowers than they have to pay depositors. Additionally, higher interest rates tend to reflect a period of greater economic growth. A stronger economy might mean that more consumers seek loans.

Second, they can make more money from investments, such as short-term government debt. US banks tend to invest in Treasury bills (short terms US Government debt) and these will now pay more.

The ETF I’m looking at

An ETF is a fund that tracks an index or sector and can be bought and sold like a share through most online brokers. It allows me to invest in a large number of companies by holding one stock.

The ETF I’m considering is iShares S&P 500 Financials Sector (LSE:UIFS). This fund aims to track the performance of the S&P 500 Capped 35/20 Financials Index. At present this contains 67 holdings, which represents the largest US financial services firms in the US.

The largest holding at just under 12% is Berkshire Hathaway. Warren Buffett’s company holds large cash reserves, has sizeable holdings in other banks and most importantly has a huge insurance business generating massive inflows of money in the form of customer premiums.

Performance and opinion

Over the last 12 months, this fund has performed strongly, increasing over 30%. Admittedly, year-to-date performance has not been great. Despite a good start to the year, at the time of writing, this ETF is down around 4%.

This serves as a note of caution for me. Though increasing US interest rates could be bullish for these companies, this fund is not immune to pullbacks in the general market. After all, in investing, nothing is guaranteed.

However, I feel the fall in the price over the last few days is a short-term blip. Historically periods of increasing interest rates have generally been positive for financial services. Once investors realise that 2022 might be positive for this ETF, I hope it will rise strongly. For this reason, I am seriously considering adding iShares S&P 500 Financials Sector to my own portfolio.

Niki Jerath does not own 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.

Was this article helpful?

YesNo

Annual inflation rose to an all-time high of 5.4% in December. And now experts are warning the public of further price hikes in the coming months. Rising food and energy bills are a huge burden and investors are being affected by subsequent market fluctuations as well. In times like these, I have always turned to passive income options in the FTSE 100 to boost my earnings. Although dividends are no magic solution to overcome rising prices, they help stretch my monthly budget. And I have identified two shares offering big yields that could improve my passive income and alleviate some inflation concerns.

Mammoth 15%+ yield

The first company I’m looking at to make a £1,000 investment today is FTSE 100 miner Evraz (LSE: EVR). The company is one of the largest producers of steel in the world but also has large reserves of coal, iron ore and vanadium.

I am looking at Evraz primarily for the 15.5% dividend yield, which sounds too good to be true. I am wary of a value trap when it comes to such a high-yield stock, but Evraz’s performance last year was strong. Apart from 2020, a year marred by Covid, it has managed to pay out double-digit yields since 2017 at an average of nearly 12%.

It is important to note that the FTSE 100 miner has cut its yield three times in the last seven years (including 2020) and the current yield is covered only 1.3 times by earnings, which is a little tight for my liking. Plus analysts expect earnings to drop slightly as the demand for iron ore stabilises in 2022. Evraz is also battling increased taxation on its operations in Russia, which could affect profits. 

But going by recent financials, the company is healthy right now and I do not expect the current yield to fall to 2020’s lows of 9.6%. Increasing energy prices could also bump up coal prices, which will benefit the commodities company. The company expects payouts to continue in 2022 given the strong fourth quarter 2021 predictions. This is why I am considering a £1,000 investment in Evraz shares today.

Finance stock

Asset manager M&G (LSE: MNG) offers a dividend yield of 8.7% at its current share price of 210p. This is higher than the FTSE 100 average of 3.4%, making it a strong passive income option for my portfolio.

I expect a lot of turbulence in the market in 2022. And I know that turbulence brings in new investors, which could benefit M&G in the long run. In fact, the company operates on a lean business model with a large portion of its earnings coming in the form of recurring subscription payments and commissions on executed trades.

Were I looking for shares that also offer growth potential, M&G might not be the right pick for me. Since its split from Prudential and direct listing in October 2019, returns stand at a dismal -6.7%. Also, M&G operates in a very competitive sector and could lose out to major players like Legal & General. 

However, the board has reiterated its stance on increasing shareholder payouts in the coming years. And barring any major financial collapses, I think the company is well placed to deliver on this. I would buy it at the moment.

