Royal Mail (LSE:RMG) shares look attractive to me at the moment, mainly because they seem to fit with my investing philosophy for 2022. Part of my personal investing mission for this year involves adding more dividend shares to my portfolio.

There are several reasons for this. The key one is a need to balance risk versus reward. I think I need to add more dividend stocks that provide a steady stream of income, rather than rely on too many speculative growth stocks that may or may not come good.

Royal Mail seem like a good candidate to help me meet my investing goals. Let me explain why I’m so keen.

Growth and dividend potential

To my eyes, Royal Mail shares right now seem to have that nice balance of growth potential sat alongside steady dividend income generation. And this company is generally regarded as being better run now than it has been for years. 

Take headline metrics like revenue and profits. These were up in the first half of the current financial year by 7.1% and 10.1%, respectively. The larger percentage increase in profitability over revenue (with profits being £404m for the half year) suggests solid improvements in its operating efficiency.

These efficiency commitments should continue. Royal Mail has invested heavily in improving technology across the business, for example, and is building a new parcel distribution centre that’s due to open in 2023. It will handle up to a million parcels a day, which can only be good for the longer-term future of the business.

Positioned to succeed?

Royal Mail is definitely one of the business winners from the pandemic. The UK public is now shopping online more than ever before, and those parcels need to be delivered. Yet before investing in the stock, I should be aware that recent revenue gains might not be replicated as 2022 wears on. That’s certainly the case if consumers revert to shopping at physical stores as Covid-19 shackles continue to loosen. 

This leads me to my next note of caution. It’s stating the obvious, but lucrative industries tend to become more competitive. The company already has plenty of rivals and I should be open to the possibility of the parcel delivery industry becoming even more competitive. This has the potential to impact revenue generation. 

I’m reassured on this front though. The aforementioned efficiency investments sees the company putting itself in a better position to compete. This is hugely important to me as an investor. If I invest in Royal Mail, I do so knowing the company is working hard to deliver growth, regardless of what its rivals might do to increase their market share. 

It’s a big plus point for me that the stock’s price-to-earnings (P/E) ratio is an attractive-looking 5.9. This is some way below its rolling average since 2013 of 12 or so. This makes me think the company could even be seriously undervalued. 

I haven’t even mentioned the dividend yet. The current dividend yield is 3.9%, which certainly wipes the floor with my high street bank account’s interest rate. The more I look at Royal Mail shares, the more I like what I see. I can see this stock being added my portfolio very soon.

Garry McGibbon 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.

Typically, I like to hold stocks with three time periods in mind. There are FTSE 100 and FTSE 250 stocks I have bought with at least the next decade in mind. These are those in promising sectors, which are likely to show plenty of growth over time. Then there are cyclical stocks, that I buy with a three to five year timeline in mind. I am most likely to make gains from such stocks by buying them during downturns and selling them during booms. And there is also the odd speculative investment that gets sold as soon as the returns, often without warning, start looking good. 

Why I bought Domino’s Pizza

My purchase of Domino’s Pizza (LSE: DOM) stock was an investment of the second kind, in a cyclical stock. This is because our spending as consumers is likely to be higher on eating out or takeaways when incomes are rising than when they are not. And we are now in a phase of recovery, after a long drawn out battle with coronavirus. So ideally, I should expect the FTSE 250 stock to keep rising. 

What has changed

But something has changed in the past couple of years. The pandemic forced many of us into far more online shopping than we had done ever before. This resulted in, among other things, a boost to food delivery apps like Just Eat Takeaway and Deliveroo. They continue to report strong results even though the worst of the pandemic appears to be behind us. Domino’s is a standalone delivery provider, that in effect competes with these apps. I think it is fair to believe that the competition will only intensify over time. And with a vast array of delivery options available for consumers, I am not sure if the company can keep its edge.

Besides this, its share price trajectory has been unpredictable over the past five years, so I am not entirely convinced that it will continue to rise over the next few years as well. This is particularly because its price-to-earnings (P/E) ratio is at 21 times, which is not exactly low. And if there is a post-pandemic hit to its earnings as we start eating out more than ordering in takeaways, it is likely to look even higher at the current share price. In any case, its profits have not risen consistently in the past few years. 

