It is not every day that I get to talk about a high-yield dividend stock that is also dirt-cheap. So when the opportunity does present itself, I am happy to grab it with both hands. The stock I am referring to is the FTSE 250 investment platform CMC Markets (LSE: CMCX). I have written about it a few times recently, but it just appeared on my radar again as one of the worst performing FTSE 250 stocks of 2021. For the period up to 20 December 2021, the stock has fallen some 39%, making it the second biggest index faller. It is second only to the very volatile Cineworld. 

CMC Markets crashes in 2021

Despite similarly poor performances in 2021, the stock’s story is very different from Cineworld’s, however. It actually did very well last year as we spent more time saving and investing, creating a boom for investor-related services. By April of last year, shortly after the unforgettable market crash, the stock had already touched multi-year highs. And the party continued well into this year, as the stock reached successive all-time-highs. The tempo slowed down, though, early in 2021. After the company revised its outlook downwards more recently and its results also corrected after last year’s highs, investor interest in it has waned. As a result, it has wound up ending the year losing much of the gains made since the start of the pandemic.

Why I still like the FTSE 250 stock

But I do believe that there is merit to the stock. So much so that I actually bought the stock a few months ago. The first thing I like about it is its massive 10% dividend yield. It rivals that for FTSE 100 industrial miners like Rio Tinto and Evraz, which recently saw an unexpected commodity price boom. But even before this, the stock was a good one to buy for dividends. Its average dividend yield for the past five years has been at a healthy 6.3%.

What I’d do 

Also, while its financials have indeed been underwhelming recently compared to last year, that should have been expected considering that the Covid-19 situation has become more normalised. And after its share price fall, it is a dirt-cheap stock, with a price-to-earnings (P/E) ratio of around 7.5 times. If this is not reason for me to buy a profitable FTSE 250 stock, I do not know what it is.

There could be more disruption for the stock in the new year, with talks of it being split into two. But when and how that happens remains to be seen. It might even impact the stock positively. In the meantime, I think there is a whole lot going for the stock anyway as described above. So, even though I am currently sitting on a loss on this investment, I expect it to pick-up in 2022. I might even buy more of it at its current low levels. 

Manika Premsingh owns CMC Markets, Cineworld Group, Evraz and Rio Tinto. 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.

Alcohol giant Diageo (LSE:DGE) had an impressive showing in 2021, recording 31.8% returns in the 12-month period. The Diageo share price constantly pushed its all-time highs in 2021. But its shares currently looks overvalued at 4,060p, trading at a profit-to-earnings (P/E) ratio of 35 times.

But a company’s P/E ratio is not the only marker of future performance. As we saw this year, overvalued companies like Croda International still grew steadily despite inflated valuations. Will strong core financials and expansion efforts push Diageo higher in 2022 — or do I expect the company to face a long, sideways accumulation this year?

Reason for success

After the drop-off in 2020, the alcohol market rebounded well. And Diageo made some shrewd moves during the pandemic to use excess cash towards expansion in key foreign markets. The company went on a targeted spending spree, amassing a lot of successful distilleries and brands in Asia and Africa.

I think Diageo’s use of data and processing algorithms to pinpoint potential purchases has been impressive. As a leader in the UK and US, the company managed to build on its premium offerings, given the segment’s quick growth in the last decade. The company is now the global leader in the premium categories and international spirits, with retail sales of over £4.5bn in the financial year 2021 (ended 20 June).

Ready to drink (RTD) cocktails is the fastest-growing alcohol category in the US, growing 42% between 2017 and 2020. Diageo’s new Crown Royal RTD cocktail line quickly became the third-largest spirits RTD brand in the US. As a result, the company also managed to raise cash in hand to £3bn in FY21. I think this is a sign of more expansion in emerging markets like China, India and Latin America.

Emerging market growth

This brings me to two key markets for Diageo. Over the next decade, it is estimated that China and India will collectively consume more alcohol than all of Europe combined. And China already leads most alcohol consumption charts, outstripping total sales of Germany, the UK and the USA combined!

The alcohol giant has identified both premium and cheap offerings in Asia while also targeting regional spirits that are growing in popularity. Diageo is amassing distilleries in Greater China that specialise in local spirits like Baijiu.

