I still believe buying UK gold-producing shares is a sound idea as inflation rises. Demand for safe-havens like bullion tends to soar when concerns over the value of paper currencies increase. I’d take the plunge by buying into penny stock Centamin (LSE: CEY).

Yesterday, data from the UK showed consumer price inflation (CPI) rose at its fastest rate for 30 years in December. A reading of 5.4% also topped broker forecasts (again). Today, figures from the eurozone confirmed that CPI rose by record levels last month. And last week, the US announced CPI grew at its fastest rate since 1982 in December at an eye-watering 7%.

The inflationary surge could be set to worsen still further, pushing gold prices higher in the process. Energy prices continue to climb and Brent Crude, for instance — which just climbed to seven-year peaks of around $90 per barrel – is being tipped to barge through $100 within months.

Oil and gold have an historic relationship of moving higher and lower in lockstep. Supply chain problems could keep driving the prices of other everyday products and services travelling upwards as well.

The central bank threat

Gold values have just struck two-month highs above $1,840 per ounce because of these rising inflationary strains. And, accordingly, Centamin’s share price has risen to its most expensive since early December, to around 95p per share.

Look, there’s no guarantee that gold prices will continue heading northwards. Major central banks have already begun to hike rates to curb runaway inflation, and a continuation on this path could stifle further gains for gold.

Fresh action by the Federal Reserve would likely create a double whammy for gold too as it would help the US dollar gain value. A rising greenback essentially makes it less cost effective to buy assets that are predominantly sold in dollars like gold.

Speculation is growing however, that central banks are failing to do enough to tackle the inflationary surge. Their ability to tighten policy in the future could be restricted too if economic conditions are weak. A flare-up of the Covid-19 crisis, fresh trade wars, or a Chinese property market crash are just a few of the threats to the global economy.

Why I’d buy penny stock Centamin

There are plenty of gold-producing UK shares for me to choose from today. But I like Centamin because of its impressive production outlook and its ambitious growth plans. Trading news today showed output soar 58% in the final quarter of 2022. The penny stock is taking steps to eventually produce 500,000 ounces of the yellow stuff each year.

I also like Centamin’s impressive value. I think a forward P/E ratio of 14 times is undemanding, given what I consider to be the company’s bright profits outlook. Its 5% dividend yield meanwhile, makes mincemeat of the broader FTSE 100 average of below 2%.

There are many UK stocks I’m considering buying to protect myself from surging inflation. But I think Centamin could possibly be one of the best.

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.

When searching for new companies to add to my income portfolio, I like to start with the highest-yielding dividend stocks. A high yield can often be a warning sign. But every once in a while, there are businesses that can sustain an enormous payout. And that opens the door to massive income generation opportunities.

With that in mind, I’ve found four FTSE 100 dividend stocks that I’m considering for my income portfolio. Let’s explore.

The rise of commodities

Inflation may be wreaking havoc on everyday expenses, but for some companies like Rio Tinto and BHP Group, it’s proven to be quite the tailwind. As a reminder, these are some of the largest mining companies in the world. Both have been boosting their investments in projects related to renewable energy technologies – specifically focusing on metals like copper, nickel, and lithium, among others.

With demand for these raw materials skyrocketing thanks to the accelerated shift towards electric vehicles and capturing green energy sources, profit margins have been getting wider. This effect is only amplified by inflation pushing up commodity prices. As such, these dividend stocks now have a yield of around 9%!

There are, of course, risks to consider. Both operate in a cyclical industry whose product prices are determined by the market. That means neither one of these businesses have or ever will have pricing power. As mining is a largely fixed-cost enterprise, if the prices of these metals fall due to reduced demand or surplus supply, profit margins will take a significant hit with little recourse available.

Depending on the severity of this margin squeezing effect, the dividends could become compromised. But personally, I don’t see the demand for battery metals dropping any time soon, nor the supply catching up. That’s why I’m keen to add these two dividend stocks to my income portfolio today, despite the risks.

The Marmite of dividend stocks

Tobacco companies are often boycotted by some investors due to their ethical issues. But ethics aside, I can’t deny the popularity and addictive qualities of their products. Over the years, Imperial Brands and British American Tobacco have garnered enormous pricing power. And that has translated into dividend yields of 8% and 7%, respectively.

With the world becoming more health aware, the popularity of cigarettes in the UK has started to dwindle. But with new, less harmful products like e-cigarettes entering the market, these businesses have proven to be resilient to the shifting landscape.

That doesn’t mean there aren’t any risks, of course. Selling a product considered to be controversial has led to rising levels of regulatory oversight and restrictions. Future increased limitations on nicotine content could start to hamper sales as this is what makes these products so addictive in the first place. Needless to say, if the revenue starts falling, the yields will likely suffer.

However, while the looming regulatory threat is concerning, these dividend stocks have proven to be an enormous source of passive income over the years and could stay that way in the future. That’s why I’m considering them for my portfolio today.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco and 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.

