Passive income is the dream of almost every investor. Who wouldn’t want to receive cash without having to do extra work? Luckily this is entirely possible through dividend investing.

Own a part of company and share its profits

Dividends are a portion of a company’s profits that are paid to shareholders. This can happen once, twice, or even four times a year and can range from just a few pennies to a couple of pounds per share owned.

Sounds great, right? Well, like any investing it comes with risks and some uncertainty. Companies are under no obligation to issue a dividend and the amount they pay may rise or fall.

Personally, I like dividend investing because I can re-invest those payments and grow my portfolio over time.

Passive income of 7% or more

The vast majority of companies pay an average of 4% yield each year. At that rate I could earn £300 per month with a portfolio of £90,000. But that same £90,000 in companies which pay 7% or higher would net me £525 a month.

Companies like Polymetal International (LSE: POLY) and Imperial Brands (LSE: IMB) offer yields like this at the moment.

Now, as a general rule, the higher the percentage yield a company offers, the less sustainable it is over the long term. So consistency is key in this field.

I’ve spoken a lot about Imperial Brands and have been impressed with its commitment to its shareholders. While its glory days seem to be behind it, the tobacco producer still takes pains to ensure that it pays some sort of dividend multiple times a year.

Polymetal International is a mining company and, unfortunately mining can be a very inconsistent business. Some years can be very good while others are devastating. It has issued at least one dividend each year since 2012 but those payments range from as little as £0.08 in 2013, to as much as £0.50 just the year before. Hardly the consistency I’m looking for.

The heavy hitters

As hard as it is to believe, there are companies that pay even higher.

M&G, a financial services company, currently offers shareholders a 9.5% dividend. The mining companies BHP Group and Rio Tinto both pay an astonishing 10.7% and 10.8% respectively.

But the king of them all, at time of writing, is the mining company EVRAZ (LSE: EVR) with a whopping 13% dividend yield. Of course EVRAZ has not paid this much every single year, but it has been fairly consistent in the cash amount, issuing an average of £0.26 per share at least twice annually since 2018.

For me though, none of these companies will be additions to my portfolio. Most of them are in mining which, is as I mentioned above, can be a very unstable sector. The two others are financial services and tobacco which are highly regulated and could continue to lose favour with the general public as fewer people take up smoking and the Bank of England looks set to increase interest rates.

However, it’s always good to see what’s available so I can plan my portfolio accordingly.

James Reynolds 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.

A couple of months ago, fellow Fool Royston Wild identified a penny share whose price he thought could provide “a great dip-buying opportunity”. After that, the penny share in question rose 18% in several weeks.

But the share has since fallen back to where it was a couple of months ago. So, could this again be a dip-buying opportunity for my own portfolio?

Well-known player in booming market

The penny share in question is SIG (LSE: SHI). It’s up 38% over the past year, at the time of writing this article Monday. The company provides building materials to contractors in various European markets. It is best known for its specialisation in insulation. It has had a very challenging few years. The pandemic affected sales, but the company already looked fragile to me even before that. Last year there was a rights issue. That came little more than a decade after SIG had considered a rights issue in the aftermath of the last financial crisis. So it seems to me that SIG has some challenges in terms of business demand across the economic cycle. When custom drops off, the company seems to be underprepared.

However, since its problems last year, SIG has been building back to a position of strength. In a trading update last week, the company said that it had continued to trade ahead of expectations in its fourth quarter. That is encouraging news and bodes well for the full-year results at SIG. A full-year trading update is scheduled for 11 January.

Last month the company tapped the debt markets to refinance itself. That should help it streamline its balance sheet, as well as provide funds to help the company grow. Several directors bought shares in the company last month. They paid 49p or 50p, higher than yesterday’s SIG share price.

Why I like this penny share

SIG has historically had periods of considerable success. It understands the insulation market well.

I see a couple of growth drivers for insulation in Europe in coming years. First, in markets such as the UK, there continues to be a housing shortage. That is leading to extensive construction of new homes. That will provide high demand for materials including insulation.