The company also used the pandemic pause very well by working on its eCommerce operations. Via partnerships with existing delivery companies in Asia, America and Africa, the company grew online sales by 70% last year. Although this accounts for a small fraction of total sales, I think it is a positive sign to establish a robust online sales framework for alcohol.

Concerns

While past performance is used to analyse a firm’s potential, it does not guarantee success. I think falling alcohol consumption levels across the world is a threat for Diageo. Youngsters are opting for healthier lifestyles, and alcohol consumption is falling in several key markets like the UK, Australia and Russia.

And Diageo is aiming for net-zero emissions across all operations by 2030. Given Diageo’s distillery network, I think this will be a cash-intensive operation. But I think Diageo has a strong brand portfolio and a blueprint for sustained growth. I am considering a £1,000 investment in the company in January because the Diageo share price could grow next year even if we are forced into another lockdown. 

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Croda International and Diageo. 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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There’s a lot of uncertainty in the world as we head into 2022. However, one thing that I think is certain is the need for me to take advantage of passive income via dividends. This is mainly due to the low interest rate environment that we find ourselves in. Yet passive income is also a benefit if my work might be restricted due to Covid-19 next year.

With that in mind, here are two stocks that I’m considering buying for income.

A durable stock for passive income

The first company on my radar is Legal & General (LSE:LGEN). The dividend yield is 6.17%, and hasn’t dropped below 6% for the past year. In terms of share price performance, the stock has moved almost 19% higher in the past year.

The company specialises in pension and annuities management, but also has a broader investment management arm. Although it’s not the hottest growth stock in the world, the reliability and consistency of business operations is appealing. I’m also impressed with how the business is moving with the times. In the latest results, it spoke of growing “ESG-aligned asset origination”, including in clean energy, residential property and digital infrastructure.

In terms of risks, LGEN will likely suffer in the case of another market crash. The funds being managed by the company will have allocations to stocks, bonds and other financial instruments that could perform badly in a downturn. Ultimately, this is a risk I’m happy to take given the high levels of passive income.

Capitalising on the property market

The second company I’m interested in is Persimmon (LSE:PSN). It actually has a higher level of passive income from dividends than L&G, with a dividend yield of 8.53%. The share price has risen marginally over the last year, gaining 2.91%.

Some people are starting to turn away from property stocks, citing rising interest rates as too much of a risk. The concern is that higher rates makes it more expensive for mortgages, particularly hindering the first-time buyers segment. I acknowledge this as a risk, but don’t see it as enough to put me off buying.

The main reason for this is that Persimmon has a healthy forward order book. In the last update in November, the company had forward orders of £1.15bn. It’s doing well on completions as well, with expectations that new home sale completions for the full year will be 10% above last year.

So I hope the business has enough in the tank to keep providing high levels of passive income via dividends to investors. This time next year, I can assess whether this order book is materially lower for 2023, or if it has held steady.

I’m considering buying both of these stocks for my portfolio. The passive income from each is above average, along with what i see as positive outlooks.

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

The volatility of meme stocks this year has meant that some investors have been buying and then selling shares over short periods. Although this can have some advantages, I much prefer to identify and buy stocks that I feel I can hold for years to come. So if I had a spare £3k at the moment to invest for income potential, these are the kinds of top dividend stocks that I’d buy.

Income stocks for a lifetime

But first, a note on why I like such stocks. I think it’s easier to find top dividend stocks that have a long life than growth stocks. With the latter, those that are hot right now might not be in five or 10 years’ time.

Dividend stocks might not be hot growth stars but I’m more focused on their income potential. Even if the company just maintains current levels of profitability in the future, it would suggest that I’ll still be picking up my dividends. Therefore, if I’m happy with the payout ratio and dividend policy currently, then it could be a company I could hold in my portfolio for many years to come.

Top dividend stocks can also help to protect me against inflation. UK inflation is currently above 5%, meaning that any cash I have is being eroded in value. If I can invest in the stocks with a dividend yield at or above 5%, I can help to offset some of the negative impact of current inflation.