Potential upside to the FTSE 250 stock

It is possible that the trend could change, though. In mid-December 2021, it reported a new growth strategy in partnership with its franchisees. This will involve increased investment and opening of stores at a fast clip, among others. This resulted in a 19% increase in its share price in a single day. And it has remained relatively elevated since then. Clearly, investors are bullish on the stock now. 

What I’d do

But as they say, the proof of the pudding (or the pizza, in this case) is in the eating. I would very much like to see results from its new strategies, instead of assuming that they will yield results. I have made a profit on my investment in the stock, but I will only be convinced to buy it again if I can see a clear path ahead for the FTSE 250 stock. Until then, I am focused on more promising picks.

Manika Premsingh owns shares in Deliveroo. The Motley Fool UK has recommended Dominos Pizza. 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.

Last year was a turbulent one for shareholders in Ocado Group (LSE: OCDO). After racing ahead in 2020 and early last year, the Ocado share price peaked, before crashing spectacularly over the rest of 2021. As a result, the online supermarket’s stock was one of the worst performers in the FTSE 100 index last year.

The Ocado share price soars, then slumps

In 2019, before Covid-19 rocked global stock markets, the share price was on a roll. At the end of 2018, the stock closed at 790p and then rose sharply to finish 2019 at 1,279p. In other words, this FTSE 100 share leapt by 489p in 12 months — a market-thrashing return of 61.9%.

Initially, the Ocado share price had a rough start to 2020. However, as coronavirus infections swept the world in early 2020, global stock markets went into meltdown in the spring. Ocado shares followed suit, crashing to an intra-day low of 994.01p on 12 March 2020, before recovering to close at 1,077p. But as online shopping exploded during Covid-19 lockdowns, Ocado stock shot up like a rocket. After March’s low, the shares rose steeply and, at times, almost vertically. On 30 September 2020, this FTSE 100 stock hit its all-time high of 2,914p, before easing back to close at 2,744p. It then weakened to close at 2,287p on 31 December 2020.

Last year started positively for Ocado shareholders as the stock surged to hit its 2021 intra-day high of 2,888p on 3 February , before closing at 2,846p. However, after this, it was pretty much all downhill for the Ocado share price. Indeed, after peaking in early February, the stock crashed brutally, losing almost half of its value during the remainder of 2021. At its 2021 intra-day low, the stock collapsed to just 1,545.32p on 12 October, before rebounding to close at 1,649.5p. After this, Ocado stock ended the year little changed, closing out 2021 at 1,678p.

From the end of 2020 to end-2021, Ocado stock collapsed from 2,287p to 1,678p. That’s a loss of 609p — a crash of 26.6%. By contrast, the FTSE 100 index gained 14.3% — both figures exclude dividends. Thus, by my reckoning, this makes Ocado one of the worst performers in the FTSE 100 in 2021.

What caused this FTSE 100 stock to crash?

I believe that three factors drove the Ocado share price steeply lower in 2021. First, the shares were driven higher by optimism over boosted revenue growth due to UK lockdowns. However, as Covid-19 infections declined and vaccination programmes were rolled out, this initial optimism was replaced by pessimism over Ocado’s growth. This translated into selling pressure, sending the FTSE 100 stock lower.

Second, as a go-go growth stock, Ocado enjoyed a premium rating broadly in line with highly rated mega-cap US tech stocks. However, as bond yields rose during the year, growth stocks slid, thanks to their increased sensitivity to higher interest rates. When investors realised the US Federal Reserve and the Bank of England would raise interest rates to combat rising inflation, they switched from growth to value stocks. Again, this ultimately had a negative impact on the Ocado share price.

Finally, Ocado’s quarterly results showed that its previous hyper-growth dropped off as 2021 progressed. Halfway through the year, revenue growth had slowed to 21.4% — far lower than in previous half-years. In summary, these three factors combined to drive down this FTSE 100 stock steeply in 2021.

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

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Since the pandemic began, Rolls-Royce (LSE:RR) has been one of the biggest losers on the FTSE. What’s ahead in 2022 for the Rolls-Royce share price and should I add shares to my holdings?