On top of that – and potentially even more importantly, in my opinion – many European governments are pushing insulation as part of their environmental strategy. Greater use of insulation could be one way to reduce energy use, including in older buildings. I think that will lead to sustained demand for insulation materials, and some of it may not be very price sensitive if it is government-mandated.

I do see risks here, too. Supply chain costs and labour costs have been increasing sharply in many markets. That could lead to higher costs, which might reduce SIG’s profitability. I also think the rights issue last year is a reminder that any future downturn in building activity could again threaten liquidity. That might lead to further shareholder dilution.

But as a leading player in a market with strong demand, I think the next several years could see a growing SIG share price. I would consider adding the penny share to my portfolio.

Christopher Ruane 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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After soaring in value in 2020, 2021 has been far less pretty for many growth stocks. This is certainly true for MercadoLibre (NASDAQ: MELI), which has seen a fall of over 27% so far this year. This is mainly due to fears that e-commerce will start to die down after the pandemic, and inflationary pressures. Although these are both risks, the Latin American company has continued to perform excellently, and I believe that it’s now oversold. As such, for the following reasons I feel it has the potential to double in value.

Excellent business performance

MercadoLibre has gone from strength to strength over the past few years, and the pandemic has helped accelerate growth. For example, in 2020, the company recorded revenues of $3.97bn, which was a 73% increase from the previous year. The company has built on this excellent performance in 2021, and after reporting revenues of $1.97bn in the third quarter, a 73% year-on-year rise, I expect annual revenues to reach close to $7bn. I am also hoping the company gets a Christmas boost.

Such strong revenue growth has partially been reflected in the MercadoLibre share price. Indeed, since the start of 2020, the shares have risen nearly 100%. But at the same time, revenues have also risen around 230%, and it has managed to reach profitability. From this standpoint, the company’s growth is higher than the share price rise. This is a sign that the shares are too cheap and offers me evidence that this growth stock may be able to double in value over the next year.

Valuation

The next indication that this growth stock could double in value is from its lower valuation than other companies in the e-commerce market. In many ways, this may seem odd, because MercadoLibre does seem fairly expensive on a pure valuation perspective. For example, it has a price-to-earnings ratio of around 300, far higher than the majority of other companies. But the firm has always prioritised growth over profits, and this has included significant investment into itself. As such, I’m not worried about such a high P/E ratio, as profits seem likely to grow from this point.

Secondly, due to its focus on growing revenues, it currently trades on a price-to-sales ratio of under 10. This can be compared to Shopify, the Canadian e-commerce firm, which has a P/S ratio of around 30. Both are seeing revenue growth at similar rates. As such, while I believe that Shopify is slightly overpriced, if MercadoLibre was to reach a similar valuation, it indicates that it could triple in value. Shopify also has a very similar P/E ratio. For me, this is evidence that MercadoLibre is underpriced, and could certainly double, or even triple in value next year.

What am I doing with this growth stock?

I already own MercadoLibre shares, and it currently makes up my top position in my portfolio. Although I worry about the risks of inflation, which has seen many growth stocks lose significant value, I feel like this is a short-term issue. With e-commerce still a largely unpenetrated market in Latin America, and MercadoLibre leading the way at the moment, I’m therefore optimistic. I will continue to add MercadoLibre shares at its current price.

Stuart Blair owns shares in MercadoLibre. The Motley Fool UK has recommended MercadoLibre and Shopify. 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 Scottish Mortgage Investment Trust (LSE: SMT) share price has fallen by more than 10% in recent weeks. This appears to have triggered a wave of buying by investors at Hargreaves Lansdown, where SMT was the most-purchased share last week.

I reckon Hargreaves’ clients could be right to back this growth-focused investment trust. Scottish Mortgage’s share price has risen by 1,740% over the last 20 years. Of course, past performance is not a guide to future performance. But SMT has some attractions that have made me consider the stock as a potential buy for my portfolio.