All too often, UK stocks can gain popularity among investors for the wrong reasons. One, in particular, that’s come to my attention is Cineworld (LSE: CINE). Some analysts are predicting the stock can climb from 43p today to as high as 125p within the next 12 months. And on the surface, that certainly sounds like a perfect pandemic recovery play. But after a closer inspection, I think it’s far more likely that the share price is on the verge of crashing. 

Let’s start with the positives of this UK stock

The crash of the Cineworld share price in 2020 is pretty self-explanatory. The pandemic forced most cinemas in the UK and US to close for a considerable amount of time, wiping out the company’s revenue stream in the process.

Today, the situation has drastically improved. Cinemas have reopened their doors. And thanks to a lot of pent-up demand along with an extended list of delayed blockbuster titles, attracting crowds back to the big screen hasn’t been too challenging.

Looking at the latest trading update, films like Spider-Man: No Way Home, Dune, and No Time To Die have restored Cineworld’s revenue stream to 88% of pre-pandemic levels. That’s certainly an encouraging sign of recovery. And with further titles, including Death on the Nile, Uncharted, and The Batman scheduled to be released in the next couple of months, ticket and concession sales should be able to continue climbing.

That’s obviously a positive sign. So why do I think this UK stock is about to collapse?

Getting into the weeds

While revenues might be close to returning to pre-pandemic levels, the boost in cash flow is simply not enough to stay afloat. Cineworld’s growth strategy over the years has been highly acquisitive. This is actually how it became the world’s second-largest cinema chain. But as a consequence, management racked up a lot of debt. And the pile only got bigger when the pandemic struck.

As of the end of June last year, the company had $8.8bn (£6.5bn) of loans on its balance sheet. And that comes with a $548m (£402m) annual interest bill. Assuming the company can return to pre-pandemic levels of profitability, operating income will stand at around $725m (£532m).

That’s enough to cover the interest expense, right? No, because Cineworld also has $629m (£461m) of leases to pay as well as a handful of other short-term liabilities to deal with. As it stands, the firm simply doesn’t have enough cash flows or liquidity to pay its bills on time.

To make matters worse, it’s just been slapped with a $970m (£705m) legal fine for pulling out of a signed deal to acquire Cineplex in 2020. This doesn’t bode well for the UK stock or its shareholders.

What now?

The renegotiated debt covenant state the company needs to have a net debt that is no more than five times EBITDA by the end of June 2022. As it stands, I just don’t see that happening.

I could be wrong, of course. But if it defaults, creditors could force a debt trade for equity, triggering a financial restructuring. Large chunks of debt could be wiped clean, with new shares flooding the market. But this would lead to enormous equity dilution, denting the stock’s price in the process.

Needless to say, I’m not adding that risk to my portfolio.

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

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I am always looking for cheap UK shares to buy for my portfolio. And I think now more than ever it is crucial to consider valuation when analysing securities. 

Indeed, with interest rates set to continue rising and the cost of living also growing, the outlook for the economy is becoming more uncertain by the day. 

By focusing on valuation, I believe I can avoid the market’s most expensive equities, which are likely to suffer the most if economic growth starts to slow. Highly-valued growth stocks may quickly fall out of favour if their development does not live up to expectations.

This is just what is happening over the pond. Shares in companies like Peloton and Zoom have plunged 80% and 50% respectively over the past 12 months. Their growth has not lived up to the market’s lofty expectations. 

With that in mind, here are a handful of cheap UK shares that I would buy for my portfolio right now. I believe these firms have the qualities required to continue to grow over the next decade and beyond. 

Cheap UK shares

When I am looking for shares to buy for the long term, I try to focus on growth themes that can act as tailwinds for underlying businesses. 

The UK car market is only set to expand over the next decade. With this tailwind in place, I think the outlook for Vertu Motors and Pendragon is highly encouraging. What’s more, right now, these companies are also benefiting from surging second-hand car values here in the UK. 

The stocks are both selling at a forward price-to-earnings (P/E) multiple of less than 10. That looks cheap compared to their growth potential. 

But some challenges that these and the other companies outlined in this article could face include rising costs and a fall in demand due to the cost of living crisis. 

Construction sector 

The outlook for the UK construction industry also appears incredibly bright. The government is ramping up infrastructure spending, and this growth, coupled with expanding demand for new properties, could provide a windfall for builders and infrastructure providers over the next decade. In my view, Morgan Sindall and Balfour Beatty are some of the best UK shares to play this theme. 

Both of these companies have the economies of scale required to capitalise on the growth in the sector and keep costs low. Despite these qualities, shares in both businesses appear undervalued, considering their potential over the next decade. The shares are selling at a forward P/Es of less than 12 at the time of writing. 

Talking of building, I think homebuilders like Bellway could also be an excellent investment for the next decade. With the demand for new homes only set to rise over the next few years, the company looks to be good value, with the shares selling at a P/E of just 7.8. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Peloton Interactive, Pendragon, Vertu Motors, and Zoom Video Communications. 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

• A high-dividend-paying ETF can be a source of passive income
• Individual shares can give a higher return, but not all high-yielding companies will be winners
• This kind of fund might offer me some downside protection

Passive income means a regular income stream that requires very little effort. In this respect, it’s sometimes referred to as ‘making your money work for you’.