Rolls-Royce share price showing signs of life

As I write, Rolls-Royce shares are trading for 127p. At this time last year, the shares were trading for 105p, which is a 20% increase over a 12-month period. When the market crashed in 2020, shares dropped to penny stock levels. Penny stocks are those that trade for less than £1.

Even before the market crash and pandemic, the Rolls-Royce share price had been on a downward trajectory. A renewed focus including a cost cutting strategy and hopes of the aviation market reopening could offer Rolls some hope once more. Let’s take a look at what 2022 could have in store.

Positives

Rolls decided to conduct a review of its business that included major cost cutting and job losses too. I am never fond of seeing anyone lose their jobs but sometimes needs must. The sale of non-essential smaller businesses owned under the RR umbrella was another aspect of the exercise. If conducted successfully, these steps should help Rolls-Royce shares upwards.

I can actually see some evidence of the cost cutting and streamlining working. According to Rolls’ latest trading update released last month for the period ending 30 November, it has returned to a positive cash flow position. Further positive updates ahead based on steps taken could boost the Rolls-Royce share price in my opinion.

Rolls-Royce also stated it is looking to generate £750m in cash in the year ahead. This is dependent on flying hours nearing pre-pandemic levels. There are already signs this is happening throughout different parts of the world. I personally believe there will much more activity in respect of flights and holidays and aviation activity in 2022. All of this bodes well for RR shares.

Negatives & verdict

The Covid-19 pandemic has become RR’s nemesis of sorts. The emergence of new variants as well as differing levels of impact throughout the world have affected the Rolls-Royce share price and progress badly. Unfortunately, the pandemic is not something that can be analysed or researched or even controlled in my opinion. This means there is a high level of uncertainty. Looking ahead, another variant or issues could cause Rolls-Royce shares issues in 2022 too.

One major negative that I must identify is the fact there won’t be a dividend payment until at least 2023 due to loan agreements. These same loans kept the lights on at the height of the pandemic. Even then, we may arrive in 2023 and progress could have been hampered and there is not enough money to pay a dividend.

Overall I think there is a lot of uncertainty linked to the Rolls-Royce share price. At current levels it looks cheap, however. It has a great profile and presence in its market and has diversified operations with its military contracts. I only invest for the long term and it looks like Rolls-Royce would have to be for the long haul for me to see a return. Right now, the negatives are putting me off so I will avoid shares for now but keep an eye on developments.

Jabran Khan 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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FTSE 100 incumbent Burberry (LSE:BRBY) is a world renowned luxury clothing and accessories brand. Could it be a fashionable investment for my holdings though? Let’s take a closer look.

Iconic brand

Burberry is a luxury brand originally created in 1856 by Thomas Burberry. It is best known for its stand out check design which often features on its clothing and accessories. Burberry sells its luxury goods via its own directly operated stores, department stores, and speciality retailers throughout the world.

As I write, Burberry shares are trading for 1,751p per share. The shares are trading very close to the same levels seen at this time last year, 1,727p. Interestingly, the Burberry share price rose to 2,264p in June. Burberry has a huge presence in China and a big bulk of its revenue stems from the Asia Pacific market. Issues in China during 2021, linked to the ongoing pandemic and worries over growth, caused the shares to drop off.

For and against investing

FOR: Burberry’s most recent results and its dividend record are encouraging. An interim report released in November for the half-year period ended September 30 made for excellent reading. Burberry reported revenue, profit, and cash flow all increased compared to 2020 levels. It also declared a dividend of 11.6p per share. Burberry has a decent track record of dividend payments. When the market crashed, many FTSE 100 firms cancelled dividend payments. Some firms are still yet to resume them. Analysts predict Burberry’s dividend for FY23 could be 53p per share. In 2016, Burberry paid 37p per share. A growing dividend is a major plus for me.

AGAINST: Concerns of slowing growth in the Asia Pacific market, especially China are a concern. China accounts for close to 40% of Burberry’s revenue stream. If there were to be issues in this area, Burberry’s performance and any future returns could be severely hampered.