2 reasons why I’d buy

As a stock-picking investor, I don’t normally buy funds or investment trusts. But there are several reasons why I would buy Scottish Mortgage.

First of all, SMT does something I cannot do myself. The trust carries out in-depth research on growth businesses all over the world. At the end of October, its portfolio contained more than 100 investments. Around 50% were in the US, with nearly 20% in China and about 20% in unlisted private companies.

There’s no way I could ever build a global growth portfolio like this by myself. It just wouldn’t be possible.

The other reason is that Scottish Mortgage’s recent share price dip has left the stock trading below its book value. In other words, I can buy its shares for less than it would cost me to buy all the shares in the trust separately.

Is the Scottish Mortgage share price still too high?

Buying shares below their book value is a popular value investing technique. The main risk I can see here is that SMT’s book value is too high. Many of the companies in the portfolio have seen huge share price growth during the pandemic.

For example, the trust’s two largest holdings on 31 October were Moderna and Tesla. Both US stocks have risen by more than 1,000% over the last two years. Are these gains sustainable? I think it’s too soon to say. But, as I explained recently, I think Tesla’s share price is at risk of a correction.

SMT shares: what I’m doing

The valuation of Scottish Mortgage remains a concern for me. Are the shares likely to fall further before returning to growth? I think it’s possible.

My other concern is that fund manager James Anderson is retiring in April 2022. He has run Scottish Mortgage since 2000, so he’s led the fund through an incredible period of growth.

A change of management is always a risk. But Anderson’s replacement, Tom Slater, has worked closely with him since 2009 and has been joint manager since 2015. So I’m confident he’s likely to maintain a consistent investment strategy.

I don’t expect to see a repeat of last year’s share price gains in 2022. But I do expect Scottish Mortgage to maintain its successful long-term record of investing in disruptive growth companies. I’d be happy to buy its shares for my portfolio today, with a view to holding them for the next five-10 years.

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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 good year so far for many UK shares. But that doesn’t mean 2022 will be the same. That is why I have been looking for UK growth shares that have gone up in 2021 but still have potential to go higher.

Here are three I would consider buying for my portfolio today.

Retailing star: B&M

The bargain retailer B&M European Value (LSE: BME) turned out to be a bit of bargain itself this year. Over the past 12 months, the B&M share price has risen by 21%, at the time of writing this article yesterday.

But I reckon there could be more growth to come at the chain in 2022. Its formula of low prices, well-known brands, and conveniently located stores could see it continuing to improve its performance. In its interim results last month, B&M revealed that revenue grew slightly last year even on top of a stellar performance the prior year. Over two years, revenues are up 26.8%. Diluted earnings per share also grew modestly, edging up 1.7%.

Last year’s dividends totalled 62.3p. That seemed exceptional, but the company has already declared 30p per share of dividends for the current year — and there may be more to come. Risks with B&M include a shift to online retailing in the UK, which could lead to lower sales in future for the group, given its focus on physical shops. Despite that, I would happily buy B&M for my portfolio today.

Digital ad group: S4 Capital

Lately there’s been a big drop in the S4 Capital share price. I think that reflects valuation concerns after the shares ran up sharply this year. Even after the fall, S4 is 11% higher than it was a year ago.

I think the recent fall is a buying opportunity for my portfolio and may add to my existing S4 position soon. The company has grown massively in 2021. It is on track to double revenues and profits in three years.

The company is building a digital ad network able to attract some of the ad world’s largest clients. That could be a source of long-term competitive advantage. But it also costs money. There is a risk that rising staff costs will increase the company’s losses in the next several years.

Storage operator: Safestore

Among UK growth shares I have bought for my portfolio this year, Safestore (LSE: SAFE) is one I would happily keep buying as we head towards 2022.

The shares are up 87% over the past year. But I see continued growth prospects for the business, which could help propel the Safestore share price higher in coming years. It is a market leader in self-storage. Demand for such storage is likely to keep growing in the UK, where it is a newer industry than in the US. Tenants often rent units for years, meaning that profit margins can be strong and revenues fairly resilient. Safestore has established a well-known brand which should help it attract and retain customers. Its business strategy is working well, with post-tax profits of £178m last year. If it keeps doing what it is doing, I think it can benefit from rising demand in the self-storage market.