Suraj Radhakrishnan 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.

Technology stocks have been hit hard this year. The sell-off is mainly the result of rising bond yields, which have reduced the appeal of owning expensive growth shares.

While I think we could see more volatility in the technology sector in 2022, some tech stocks are starting to look quite attractive in my view. With that in mind, here’s a look at two stocks I’ve had a nibble at in the last few weeks.

A defensive Big Tech stock

Given that there’s a bit of uncertainty as to the near-term outlook for the tech sector, my first buy was slightly defensive – Big Tech giant Microsoft (NASDAQ: MSFT). I picked up some stock for $307 per share – about 12% below the company’s 2021 highs (I bought a little too early, in hindsight).

Microsoft is one of my favourite tech stocks. In fact, last year, I wrote that if I could only own one stock for the next decade, it would be MSFT. Why do I like it so much? There are a few reasons.

For starters, it operates in a number of high-growth industries including cloud computing, video gaming, artificial intelligence, remote work, and more.

Secondly, it has a top CEO in Satya Nadella. Since Nadella took the helm in 2014, he has transformed the company into an absolute powerhouse of a business.

Third, the stock offers a nice mix of offence and defence. Because so many businesses rely on its products, revenues are unlikely to plummet any time soon.

Even after the recent share price pullback here, MSFT shares still have a relatively high valuation. For the year ending 30 June 2022, Wall Street analysts expect the group to post earnings per share of $9.22. That means I paid about 33.3 times this year’s forecast earnings for my shares.

This higher valuation does add some risk. However, I’m comfortable with it. To my mind, MSFT deserves a higher valuation due to its high-quality attributes.

A FTSE 250 tech company that’s growing rapidly

Turning to the UK market, I’ve also had a nibble at Kainos (LSE: KNOS). It’s an under-the-radar FTSE 250 company that specialises in digital transformation solutions. Its client list includes the NHS, the Home Office, and the Bank of Ireland. I paid around 1,600p per share for my shares. Late last year, this stock was trading near 2,100p.

The reason I like Kainos is that I’m very bullish on digital transformation as a theme. All over the world, businesses and government organisations are rushing to digitalise their businesses. In an effort to be more productive, they’re moving to the cloud, they’re automating processes, and they’re analysing their data more. This is providing massive tailwinds for companies like Kainos, which has seen its revenue jump 140% in three years.

Like MSFT, Kainos does have a high valuation. I paid around 39 times next year’s earnings for my shares. This high valuation adds risk – if growth slows I’d expect the stock to be volatile.

I’m willing to accept some volatility here, however. To my mind, the long-term growth prospects are attractive. It’s worth pointing out that only a few months ago, Chairman Tom Burnet bought a load of KNOS stock near the 1,800p level. I’m happy to have bought at a lower level than this top-level insider.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns Kainos and Microsoft. The Motley Fool UK has recommended Kainos and 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.

It’s been a tougher task than usual for Britons to make a decent return on their cash. Interest rates have remained way below the levels recorded before the 2008 financial crisis. As a consequence, the rates on offer from standard savings accounts have been pretty dreadful.

But thinking outside the box has enabled many individuals to rise above and make truly titanic returns. Investment in UK shares has proved to be a particularly lucrative path to wealth for many over the past decade. Data just released by HM Revenues and Customs (HMRC) reveals how profitable investing has become for ordinary folk.

2,000 ISA millionaires!

According to the taxman, there are currently 2,000 ISA millionaires in Britain today. That’s according to data released following Freedom of Information requests from InvestingReviews.co.uk. The average holding for these wealthy individuals sits at a mammoth £1,412,000 too, the data shows.

HMRC says that 80 of these ISA millionaires are sitting on a pot of between £2m and £2,999,000. A further 60 also have funds worth £3m or above, with the average pot in this group sitting at a whopping £6,199,000.

Total holdings among ISA millionaires now sits at a staggering £2.8bn, according to HMRC. And InvestingReviews says that all of these high rollers are likely to be Stocks and Shares ISA holders.

Making a million

I own a Stocks and Shares ISA. I consider it a great way to invest in UK shares because it allows me to invest up to £20,000 a year without having to pay a penny in tax.