The internet is full to the brim with suggestions for how to achieve this. However, one idea that interests me for my portfolio is a high dividend-yield exchange traded fund (ETF). This is a fund that tracks an index or sector and can be bought and sold like a stock through most online brokers.

The idea is simple, this kind of investment should pay me a regular dividend at certain intervals throughout the year. Then there’s also the potential price appreciation of the fund. 

What I’m considering

The ETF I’m looking at for 2022, is one I’ve studied before, iShares FTSE UK Dividend GBP UCTIS ETF (LSE: IUKD). This fund aims to replicate the return in the FTSE UK Dividend + Index by investing in the 50 firms with the highest dividend yields in the FTSE 350.

It has a low expense ratio of 0.4%, good trading volume and is large. Looking at the companies included shows just how well it’s diversified across industry sectors. For example, established big names like HSBC, GlaxoSmithKline and Vodafone are just a few of the largest holdings.

One of the main risks in a high-yield fund like this is the dividend trap. Some of these high-paying companies will be mature businesses that are great at generating free cash flows. However, some will feel they have to maintain high dividends to keep their investors happy when the company itself is not growing. In the long run, such companies could falter.

That said, there’s a 5% cap on any individual holding in the fund, this should provide resilience in case any individual company significantly underperforms. It’s exactly this kind of robustness that makes me like ETFs as investments.

Should I invest?

Looking at the performance, the fund gained around 18% over the last 12 months and around 3% year-to-date. I’m generally bullish on the 2022 outlook for the UK market and though nothing is certain in investing, it wouldn’t surprise me if this fund continues to gain.

The current dividend yield is 5.78%, which is paid quarterly. Though it’s less than some of the best dividend payers in the FTSE 100, it’s good enough for my own portfolio. The trade-off is that I’m giving up the chance of higher returns from individual stocks for the benefit of owning multiple companies through a single share. 

The fund is also rebalanced on a semi-annual basis as the index updates. In theory, this means that the ETF automatically updates with the companies with the highest returns. Rather than buying and selling shares in individual companies myself, this does it for me.

In my mind, this really is a hands-off investment. Therefore, I’m going to seriously contemplate adding it to my holdings as part of a balanced portfolio.

Niki Jerath does not own shares in iShares FTSE UK Dividend GBP UCTIS ETF. The Motley Fool UK has recommended GlaxoSmithKline, HSBC Holdings, 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.

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The NIO (NYSE: NIO) share price was one of the hottest investments of 2020. The stock returned a staggering 1,440% throughout the year, outpacing the broader market by a wide margin. 

Unfortunately, shares in the Chinese electric vehicle manufacturer failed to repeat this performance last year. The stock slumped 50% in 2021. This trend has continued in 2022. Even though the year is only a few weeks old, the NIO share price is down around 15%. 

Shares in the company have been under pressure as the business has failed to live up to the market’s lofty growth expectations. The global semiconductor crisis has hit production, and competitors have been able to steal an edge over the enterprise. 

However, heading further into 2022, there are several tailwinds behind the business that could help improve investor sentiment. 

NIO share price catalyst 

As I noted above, one of the main reasons why the stock has been under pressure over the past 12 months is its production, or rather the lack of it. 

This started to change towards the end of the year. The company reported revenue growth of 116% for the third quarter as vehicle deliveries increased by 100% to just under 25,000 units. And thanks to growing economies of scale, the average profit margin achieved on each vehicle increased from 14.5% to 18%. 

Alongside these results, the corporation did issue a warning to investors that growth would slow in the fourth quarter, although vehicle deliveries will still exceed 24,000, up 41% year-on-year. 

To put these numbers into perspective, since the company began selling vehicles in June 2018, it has only sold 157,000 units. It wants to increase production to around 25,000 units a month by the second quarter of this year. That works out at 300,000 units per annum, more than three times the levels reported for 2021. 

Of course, there is no guarantee that the business will be able to hit this target. It faces multiple challenges, including rising costs, the semiconductor crisis, and increasing competition from peers across China and the rest of the world. These challenges could weigh on output growth and the company’s profit margins over the next year. 

Production growth

Still, if the enterprise manages to meet its elevated production targets, I think this could have a significant impact on the outlook for the NIO share price. The increased output will significantly impact the company’s bottom line and profit margins, providing capital for the business to reinvest and grow production further.

If it can rise to the challenge, the market potential for the enterprise is massive. The Chinese electric vehicle market was worth around $98bn in 2019 and is expected to grow at an annual rate of 31% until 2026. 

As such, if the company can report strong output growth next year, I think the shares could reverse recent declines. If the firm hits this target, I will consider adding the business to my portfolio. Until it hits this landmark, I am happy to wait on the sidelines and see what happens. 

Rupert Hargreaves 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.