One risk is low barriers to entry in the industry. If an upstart competitor offers cheap prices, that could hurt profit margins for existing players like Safestore.

Christopher Ruane shares in Safestore and S4 Capital. The Motley Fool UK has recommended B&M European Value. 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.

Headlines in 2021 have frequently seen the mention of electric vehicle (EV) powerhouse Tesla (NASDAQ: TSLA). Whether it be due to controversial CEO Elon Musk, or record deals such as the one recently struck with Hertz, Tesla has most certainly been in the spotlight.

The Tesla share price is up nearly 30% year-to-date. And, after reaching the $1,000 mark it now finds itself hovering around $930. So, with a new year upon us, what will 2022 have in store for the EV stock? Let’s take a look.

Tesla share price so far

Compared to the near 700% rise we witnessed last year, 2021 has represented a slowing down in the growth of the Tesla share price. The stock entered the year trading for $730 and got off to a strong start – up 15% by the turn of January. However, these gains were cancelled out as February saw 14% skimmed off the share price. This fall continued from March to mid-May. However, since then we have seen a slow and steady rise.

Towards the end of the year, the Tesla share price rocketed. Late October saw it surge above the $1,000 mark – making the EV firm only the sixth US company to hit a market capitalisation of over $1trn. Yet, after hitting a 52-week high of $1,243, the stock has fallen off.

So, where next?

Well, this depends on a few factors. One reason I think the Tesla share price could thrive in 2022 is that the firm is set to continue with its impressive growth. Tesla is set to launch its much-anticipated electric truck, along with the opening of new factories. Profits are expected to rise 40% for the year, while the firm is expected to sell over 1.5m vehicles. If these predictions are met, a rise in the Tesla share price is more than likely.

However, one concern for me is competition. As my colleague Stuart Blair highlighted, as the sector continues to grow, more and more manufacturers will venture over to the EV space. This includes Ford, which aims to move all-electric by 2030. It further includes Toyota, which recently announced it would be investing $35bn into EV production. This could impact the large grip Tesla currently has on market share, negatively impacting the stock’s price.

Should I buy?

It’s clear to see Tesla has the potential to prosper in 2022. The EV pioneer is on track to continue with its impressive growth, be it through new vehicle models or factory expansion. Based on this, I would be keen to buy Tesla stock. However, what is of major concern to me is the competition it will face in 2022. While Tesla currently enjoys domination over the EV sector, it is unclear how much of a threat more established vehicle manufacturers will pose as they venture into Tesla’s territory. Due to this, while I like Tesla, I intend to keep it on my watchlist for the time being.

Charlie Keough 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.

I think these nearly-penny stocks could thrive even if the economic recovery falters. Here’s why I’d buy them if they were to fall in price during a broader stock market crash.

A top pharma stock

Our need for essential pharmaceutical products and consumer healthcare goods remains largely unchanged at all points of the economic cycle. This is what makes Alliance Pharma (LSE: APH) a great cheap UK share for me to buy if stock markets crash. The company makes products such as Kelo-Cote scar treatment gel, Vamousse lice treatment, and Nu-Seals blood clot prevention tablets, which it sells worldwide.

Alliance Pharma also specialises in acquiring products that have strong brand power and a leading position in the areas in which they trade. This provides an extra layer of protection.

However, I am keeping in mind that an M&A-led growth strategy like this can throw up a world of problems, from disappointing revenues to the buyer being forced to overpay for an asset amid a scarcity of other acquisition opportunities.

A premier UK share to buy

We also need to keep ourselves fed, even during the onset of economic, social, and political crises. This is why I’m thinking of snapping up Premier Foods (LSE: PFD). This food manufacturer makes cakes, custards, cooking sauces and gravies among ranges of other edible products. And its labels such as Mr Kipling, Oxo, and Homepride are ones that shoppers will stretch their shopping budgets to buy.