Studies show that stocks usually provide returns well above those which standard saving products can. Indeed, UK share investors tend to enjoy an average compounded annual return of 8% over the long term. This sort of rate can help someone who aims to invest regularly like me with a big pot to retire on.

Let’s say I can afford to invest £475 a month in UK shares via my ISA. After 35 years, I may have joined the millionaire’s club with a mighty £1,017,720 sitting in my account (based on that annual rate of 8%).

UK shares I think could make me rich

It’s not guaranteed, of course, and investments can go down as well as up. Investing our cash in shares is riskier than placing it in something like a cash account. But, in my opinion, the potential rewards I can receive with a Stocks and Shares ISA outweigh the risks. Some of my holdings include FTSE 100 royalty Diageo, Prudential and Coca-Cola HBC, shares that have provided big returns to their shareholders for decades now.

I also have an option to buy lesser-known high-growth shares that could help turbocharge my returns. I have also loaded up on software development services provider Keywords Studios, for example, and veterinary services provider CVS Group. Both of these companies are listed on London’s Alternative Investment Market (AIM).

There are countless other UK shares out there that could help me make a fortune with my ISA. And expert guidance from The Motley Fool could help me achieve my quest of becoming an ISA millionaire.

Royston Wild owns CVS Group, Coca-Cola HBC, Diageo, Keywords Studios, and Prudential. The Motley Fool UK has recommended Coca-Cola HBC, Diageo, Keywords Studios, and Prudential. 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 stock market is having a bit of a meltdown at the moment. Fears in relation to the next moves from the US Federal Reserve, the Russia-Ukraine crisis, and crashing US tech stocks, saw the FTSE 100 index fall a huge 2.6% yesterday.

However, for long-term investors like myself, this kind of market volatility can throw up some fantastic buying opportunities. With that in mind, here’s a look at two beaten-up FTSE 100 shares I’d buy for my portfolio today.

A FTSE 100 stock for the technology revolution

The first Footsie stock I want to highlight is Experian (LSE: EXPN), the leading provider of credit data. Its data has a range of uses, from helping businesses make faster, smarter lending decisions, to helping consumers better manage their finances.

Since late December, Experian’s share price has fallen from around 3,700p to 2,949p – a decline of around 20%. This fall seems unjustified to me. The reason I say this is that earlier this month, Experian posted a strong set of results for the three-month period ended 31 December.

This trading update showed revenue growth of a very healthy 14%. Meanwhile, the company said it now expects total revenue growth for the full year to be in the range of 16-17% (versus previous guidance of 15-17%) and that it anticipates “strong EBIT margin accretion”. Overall, the Q3 results indicate the company has a lot of momentum right now.

As for the stock’s valuation, it seems very reasonable, in my view. After the recent pullback, EXPN trades at around 28 times next year’s forecast earnings. Given the company’s market position, growth rate, and level of profitability (three-year average return on capital of 18%), I see value here.

Of course, if tech stocks keep falling, Experian shares could get dragged lower. However, all things considered, I think the risk/reward skew is attractive right now.

One of the most profitable companies in the Footsie

Another FTSE 100 stock that looks attractive to me right now is Rightmove (LSE: RMV), which operates the largest property website in the UK.

Like Experian, RMV has experienced a significant share price fall. Only a few weeks ago, the stock was trading near 810p. Today however, it’s at 650p, a near-20% fall that seems unjustified. At the current price, the stock trades at 27.3 times this year’s expected earnings. I think that’s quite cheap for RMV.

I see Rightmove as a high-quality company. For starters, it has a very strong brand and a dominant market position. In the first half of 2021, its market share of time spent on UK property portals was 90%.

Secondly, it’s extremely profitable. This is illustrated by the fact that during 2020, when the UK property market was impacted by Covid lockdowns, it still managed to generate a return on capital of around 100%.

Third, the company continues to generate solid growth. This year, the group is expected to post top-line growth of 9%.

One risk to consider here is new entrants. There’s always the chance that they could capture market share. But I’m comfortable with this risk. I’d snap up this FTSE 100 stock while it’s trading on a P/E ratio under 30.

Edward Sheldon owns shares in Experian and Rightmove. The Motley Fool UK has recommended Experian 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.