However, the level of inflation changes month-by-month. So it doesn’t necessarily mean that the dividend yield will always be higher than the level of inflation. This is going to be a risk when considering which stocks to buy. Another risk is that if a business falls on hard times in years to come, one of the first things to be cut would be the dividend to allow the business to retain cash flow. Yet I remain a big dividend stocks fan.

Top stocks for the future

My £3k provides me with plenty of room to select a group of income stocks. I don’t want to dilute it too much, but would ideally buy between six and 12 shares with my money.

I’d group the stocks into different risk categories. I’d pick a few higher-risk names that currently have very attractive dividend yields. Examples include Rio Tinto and Imperial Brands. My thinking here is that even if the dividend payments get cut in the future (to help the firms invest in becoming more sustainable), the yield could still be higher than average. 

In the middle risk category I’d add most of my money. This is the sweet spot, with some great companies with solid track records on paying out income. These would include Aviva and National Grid, with current yields just above 5%.

Finally, I’d include some top dividend stocks that I see as low-risk. This should help to counterbalance my high-yield picks. One option I’d consider here is J Sainsbury. But I have to remember than even low-risk doesn’t mean no-risk and supermarkets face intense competitive pressures.

I’m considering buying all the above mentioned stocks.

Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended 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.

‘Tis the season for reflecting on the past year and looking ahead to the coming one.
 
Over in the US, the S&P 500 index is up over 25%, as I’m writing. It’s printed multiple record highs through 2021 led by heavyweight tech stocks. Apple has recently been flirting with becoming the world’s first three-trillion-dollar company. Talk about the goose is getting fat!
 
Here in the UK, the performance of the FTSE 100 hasn’t been quite as spectacular. But our blue-chip index is just about hanging on to a double-digit gain at the moment. Mind, it remains some way below its pre-pandemic levels.
 
And like Jacob Marley, Mr Footsie goes into the new year bearing a weighty chain. One forged by the recent appearance of the Omicron virus variant, surging inflation, and last week’s decision by the Bank of England to hike interest rates to 0.25%.
 
Let’s have a look at the outlook for some of the UK’s popular blue-chip stocks. 

Shell and BP

The FTSE 100 oil giants have made strong gains this year — Shell (+31%) and BP (+37%) — although the shares of both (and the oil price) are currently off their highs. There are some fears the surge in Covid cases could slow, if not derail, the oil-price recovery seen in 2021.
 
Still, the recent weakness in Shell and BP’s shares has pushed their forecast 2022 dividend yields up to 4.6% and 5.1% respectively. They look like attractive income stocks to my eye, and have potential for capital gains if the oil-price recovery resumes next year.

Rolls-Royce

The resurgence of Covid has loomed even larger over the recent performance of the shares of airlines and engine-maker Rolls-Royce. At one point, the latter’s shares were up 33% since the start of the year. They’re now up just 3%.
 
On the positive side, while there’ll be no dividend for the foreseeable future, a free cash flow (FCF) target of at least £750m — possibly in 2022 but probably 2023 — gives an attractive FCF yield of over 8%. The company has a good bit of work to do if it’s to reach this target, but it’s a credible long-term recovery stock, in my view.

AstraZeneca and GlaxoSmithKline

Like the oil giants, the Footsie’s big pharma groups AstraZeneca (+19%) and GlaxoSmithKline (+26%) have performed well in 2021. They don’t sport as generous forward yields as their oil counterparts — 2.6% and 3.4% respectively — but their businesses are less sensitive to the macro-economic environment.
 
AstraZeneca completed its $39bn takeover of Alexion Pharmaceuticals in the third quarter of 2021. It’s not unknown for such mega-deals to give the acquirer a bout of indigestion, and I’ll be watching how the integration progresses in the coming months.
 
GlaxoSmithKline is heading the opposite way in 2022, planning to break itself up with a demerger of its consumer healthcare business. Former Tesco boss Dave Lewis has just been appointed chair designate for this business and it looks a good move to me. I’ve long felt a break-up of GSK would unlock value for shareholders and continue to do so. 

BT

Takeover speculation has surrounded BT through 2021 and it’s shares are up 27% since the start of the year. A recent rumour of interest from India’s Reliance Industries and news that billionaire Patrick Drahi has increased his stake in BT from 12% to 18% have provided the latest fuel for speculation.
 