The food manufacturing industry is packed with competition, of course. And Premier Foods isn’t immune to pressure from other heavyweight brands, or generic supermarket labels. I get confidence from company data showing that its products can be found in 96% of British homes.

I’d also buy Premier Foods despite the threat of rising cost inflation. I think it should be able to effectively pass higher input costs on to its customers.

An unloved nearly-penny stock to buy

The personal goods sector is another which tends to perform robustly when economic conditions worsen. This is why I’m thinking of buying Revolution Beauty Group (LSE: REVB) today. Indeed, I’d buy it following its recent drop to record lows. Revolution’s share price has dipped 23% since its IPO in July.

I believe this almost-penny stock has a bright future as consumers become more conscientious about the environmental impact of their products.

Revolution Beauty is PETA-certified beauty product producer — none of its cosmetics (or product ingredients) are tested on animals. It is also taking steps to aggressively reduce the amount of plastic it uses, while it is bulking up its range of vegan products to latch onto this fast-growing segment.

Of course, the beauty market is highly competitive and Revolution will have to push mighty hard to make an impact. But as a long-term investor, I like its strong green credentials, and think they could deliver great shareholder returns in the years ahead.

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

Since it crashed 3% in a day due to Omicron fears, the FTSE 100 has remained volatile, but it is currently over 11% higher than this time last year. But the performance of the index as a whole masks very different performances of individual stocks. I still believe that some FTSE 100 stocks offer significant value, while others seem overpriced. Here’s one I think will perform excellently in 2022, and another that I think could be set to decline.

An insurance giant

After years of underperformance, Aviva (LSE: AV) seems to have been reinvigorated over the past year, under the management of Amanda Blanc. This has resulted in the Aviva share price climbing 24% over the past year, outperforming other FTSE 100 stocks.

I’m also optimistic for 2022. In fact, after it sold several non-core divisions, including its Polish, Italian, and Vietnamese operations, the company has a ton of excess cash. It has pledged to return at least £4bn to shareholders, through both dividends and a share buyback programme. Recently, it also increased its ordinary buyback programme from £750m to £1bn. This seems like a sign of things to come, as further capital return and dividend plans are expected after the full-year results in March 2022. This is likely to include a special dividend.

After selling its non-core units, Aviva seems to have focused on its core businesses in both the UK and Canada. So far, this is proving successful, especially as in the first half of the year, adjusted operating profits from continuing operations rose 17% to £725m. It is also on track to achieve £300m of cost savings by 2022.

The main risk is that the UK economy, to which Aviva is strongly connected, starts to decline. This is especially worrying due to the rise of Omicron. But despite this risk, Aviva’s business seems strong, and I think 2022 could be a very good year. I may buy more Aviva shares before then.

An overpriced FTSE 100 stock

Rentokil (LSE: RTO) has established itself as the global leader of pest control. This has partly been due to the company’s strategy of acquisitions, as it has made 228 since 2016. Recently, it has continued this strategy, announcing an acquisition of its American rival, Terminix, for $6.7bn. But while another acquisition may be a sign of optimism, shareholders seem more worried, with the FTSE 100 stock falling over 12% on the day it was announced (although they are up almost 11% year-on-year as I write). I also have my worries about this acquisition. For one, the company is paying a 47% premium for it, which seems very expensive. Secondly, it may attract the attention of antitrust regulators in the US, which could cause further difficulties. I also worry that it demonstrates the firm’s lack of organic growth. Instead, it seems to have become reliant on acquisitions.

There are some reasons to buy Rentokil, however. For one, this acquisition is expected to lead to around £113m in cost savings three years after the deal has been completed. Further, Rentokil has experienced strong growth recently, and in Q3, excluding its disinfectant services, revenue grew 14%. But with a price-to-earnings ratio of around 40, this growth is not enough for me to buy. Therefore, this is a FTSE 100 stock I’m avoiding in 2022.

Stuart Blair owns shares in Rentokil. 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.