FOR: A recent change in chief executive officer (CEO) is a positive for me. Jonathan Akeroyd is replacing Marco Gobbetti. Akeroyd’s wealth of experience and success during his time with other fashion brands such as Alexander McQueen and Versace will be beneficial for Burberry. A fresh pair of eyes and a new impetus could help Burberry increase performance. This could lead to further returns for investors.

AGAINST: I find myself noting that a major risk for most of my prospective investments is the pandemic and its ongoing impact. The pandemic is not over and there has been evidence of new variants recently disrupting many industries and markets, such as the FTSE 100. Burberry could also suffer, as it did when the pandemic first struck and this could affect any returns for investors and potential investors alike.

FTSE 100 stock I would buy

Overall I like Burberry and would add shares to my holdings at current levels. It has a deep history of tradition as well as a profile and presence recognised the world over. In addition, it possesses a favourable track record of performance and dividends. I understand past performance is not a guarantee of the future, however. The change in CEO and reopening post-pandemic could propel Burberry to new heights. Burberry is a FTSE 100 stock I would buy for my portfolio.

Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. 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 identified two dividend stocks I would look to buy for my holdings in 2022 to make me a passive income.

Dividend stock #1

My first pick is M&G (LSE:MNG) with a yield of close to 9%. Bear in mind the FTSE 100 average is 3%-4%. M&G is a UK based asset management firm that splits its business into five different areas.

The financial sector can often be cyclically variable in terms of revenue. This was signified by many traditional financial stocks that succumbed to stagnation or sharp revenue declines in 2020 and 2021. Wealth management tends to enjoy relatively stable revenues due to constant fees for advisory services and asset management charges. Stable revenues help maintain a regular dividend payout and higher than average yield.

As I write, M&G shares are trading for 209p compared to 200p at this time last year, which is a modest 4% return. At current levels, a £5.3bn market cap, and such a juicy dividend yield, I am surprised shares are so cheap.

There are risks associated with M&G as a dividend stock. Firstly, dividends aren’t guaranteed. If investments and funds weren’t paying off, this could affect payouts. Furthermore, M&G is a relatively small player in a big market. This could result in it being out muscled and outmanoeuvred by larger, more established competitors.

Pick #2

My second pick is Aviva (LSE:AV) with a dividend yield of just under 5%. There are dividend stocks out there that offer a much higher yield but I have picked Aviva due to my belief that it is a quality business. It is also taking steps to further enhance operations and reward investors.

Aviva is recognised as the largest insurance firm in the UK with over 15m customers. Insurance is a must for consumers and businesses. Even in times of economic uncertainty, insurance shouldn’t be affected.

As I write, Aviva shares are trading for 436p per share whereas this time last year shares were trading for 351p. This a 24% return over a 12-month period. Based on current events within the business and Aviva’s position in the insurance market, the current share price looks cheap in my opinion.

Three key initiatives by Aviva make it an exciting dividend stock for me. Firstly, it decided to sell non-core businesses and focus on the key territories of the UK, Ireland, and Canada. Most recently it sold its Vietnamese business. Next, the proceeds it nets from these sales will pay down debt as well as re-invest in the core territories mentioned. Finally, Aviva has committed to return £4bn to investors by the end of 2022 through sale of businesses and a share buyback scheme.

Despite my bullish stance towards Aviva as a dividend stock, there are risks too. It’s current transformation looks simple on paper. Sell non-profitable businesses, pay down debt, and repay shareholders. If things don’t go to plan, performance and any dividend payout could be affected.

Overall Aviva looks like a good quality stock to help me make a passive income. It has committed to dividend payouts this year and has a clear plan to streamline operations to benefit performance.

Jabran Khan 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.

That inflation is a bigger problem than initially imagined, and not just in the UK, is becoming clearer every day. The US’s inflation number just came in at an unbelievably high 7% on a year-on-year basis for December 2021, the highest in 40 years, no less. This follows 5% inflation in the UK last month, which prompted the Bank of England to step in and increase interest rates. 

What does high inflation mean for my investments? 

This is bad news, because high inflation impacts my stock market investments negatively in many ways. The first impact of high inflation is to lower the value of my money. So even if stock markets continue to rise, my capital might not appreciate very much in real terms if prices are rising fast too. Similarly for dividends. The dividends I earn can buy me far less now than they could, say, a year ago. 

