Tesco (LSE:TSCO) shares are among the most popular income investments to own here in the UK. While dividends have fluctuated, the payment dates remained consistent over the past five years. And even with the pandemic acting like a bull in a china shop, the company continues to pay out today.

But does this popularity make it a good investment? And if not, then which company would be a better play for my portfolio?

Inspecting the returns of Tesco shares

Tesco is the UK’s largest supermarket retailer. Beyond retaining a dominant market share, the company is actually the 16th most valuable retailer in the world. That certainly sounds like a stable business, especially since the demand for food isn’t likely to fall. With that in mind, its popularity as an investment does make sense. But has it managed to deliver wealth-building returns?

Over the last five years, Tesco shares have climbed by an impressive 46%. That figure jumps to just over 60%, including the passive income from dividends. That means a £2,000 investment in December 2016 would now be worth around £3,200.

That’s considerably more than any savings account would have generated. And compared to the mediocre 3% gain achieved by the FTSE 100, Tesco has proven itself to be a market-beating stock to own in recent years. And that’s despite rising competition from discount retailers such as Aldi and Lidl.

But Tesco may soon start struggling to maintain this performance thanks to inflation. With food prices on the rise, and profit margins too tight to absorb the increased expenses, shoppers may look to cheaper food retailers to save money. And there’s another company giving Tesco a run for its money. 

Optimising online grocery retail

Tesco might be dominating as far as consumers are concerned. But the lockdown restrictions in 2020 forced many consumers to rely on online grocery deliveries. While the pandemic will eventually (and hopefully quickly) come to an end, the increased reliance on online shopping might not.

An investigation by McKinsey & Company found that around half of the people surveyed who began ordering food online in 2020 intend to continue doing. This decision is most likely due to convenience. And this has created quite a favourable environment for Ocado (LSE: OCDO).

The online grocery retailer has achieved some pretty stellar returns over the last five years, despite its bumpy ride in 2021. So much so that a £2,000 investment in December 2016 would now be worth £10,736!

That’s over three times more than what Tesco shares have managed to deliver over the same period. And with the group also deep into supplying warehouse automation for other grocery retailers, including Morrisons and Kroger, this could just be the start of snowballing returns. In fact, there are even rumours that Ocado might focus entirely on its higher-margin automation technology, eventually disposing of its online grocery operations to its existing partner Marks & Spencer.

In the meantime, it has to face off against the likes of Tesco, which, of course, has its own online shopping venture. Meanwhile, Waitrose is now offering 20-minute online order delivery, thanks to its partnership with Deliveroo. Needless to say, that’s a challenging competitive environment for Ocado to operate in.

But I think the potential gains are worth the risk, making it a more exciting investment proposition for me than Tesco shares. At least, that’s what I think.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Ocado Group and Tesco. 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.

For a while, Argo Blockchain (LSE: ABR) shares were on fire. Even now, they’re still up 860% in a year, despite losing 63% of their value since February, at the time of writing today. The question I face now as an investor considering the company for my portfolio, is whether the Argo Blockchain share price is likely to recover – or could the price plunge be permanent?

Why the shares fell

After its strong performance at the start of 2021, I think some investors have taken their profits off the table by selling shares. That has taken away some support for the Argo Blockchain share price.

But the key driver for the recent fall has probably been a declining Bitcoin price. Given its crypto mining operations and holdings, Argo is seen by some investors as a proxy for the key cryptocurrency. Its price has tumbled in recent weeks. I think there is more to Argo than just its Bitcoin mining potential, but many investors see Argo as close to a pure play on Bitcoin.

Positive signs at Argo

One thing I think the share price fall obscures is the dramatic improvement in Argo’s business performance over the past year.

Consider last month as an example. Argo reported a monthly mining profit of £7.1m. The mining margin was 86%, compared to approximately 57% last November. Last month, it mined 185 Bitcoins or their equivalent. That is a big improvement over the 115 mined in the same month last year.

Meanwhile, the company has been raising funds to gear up for expansion. Last month it issued $40m of debt, part of which it plans to use on building and kitting out a new mining facility in Texas.

Ongoing risks

While Argo’s improving business performance is encouraging, I continue to see risks in the stock. The volatile nature of cryptocurrency pricing continues to impact the share price. That could drive it up but it could also push it down, depending on which direction crypto prices move.

While the debt could help the company grow, it also adds risk. Indeed, the high interest rate of 8.75% suggests that many debt investors see risks in the company. Servicing debt in future will eat into company profits. I think that lowers the chance of a dividend in coming years.

