I am always looking for dividend shares to buy for my portfolio. I am particularly interested in high-yield stocks, especially in today’s interest rate environment.

As such, here are three dividend shares offering an average dividend yield of 10% that I would buy for my portfolio today.

Dividend shares for income 

The first company on my list is the hydrocarbon group Diversified Energy (LSE: DEC).

The organisation is focusing on producing high levels of cash flow from its gas wells in North America. It hedges most of its production, so cash flows are relatively predictable. These cash flows can support the company’s attractive dividend payout to investors.

At the time of writing, the stock supports a dividend yield of 11.1%, one of the highest payouts in the FTSE All-Share Index. 

While the company does look incredibly attractive on many different metrics, a handful of risks may hurt margins. For example, it is having to spend additional cash meeting sustainability targets, and climate change regulations could continue to prove a headache for the enterprise. 

Mining income

Gold mining company Centamin (LSE: CEY) also has exposure to climate change risks. The mining industry is notorious for having a poor environmental record.

Overcoming this record will be a significant challenge for operators during the next few years. It could lead to increased costs and additional regulations, which would almost certainly impact profit margins. 

Still, I think Centamin is well prepared. The company’s balance sheet is stuffed full of cash and gold bullion, and it is planning to ramp up annual output to 500,000 oz per year over the next five years. 

Profits and cash generated from this additional output should support the group’s dividend. It has an excellent track record for returning excess cash to investors.

The stock currently supports a dividend yield of 13%, although analysts believe this will drop to 8% next year. Higher capital spending requirements could impact overall cash generation, but the firm’s outlook also depends, to a certain extent, on gold prices. 

Asset management income

The final company I would acquire for my portfolio of dividend shares is the asset management group M&G (LSE: MNG). At the time of writing, the stock supports a dividend yield of 9.3%. 

Asset management can be a highly lucrative business, especially when markets are buoyant. Indeed, M&G has been able to take advantage of the market environment over the past decade to grow its market share and expand profitability. 

Management is now looking to grow further with bolt-on acquisitions. The group recently acquired Sandringham Financial Partners, a provider of independent financial advice with 180 partners and 10,000 clients. 

I think more deals could be on the cards as we advance. These will help the company build out its wealth management business, increase visibility, and achieve operating economies of scale. Ultimately, this could lead to a bigger dividend. 

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

The rise of the Omicron variant of coronavirus has caused havoc for the international travel industry and travel stocks. Travel bans have upended plans, and new strict testing regimes have smashed consumer confidence.

Since the new variant was discovered, shares in some of the UK’s premier travel companies have fallen by a double-digit percentage. IAG has fallen 20% over the past month, easyJet‘s shares have fallen 15%, and Jet2 has slumped 21%. 

However, I think some companies in the industry are better positioned to whether the uncertainty than others. As such, following recent declines, I have been looking for undervalued opportunities in the travel sector. 

Travel stocks to buy

Further restrictions will have a clear impact on the travel industry as a whole, but some businesses will feel the pain more than others. IAG, TUI and easyJet could all suffer more than their peers, due to their leveraged balance sheets and lack of competitive advantages. 

By comparison, companies like Wizz (LSE: WIZZ) and Jet2 (LSE: JET2) have stronger balance sheets and more visibility among consumers. 

Wizz, in particular, stands out to me. I like this airline because it has a cash-rich balance sheet and a relatively modern fleet of aircraft. The modern fleet means costs are lower and it can accommodate more passengers. These are the reasons why I would buy the company, but avoid peers IAG and easyJet. 

Jet2 reported a substantial loss of £200m for the six months to the end of September. This was disappointing, but the company has a strong balance sheet, which can absorb losses. Excluding customer deposits, the group’s cash balance at the end of September was £1.5bn. 

These numbers suggest to me that the company has the cash resources required to weather the current storm. The resources will also provide firepower for the group to capitalise on the market recovery when it eventually starts to take shape. 

Growth potential 

This is the primary reason why I would buy the stock over its competitors. Compared to other companies in the sector, like TUI, Jet2 already has a lot of brand value, and it can use its cash balance to boost its visibility to consumers. TUI’s financial position is much weaker. It has been bailed out three times during the crisis by the German government, and further restrictions could lead to yet another cash call. 