The company reinstated its dividend at the half-year stage and the forward yield is a very decent 4.6%. Dividends, debt obligations and investment for growth will be something of a balancing act. But, like Rolls-Royce, I see BT as a credible long-term recovery stock. A value-unlocking bid for the company — or part of it — can’t be ruled out either. 

Lloyds

Lloyds has been another market outperformer in 2021. Its shares are up 30% at the moment. They responded positively to the recent Bank of England interest-rate hike, as higher rates generally make for higher profits on banks’ lending activities.
 
However, if rate increases were to cut off economic growth in 2022, lower income and higher debts could cast a pall over Lloyds’ performance. On balance though, I see a forecast dividend yield of 5.5% as sufficient to make the stock an attractive one for me to consider as an income-seeker.
 
As I’m all set to ensconce myself in a comfy chair by the fire, it only remains for me to wish one and all a happy, healthy and prosperous 2022. Keep it Foolish!

G A Chester doesn’t own any shares mentioned in this article. The Motley Fool UK has recommended Apple, GlaxoSmithKline, Lloyds Banking Group, and Tesco.

Ahead of the new year, I have been searching for top UK shares to buy in 2022. 

I am looking for companies that have the potential to weather whatever the world throws at them in the year ahead. I also what to acquire stocks with attractive growth prospects for the next three to five years. 

With that in mind, here are my top five shares to buy for 2022. I would not hesitate to add the stocks below to my portfolio. 

Shares to buy for 2022

The first company on my list is BP. Shares in this oil and gas giant appear to be hated by the market. But I believe that presents an opportunity. They look cheap compared to the firm’s potential in the year ahead and for the next decade.

As BP invests more in its renewable energy business, I reckon earnings will continue to expand, and the market’s opinion of the corporation will change. The most considerable risk to the firm’s business model is the threat of falling oil prices, which I will be keeping an eye on going forward. 

On that note, I also want to add XP Power to my portfolio in 2022. This firm designs and manufactures power transformers for businesses worldwide. Demand for these components is growing as renewable energy investment around the world balloons.

XP is already reporting growing demand for its products, and management is optimistic about the future. The biggest challenge the firm will have to overcome is competition for customers in its end markets. 

UK shares for rebuilding

I believe renewable energy will be a big theme for the next decade. Looking at the spending and capital investment plans of corporations and countries around the world, it seems as if companies with exposure to the industry will see massive demand for their services in 2022 and beyond. 

On that basis, I would also buy Antofagasta. This mining group is one of the world’s largest producers of copper, a critical component of most renewable energy systems. Some projections suggest that copper supply will have to rise by a third over the next decade to meet the demand from the green energy sector.

Prices may increase as well. That is why I want to buy some exposure to this important sector, although mining is not the greenest industry itself. The risk the company faces is that of sanctions against polluters.

I also want to buy some exposure to the construction market in 2022. My top picks are the building materials supplier CRH and building contractor Balfour Beatty. I think these firms offer exposure to the two most important parts of the industry.

Still, while I am expecting big things from builders in 2022, I am wary that this industry is usually the first to feel the pain in any downturn. This is the most significant risk facing their recoveries.  

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

Over the past month, Tesla (NASDAQ:TSLA) shares have fallen almost 10%. Although they’re still up more than 50% year-on-year as I write, the company has seen a sell-off that has taken most electric vehicle (EV) stocks with it, along with the NASDAQ index. I’ve known that Tesla shares are volatile for a long time, so this doesn’t concern me too much. But when I consider the long-term (five-year) outlook, I wonder whether this volatility will be positive or negative for the stock.

Key man: Elon Musk

Many people assign a good amount of the volatility to the charismatic CEO, Elon Musk. He has a history of making bold (and sometimes unsubstantiated) statements. Back in 2018, he claimed to have the funding to take Tesla private. He was later fined for this statement.

Musk uses his Twitter account to broadcast most of his views and opinions on the company. Given his influence on Tesla, investors rightly pay close attention to what he says. 