My move on the Argo Blockchain share price

Argo Blockchain’s chief executive spent just over £100,000 buying shares on the open market last month. He bought US depositary receipts of the UK shares at a point when they were changing hands at around £1.32. Just a month later, I can now pick Argo shares up at over a 25% discount to what the chief executive paid. Should I?

I do think the business is moving in a good direction. I like the fact that the chief executive has backed up his moves with his own money. But I continue to see Argo as closer to speculation than investment. It has taken steps to decouple from crypto pricing, for example by selling some of its holdings for cash. But the link remains fairly strong. That means that even strong business performance might not help the Argo Blockchain share price, if crypto pricing falls. So, for now, I will remain on the sidelines and not add the company 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.

Shareholders in British American Tobacco (LSE: BATS) have become accustomed to the market beating the share price down. Last week brought two pieces of good news which saw the British American Tobacco share price jump. But, for reasons I explain below, I’d actually be happy if the share price were to fall again in coming months.

Solid performance

The first item of good news was British American Tobacco’s trading statement, issued last week.

I think this underlined a number of things I find attractive about the long-term investment case for the company. For example, revenue grew at over 5%, adjusting for currency fluctuations. Given the declining demand for cigarettes in many markets I see that as a strong performance. A lot of the growth is due to the growing success of the company’s so-called next generation products. The company has added another 3.6m consumers to its next generation brands over the past year.

One way to help combat declining cigarette volumes is by increasing prices. With its portfolio of premium brands like Lucky Strike, British American Tobacco has the necessary pricing power to do this. This also helped its performance, with the company pinning its strong US performance on cigarette pricing moves among other factors.

British American Tobacco’s large global footprint and strong cashflows help it pay out a sizeable dividend. It has increased the dividend every year so far this century. Continued strength in its business performance could help support such dividend growth in future. I do see a risk, though, that bigger next generation sales could hurt company profit margins. So far, such products have not proven to be as profitable as cigarettes.

US policy moves

The other piece of news which led to the British American Tobacco share price jumping last week was tax news from the company’s key US market.

There had been a proposal to tax e-cigarettes at the same rate as cigarettes. That plan didn’t come to fruition. Analysts reckoned that such a move could hurt demand for e-cigarettes, slowing revenue growth at British American Tobacco. So the climbdown was seen as positive for the shares, which moved up.

I see a risk that such a plan will come back in future, though. Cigarette companies are a cash cow for tax-hungry governments, not just investors. 

Is a growing BATS share price good news?

For many investors, share price growth in a company they own is seen as positive. As a British American Tobacco shareholder, though, I wasn’t thrilled by the company’s rally last week.

The main reason I like British American Tobacco is for its dividend income. Currently I have no plan to sell any BATS shares, but would happily buy more for my portfolio. A rising share price doesn’t affect the dividend — but it does mean that the yield falls relative to what was available before. Admittedly British American Tobacco still offers a 7.8% yield. That puts it among the ranks of the FTSE 100’s highest yielding shares.

But with a lower British American Tobacco share price, I could get an even higher yield. Even after last week’s jump, the shares are 5% below their level a year ago, at the time this was written today. I’ll be looking out for any price pullbacks in coming months to add more shares to my holdings.

Christopher Ruane owns shares in British American Tobacco. The Motley Fool UK has recommended British American Tobacco. 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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Over the last five years, the FTSE 100 index hasn’t exactly been the best performer. In fact, excluding dividends, it’s generated a lacklustre return of around 3%. To be fair, the ongoing pandemic continues to wreak havoc on the UK economy. So it’s not exactly surprising that the index hasn’t fared too well.

Having said that, as the vaccine rollout continues and companies accelerate their recovery, the FTSE 100 has made a bit of a comeback. Over the past 12 months, its price has risen by over 11% and consequently, it’s on the verge of returning to pre-pandemic levels. But even if it can continue delivering these returns moving forward, I’ve spotted three individual growth stocks that I’d buy today instead.

The music industry is back with a vengeance

With the pandemic spreading worldwide, the music sector suffered a major blow as live events, and recording sessions had to be delayed or cancelled. But despite this inconvenience, Focusrite (LSE:TUNE) stormed ahead. The company is a designer and manufacturer of audio equipment and software.

Relatively speaking, this is quite a niche market with a lot of competition. And cancelled live events did disrupt its income from equipment sales and rentals. However, management was more than able to mitigate the impact through its home-studio products.