Like Wizz, Jet2 also has the resources to buy and build a new fleet of aircraft to lower costs and offer a better level of service to consumers. In October, the company announced it had entered into agreements to acquire 51 planes. Wizz is also buying new planes, showing that the business is already looking forward to better times.

Despite their attractive qualities, I am conscious that both Jet2 and Wizz cannot survive if restrictions continue forever. If constraints do continue for the next couple of years, even these companies may start to struggle. This is the biggest challenge they face today. 

Despite this risk, I would buy both of these travel stocks from my portfolio today.

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

The FTSE 100 is the UK’s leading stock index, but it is not really representative of the UK economy. 

More than 70% of the index’s profits are generated outside the country. I think this means it is more a barometer of global economic health. 

As the global economy starts to rebuild after the pandemic, forecasts suggest that growth will accelerate over the next few years. And I think investing in the FTSE 100 is one of the best ways to play this trend. 

FTSE 100 as an investment

Many investors might not consider the FTSE 100 index as an investment itself. However, in my opinion, it has many of the qualities of a globally diversified fund. 

It includes 100 different companies, which are active in various sectors around the world. It offers an average dividend yield of around 3.5%, and investors can buy a low-cost FTSE 100 tracker fund for an annual management fee of as little as 0.1%. 

I am more interested in the FTSE 100 today than I was a decade ago because the index’s composition has changed significantly. 

Banks and mining companies used to dominate. Today pharmaceutical stocks make up the largest component, accounting for around 11% of the index. 

The second-largest sector exposure is the consumer goods sector. Unilever and Diageo are the second and fourth-largest holdings in the index, respectively. 

That being said, banks and oil and stocks still have a heavy weighting. These two sectors make up around 20% of the blue-chip index. 

These sectors have underperformed over the past two years, but I think they could outperform as the economy begins to recover. Bank profits are already increasing as economic activity grows. Meanwhile, oil prices are back to pre-pandemic levels. 

Oil companies are also investing heavily in expanding their presence in the renewable energy sector. As they continue down this path, I think they will attract green energy investors, who are usually prepared to pay a higher price for stocks. 

This transition could take a couple of years, but I think it shows the index’s potential. 

Risks to growth

I believe the outlook for many of the index’s constituents is improving. Still, I do not think it will be plain sailing for the next year or so.

As the pandemic continues to rumble on, many of the index’s constituents could continue to suffer disruption. This could undoubtedly hold back growth. Additional pandemic restrictions may also force companies to put their plans for expansion on ice and focus on survival. 

I would be happy to buy the FTSE 100 as a recovery investment for my portfolio despite these risks. The diversification of the index, coupled with its global footprint, are desirable qualities.

The index also provides additional exposure to economically sensitive sectors, which could register faster growth as the economy recovers. Buying these stocks as part of a diverse portfolio, such as the FTSE 100, can reduce the risk of investing. 

Rupert Hargreaves owns shares of Diageo and Unilever. The Motley Fool UK has recommended Diageo and Unilever. 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.

If I had a lump sum of £500 to start investing with today, I would use a diversified approach. As I enjoy studying businesses and analysing stocks and shares, I would buy a basket of individual stocks for my portfolio.

However, I would also add in some funds for diversification. By using investment funds, I can also increase my portfolio exposure to sectors I may not understand myself. 

Start investing with funds 

For example, I would buy the Renewables Infrastructure Group fund for my portfolio to invest in renewable energy assets. The fund’s diversified portfolio of such assets offers exposure to different sectors in the space that I may not necessarily be able to find myself. 

I have also highlighted the Blue Whale Growth fund in the past. This is another investment fund I would buy for my £500 portfolio to start investing. The fund invests in growth stocks around the world. Its managers are able to spend more time analysing growth businesses than I could, which is why I am happy to invest here rather than picking stocks myself. 

Alongside these funds, I would also buy single stocks. As £500 is only a relatively small amount of money, I will concentrate my efforts on my favourite companies. 

Two that I believe have fantastic growth potential over the next few years are Moonpig and Future. 

Growth stocks 

These businesses are some of the fastest-growing tech stocks in the UK, and they both have substantial competitive advantages.

Moonpig has cornered the market for designing and developing greeting cards and gifts. Meanwhile, Future has built a magazine empire, which leverages the company’s exposure to niche audiences to boost advertising. 