It also follows that if I have to pay higher prices, then the amount of money I could potentially save is lower too. And this means that I now have lesser to invest in the stock market. If this is true for all of us, then the stock market might just slow down too.

In any case, companies listed on stock exchanges are often negatively affected by inflation as well, which could make the markets sluggish. Their costs rise, as many FTSE 100 and FTSE 250 companies have highlighted in the past year. This in turn could impact their margins, which would then impact both their share price and their dividend payouts. As an investor, both my capital and my passive income is impacted in this way too.

A slowing economy?

Some lucky companies might just be able to pass on their costs to end consumers. But that also just adds to the upward price spiral, which could further reduce demand levels in the economy. The global economy is yet to recover from the pandemic, and potentially galloping price rise is the last thing it needs. I am particularly concerned about this combination of shaky growth and rising prices right now, because it could send us right back into slowdown if it’s not contained soon. 

How I’d make stock market investments

As an investor, I do have a few options to consider even keeping these risks in mind, however. One of them is to buy stocks that rise with rising inflation, like oil stocks. Although, if growth comes to a standstill, they would be impacted too. We are not there though, so I think there is still some upside to these stocks. 

Another way for me to combat the high inflation situation is to buy luxury stocks. Purchases of luxury products can often be seen as ‘conspicuous consumption’, which is made with the express purpose of displaying wealth. So, a premium price might just make them more desirable, making it easier for these companies to pass on higher costs. Of course, if growth slows down significantly — and for a long time — these too could face stagnant demand. But we are far away from that right now. I would focus on these stocks now.

Manika Premsingh 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.

Ridiculously cheap is not a term I get to use often for stocks these days. A lot of stocks have run up in the past year, and I reckon could continue to do so as the stock markets stay strong. So when I do come across one that is not just really cheap but has also posted a decent trading update, I cannot but write about it. 

Ferrexpo’s price rises on update

The stock in question is the Switzerland headquartered FTSE 250 iron ore miner Ferrexpo (LSE: FXPO). It is up almost 5% in today’s trading as I write following its upbeat production and trading update. For the final quarter of 2021, the company reports an 18% increase in production of iron pellets compared to the quarter before. It has also seen an impressive improvement in its cash position to $117m, up from $4m at the end of 2020!

The report is not all positive, though. For the full-year 2021, there is little change in production compared to the year before. Also, in the final quarter of 2021, the company actually reported a fall in production compared to the same quarter in 2020. 

Why has the FTSE 250 stock fallen so much?

I do believe, however, that there is still much upside to the stock. And that it could continue to rise from the current low levels. In the last six months, Ferrexpo’s share price has crashed by 30%. Even over the past year, it has fallen by some 9%. There is a reason for the fall, of course. The outlook for industrial metals is not quite as bullish now as it was a the same time last year. 

China’s stimulus was a big reason for the run up in metal prices. But at least partly to curb rising inflation, the country’s authorities decided to pull back on this spending, resulting in a relatively muted outlook for commodity stocks for 2022. They could have still had strong prospects if the US government had been able to get a go ahead on the Build Back Better bill. But that is facing delays too. At the same time, the economic recovery is still relatively muted as the pandemic drags on and also because of rising inflation. This could further hold them back. 

Why I think it could rise

Despite all this, I think the FTSE 250 stock has fallen a little too much. Its current price-to-earnings (P/E) ratio is a ridiculously low 2.3 times. I do not think I know of any other profitable, dividend paying stock that has this low a ratio. And its dividend is not small either. It has a a huge current dividend yield of 14.4%! Of course this could drop next year if its earnings fall this year. Nevertheless, I think it could continue to pay dividends, like it was doing even before the pandemic. 

I bought the stock a few months ago for both its dividends and capital growth. Needless to say, I have lost capital so far. But I think it is only a matter of time before its share price starts rising again. In fact, my back of the envelope estimates indicate that it could even double in 2022. So yes, it could be a winning investment for me this year. I am considering loading up on the stock now.

Manika Premsingh owns Ferrexpo. 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.