As such, revenue continued to surge by double-digits, and the stock has followed suit, beating the FTSE 100’s 12-month performance by 53%!

Improving consumer health with flavour

There continues to be increased awareness of general wellbeing, thanks in part to the pandemic. And that’s what brought Treatt (LSE:TET) onto my radar. This chemicals company uses organic materials to create flavours and fragrances for the beverage, consumer healthcare, and perfume industries. Most notably is its work to find sugar alternatives in the fight against obesity.

The group has suffered at the hands of Covid-19 as its supply chains have been challenged. It’s had to contend with inflationary pressures regarding the purchase of raw materials. However, management must have successfully passed these increased costs onto customers because profits are up.

Just like Focusrite, Treatt has also outperformed the FTSE 100 index over the past year, generating a return of 64% for shareholders.

Outperforming the FTSE 100 with electricity

With travel restrictions brought in to slow the spread of the virus, Tracsis (LSE:TRCS) also saw a slowdown in demand for its services, and its profits suffered considerably for it. So it’s not surprising that debt levels are significantly higher today than before the pandemic. But that soon might no longer be a problem.

This group provides a range of transport solution services, including using electrical signals to detect irregularities within railway lines. It’s also a niche target market. But maintaining Britain’s railways remains essential to the recovering domestic travel sector. And with the government planning to upgrade the UK rail network, Tracsis looks like it’s got plenty of growth opportunities ahead.

This is all my opinion, of course. But the market seems to agree. This stock has climbed 57% in the last 12 months, vastly outperforming the FTSE 100 index.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Focusrite, Tracsis, and Treatt. 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.

Rolls-Royce (LSE:RR) shares are one of the most popular stocks to own in the UK. In fact, some financial institutions seem to be very fond of it. As much as 30% of the business is held by only 10 of them, mostly involved with pensions. But while the professionals might be obsessed with this engineering giant, is this popularity warranted? And if not, then where should I be looking to invest?

A closer look at Rolls-Royce shares

Investors who bought Rolls-Royce shares a few years ago are likely looking at a red mark in their portfolio. That’s because, over the last five years, this stock has fallen by around 45%. Most of this decline was seen in early 2020 after the pandemic decimated its aerospace revenue stream. But even if I look at share price performance between December 2016 and 2019, it only climbed by a mediocre 4.6%. That doesn’t even beat inflation on an annualised basis. So, what happened?

For a long time, the financial state of this enterprise has been pretty dire. Only one out of the last five years have been profitable, which pushed management to take on considerable debt even before the pandemic reared its ugly head. Needless to say, that’s not the sign of a healthy and thriving business. And with Covid-19 only exacerbating the problem, I’m not surprised to see the stock take such a massive hit.

But recently, the situation has improved. The company is undergoing some fairly massive restructuring to cut costs. And its aerospace division is back on the mend as demand returns for its aircraft maintenance services. Therefore, Rolls-Royce shares may be primed to make a rapid comeback in 2022. And if that were to happen, then an investment as small as £1,000 could prove to be quite lucrative. But is there an even better buying opportunity elsewhere? I think there is.

Fallen from grace but capable of rising again

When investigating Rolls-Royce shares, many investors like to focus on its aerospace division. After all, it’s the group’s primary revenue source. However, it also has sizeable operations within the defence industry. That’s a sector in which Avon Protection (LSE:AVON) has recently fallen from grace as far as the market is concerned.

Avon designs and manufactures personal protective equipment for the armed forces as well as first-responders. And until recently, the stock was thriving, reaching as high as 4,650p in early December 2020. However, looking at the share price today, almost all the gains made in the last five years have been wiped out. There are undoubtedly numerous reasons why shares of Avon Protection have collapsed. However, one leading factor is a failed body armour test for the US Defence Logistics Agency, which significantly impacted growth expectations.

Yet the income from its flagship respirator and ballistic helmet product lines remains uncompromised, with double-digit growth still being delivered. That’s why I believe investors may have overreacted, creating a buying opportunity for my portfolio. And with a much stronger balance sheet than Rolls-Royce, these shares look like a better comeback story, in my opinion. As such, I’m not convinced buying Rolls-Royce would be so smart for me. I’d ignore Rolls-Royce and buy Avon for my portfolio.

Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has recommended Avon Protection. 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 company National Grid (LSE: NG) has a long record of paying steady dividends. And for me, that’s the main reason to buy some of the shares now.

But can the stock double my money? It’s possible. And here’s how it could happen.