Both businesses continue to gain market share by developing their existing products. I think that as long as they continue to invest for growth, they will be able to maintain the hold over their respective markets. 

However, these are both highly competitive markets. As such, I will be keeping an eye on them to see if they are falling behind the competition. If they cannot keep up with peers, they could start to lose market share. This is the biggest challenge they face today.

Income and value 

Another firm I would buy for my £500 portfolio is Royal Dutch Shell. I think shares in the energy company look cheap, and the stock offers a highly attractive dividend yield of 5%.

As the firm moves away from oil and gas towards a greener business model, I think the market will start to re-rate the shares to a higher valuation.

Of course, there is also the risk that the firm will fall behind in the energy transition, and in this scenario, the stock could underperform.  Still, despite this risk, I would be happy to add the stock to my £500 portfolio, alongside the investments outlined above. 

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

In the 1987 movie Wall Street, Gordon Gekko famously says that “money never sleeps”. I’m not sure if Gekko was thinking about passive income when he said that, but these words certainly ring true for me.

My portfolio of dividend shares continues to produce income through the year, even if I ignore it altogether. I’ve been following this approach for years. But today, I want to explain how I’d start a passive income fund from scratch with just £150 a month.

How I’d invest

To invest a small amount each month, I’d use a regular investment service. Many popular brokers now allow monthly investments as small as £25. If I was investing £150 each month, I could theoretically buy six shares at £25. In reality though, I might not do this, as I’d want to minimise the fees I was paying.

For example, if I was paying a trading fee for each stock, I’d probably buy two stocks each month, putting £75 into each. After three months, I’d switch my regular investment to two new stocks. And so on.

By the end of the first year, I’d have eight different dividend stocks. After two years, I’d have 16. I generally aim for a portfolio of 15-20 stocks, so I’d then be in a position where I could start buying more of the shares I already owned.

Turbo charging my passive income

After the first year, I’d expect to see a regular stream of dividends arriving in my Stocks and Shares ISA. What I’d do then is to start using this dividend cash to buy more shares, in addition to my regular monthly investments.

Reinvesting dividends can be a powerful way to build wealth. By doing this, I’d be using today’s income to buy extra income in the future. Over time, this technique — known as compounding — can deliver big gains.

Warren Buffett once said that “the stock market is a device to transfer money from the impatient to the patient”. When he said this, I’m pretty sure that he was thinking about compounding.

Shares I’d buy for passive income

What kind of stocks would I buy for my passive income portfolio? I’d start by focusing on the FTSE 100, because these larger companies are well-established and usually offer some of the highest yields on the market.

One of the main risks with a passive income strategy is that dividends will be cut. As we saw last year, this can happen anytime, for a variety of reasons. 

To try and provide some protection against future dividend cuts, I’d look for payouts that were comfortably covered by earnings. I’d also aim to build a diversified portfolio, without too many cyclical stocks. That way, even if I had a bad year (like 2020), I’d still expect to get some income from my portfolio.

Looking at the market today, I’d probably focus on sectors such as consumer goods, insurance, defence, technology, and utilities. My aim would be to find businesses with pricing power and stable long-term prospects.

I’d be more careful about cyclical sectors, such as housebuilding and mining, which have enjoyed booming market conditions in recent years. The good times may not last forever.

Once I’d made my choices, I’d leave my portfolio alone, just checking in occasionally to reinvest my dividends.

Roland Head 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.

Investing in FTSE 100 stocks is not without its challenges. When I look to buy cheap stocks, I find that many of them are cheap because they have unclear prospects.  Or they might not have given solid capital gains to investors for years, which is why they are still cheap. Occasionally though, I might get an opportunity to buy a really fast growing stock at a really low price. 

The example I have in mind is athleisure retailer JD Sports Fashion (LSE: JD). The stock has seen stellar growth over the past few years. If I had bought the stock five years ago, I would be sitting pretty on a capital gain of 250%! This roughly translates to a 50% increase every single year. That is saying a lot, especially considering that in the interim there was the big coronavirus interruption.

JD Sports Fashion looks cheap after a stock split

So how is the stock still cheap? The company recently did a stock split. Each share was divided into five shares, which has naturally led to a drastic drop in the per share price. As I write, the share price is just 220p. I reckon that if the stock markets were to crash, it might even become available as a penny stock. After all, it did lose more than half its value within a few days as coronavirus fears grew in March last year. If an event like that were to happen again, I would load up on the stock a bit more. 