So when I look out over the next few years, I think Musk will be a key factor in determining where Tesla shares will go. If he stays at the helm and pushes the business forward, this would bode well for the company. However, if he continues to reduce his shareholding and decides to put more time into other ventures (such as SpaceX), then Tesla shares might struggle. I’m not claiming that without Musk Tesla would be doomed. But from a marketing and PR point of view, Elon Musk does keep Tesla relevant.

Tesla shares driven by speculation

Another key point when considering the long-term future of Tesla shares is the retail investor base. Part of the high volatility is due to a lot of investors trading the stock for speculative purposes. What this means if I were among them is that I’d buy the stock for a day or two after positive earnings, or piggyback off a tweet by Musk. I wouldn’t have the intention of holding the stock for years, but rather to make a quick buck.

There’s nothing wrong with this, but it does make it harder to try and predict the long-term share price of Tesla. If these retail traders move to focus on other EV stocks, such as Lucid and Rivian, then momentum behind the shares could stutter.

It also makes it harder for fundamental investors like myself to be convinced. With a price-to-earnings ratio just above 300, I think I can find better value in other stocks. If this ratio returns to a more normal level in five years’ time (say sub-100), this would either require Tesla shares to fall, or earnings to substantially increase.

An uncertain future ahead

Overall, I think Tesla shares will be higher than their current levels in five years’ time. But considering that the shares are up 55% in the past year, I don’t see this same kind of explosive growth. I think the modestly higher share price will allow the fundamental value to become fairer. I also think that Elon Musk will have his eye on new projects, stunting the interest that’s driven by his Twitter account. On that basis, I won’t be investing as think I can find better plays elsewhere.

Jon Smith has no position in any share mentioned. The Motley Fool UK has recommended Twitter. 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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Often people have a New Year’s resolution or goals they want to achieve in the upcoming year. This year, though, I have three stocks that I’m picking to produce above-average returns. This does not necessarily have to be in the year 2022 but I think that these are solid value picks that will do well over the long term. Oh, and these are dividend stocks as well, so they provide a steady stream of additional cash.

A gold mine of dividend yields

Earlier this year I wrote about how I am bullish on Rio Tinto (LSE: RIO). What I could not have anticipated at the time was that inflation would take off. Why is this relevant? Because high dividend-paying stocks have traditionally helped investors outpace inflation. For Rio Tinto, as of today, that dividend yield sits at an irresistible 10.12%.

As I said in my previous article, I think Rio is an excellent business. It has a great spread across minerals, which means that the cyclical nature of commodities often affects it less than industry rivals. Rio’s main risk right now is the volatility of iron ore prices. The industry is disproportionately tied to Chinese markets, which have seen several government-imposed restrictions this year and shifted prices. Rio is down 12% this year but I believe it can make a comeback in 2022. Its price-to-earnings is a dirt-cheap 5.65, which makes it a total win in my opinion.

A high-growth dividend stock

Over the past five years, Liontrust Asset Management (LSE: LIO) has simply been the gift that has kept on giving. Rarely do FTSE dividend stocks do so well over a long period of time. My concern here would be that Liontrust’s funds consist mainly of equities. The world’s equities markets have performed exceptionally well in recent years, fuelled in part by central bank interventions. However, what goes up must come down and if the crash that many are predicting materialises, that exposure to equities may come back to bite them. Fortunately for Liontrust, it is very well diversified across industries and markets, with exposure to bonds and other assets. I like that investors are pouring more and more cash into its funds and this could mean continued growth into 2022 and beyond.

The world’s largest bug slayer

With its acquisition of American rival Terminix this month, Rentokil (LSE: RTO) has become the world’s big cat (since, you know, cats catch mice) in the pest-control game. Globally, the industry is worth $22bn and is growing rapidly. This is especially the case in light of the pandemic, which seems to have made all of us a little more germ-conscious. A few weeks ago when the news broke that Rentokil was buying Terminix, the stock nose-dived 12% in a single day. I predicted that it would make a strong return and it is up 9% over the past week. Caution must be had as it remains to be seen whether competition authorities in the US will challenge the union of Rentokil and Terminix, but on the whole, I remain bullish on the long-term prospects here.

Stephen Bhasera 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.