Compounding dividend returns

With the share price near 1,046p, the dividend yield for the current trading year to March 2022 is around 4.8%.

To help explore the potential, I’m assuming the company will keep paying a dividend at the same rate for years ahead and the share price won’t move up or down. In reality, both those numbers will likely vary.

But I could buy the stock now and reinvest the stream of dividends with the aim of compounding my investment. And punching the numbers into a compound interest calculator reveals the investment would double after 15 years.

But the share price and dividend will almost certainly not remain as they are today. There’s an obvious risk that both could fall over time. And it’s even possible for the company to stop paying dividends altogether. After all, company directors have the power to do whatever they like with shareholder dividends.

However, there’s also an upside scenario I find attractive. Indeed, the share price and the dividend payment could both rise in the years ahead. And if that happens, the doubling time for my investment would shorten.

One of the factors making me optimistic is the firm’s long record of steady trading and finances. The business occupies a regulated monopoly position at the heart of the UK’s energy infrastructure with both electricity and gas operations. And it has regulated operations in the USA as well.

Borrowings versus dividends

To me, the energy sector is attractive because it tends to experience reliable and predictable demand. So it can be a straightforward process for the company and regulators to plan ahead. And, so far, regulators have not required National Grid to reinvest a crippling amount of money into its infrastructure networks.

However, regulatory risk is worth considering when holding the stock because conditions could change. And it’s possible ongoing shareholder dividend payments could be threatened if National Grid can’t afford them.

The company has to service debt interest and shareholder dividends. And the balance could become difficult to maintain if borrowings rise too far because of onerous regulatory demands.

However, National Grid and its regulators have the ability to raise prices to accommodate rising costs. So, on balance, I see the economics of the business as attractive. And the push for a low-carbon world economy could drive revenue growth in the years ahead. For example, the use of electric vehicles seems set to rise.

After some consideration, I think National Grid shapes up as a decent-looking stock to hold with the aim of doubling my money in the years ahead.

Kevin Godbold 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.

Recently there’s been good news from the owner of discount clothing chain Primark, Associated British Foods (LSE: ABF). The company announced at its annual general meeting last week that trading at the retailer so far this year has been ahead of expectations. What does that mean for ABF shares? Below I consider where the shares might go next and whether I ought to put them in my shopping basket.

Business is recovering at Primark

In the update, ABF said that like-for-like sales have improved compared to the fourth quarter of its last financial year. But the good news wasn’t limited to sales figures. At a time when supply chain disruption is troubling many retailers, the company said that it’s managing such disruption. And it has stock cover for the “vast majority” of its product lines for the Christmas trading period.

ABF also owns a number of well-known food businesses, as its name suggests. But over the past few years, Primark has become a key part of the investment case for the company. It now has 400 shops spread across a number of international markets. The fast fashion favourite had been the largest revenue contributor to ABF in the years leading up to the pandemic. That’s why Primark trade getting back on track is a critical element of the pandemic recovery story for ABF shares, in my opinion.

Attractive business but not cheap 

There was already a lot to like about the ABF business before Primark became quite so prominent. It owns a wide range of key brands such as Twinings, Allinson’s and Silver Spoon. That gives it pricing power. Some of the food sectors in which it operates, such as sugar refining and distribution, have fairly high barriers to entry due to their capital expenditure requirements. That can help support ABF profit margins.

Primark added something very different to the company’s business model. The clothing chain’s business cycle isn’t connected to that of food. In principle that adds to the company’s diversification. But as we saw last year, it can also mean that ABF shares suffer overall when Primark underperforms, even if the food divisions are doing fine. That risk remains. For example, further lockdowns affecting Primark could eat into revenues and profits for the whole company. In fact, lockdowns could hurt Primark more than many competitors because its operations are based only on physical shops, not online channels.

Overall though, I continue to find the investment case for ABF attractive. It has proved that it’s well run, with an efficient business operation. But with a price-to-earnings ratio over 30, I think that’s already reflected in the price of ABF shares.

Should I buy ABF shares now?

Despite its attractive business model and improving performance at the Primark division, I don’t plan on adding ABF shares to my portfolio at the moment. Over the past 12 months, they’ve lost 15% as I write. I think that underlines City nervousness about how deep-rooted the company’s recovery may turn out to be.

Not only is the Primark recovery subject to key markets remaining open, there are risks in the food business too. Ingredients price inflation could hurt profit margins in the foods business if the company can’t pass higher prices on to customers, for example.

Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods. 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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