Share price expected to rise for the FTSE 100 stock

I also feel confident about JD Fashion’s prospects. It has been a high performer for years now, and has even stayed profitable despite the pandemic. It also sounded confident of its future in its latest results, released a few months ago. Moreover all analysts believe that its share price will rise in the next 12 months. As per data compiled by the Financial Times, even the most pessimistic analysts expect that its share price will rise 2% in the next year. On average, they expect it to rise by 11% and the most optimistic ones actually believe that a 36% increase is in store for the stock. 

What could go wrong

While all forecasts are subject to changes, depending on incoming developments, they do give me a good indication of how things look for the FTSE 100 stock based on the information available so far. At the same time, I am keeping a close watch on the pace of the recovery. The UK economy’s progress has been muted in recent months. And the latest growth data, released earlier today, is no different. With the Omicron variant still a potential health threat and increased coronavirus restrictions, the recovery could remain challenged. While the UK is not the only big market for JD Sports Fashion, it is one of the big ones. And what happens here could impact its fortunes.  

My assessment

Given its ability to bounce back as well as the growing trend towards online shopping, though, I am still quite positive on the FTSE 100 stock. In fact, I loaded up on it soon after the stock split happened!

Manika Premsingh owns JD Sports Fashion. 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.

Lately I’ve been thinking about my passive income streams for 2022 and beyond. Right now I see some high yield dividend shares whose price makes me want to add them to my portfolio. Here are five such companies, each yielding 8% or more. I’d happily consider buying them for my investment holdings this month and hold them across 2022 and beyond.

Diversified Energy

I recently opened a position in Diversified Energy (LSE: DEC), a significant reason for which was its dividend yield. Currently, the energy well operator yields around 11.0%, which I find very attractive. On top of that, it has raised its dividend annually over the past several years, although that is not necessarily an indicator of future dividend levels. Another attraction from a passive income perspective is that Diversified pays out quarterly.

But an 11% yield is unusually high – could that be a warning signal for potential risks with the share? I do see a number of risks in owning Diversified. Falling energy prices could hurt profits. Shifts in the energy demand mix could lead to declining revenues. There is also the clean-up cost associated with the company’s thousands of aging wells. Such costs could hurt profits in coming years. Recognising these risks, however, I continue to find Diversified compelling enough to have bought it for my portfolio as we head towards 2022. Its large, growing portfolio of energy wells should keep it pumping oil and gas for many years to come. I expect there will still be demand for such energy even as alternative sources become more popular. Growing overall energy demand should benefit Diversified despite its heavy reliance on oil and gas.

Direct Line

A well-known brand can be helpful for a company’s prospects. It can give it pricing power, allowing it to attract customers and earn attractive profit margins rather than being forced simply to compete on price. With the increasing price visibility brought to the insurance market by online comparison sites, I think that has become especially true for insurers. One insurer I think benefits from a strong brand is Direct Line (LSE: DLG).

Its pricing power isn’t the only thing I like about Direct Line from an investment perspective. It is also a generous dividend payer. Direct Line shares currently offer a prospective yield of 8.0%. I’d be happy to add Direct Line to my portfolio for 2022 and beyond. But I do see some risks here. For example, the rising cost of used vehicles could push up the company’s claim settlement costs. That might lower profits.

Income and Growth Trust

I wrote about venture capital trust Income & Growth (LSE: IGV) last month in a rundown of double-digit yielding dividend shares I was considering for my portfolio. I noted then that it had paid out 5p per share so far this year in dividends, but further payments were as yet unknown. Last week, the trust declared an additional 4p per share interim dividend. That means that, so far this year, it has declared 9p of dividends per share. With its trading price around 91p at the time of writing this article yesterday, that means that this year’s yield from the shares is almost 10% even without any final dividend yet being declared.

Last year’s payout per share totalled 14p and the year before that it was 6p. So the dividend can move around a lot. But the trust’s track record shows that it has been able to generate funds for significant dividend payments. It does that through investing in a portfolio of young companies and hopefully benefitting from their growth. Such an approach can bring risks as well as rewards, though. If the trust manager chooses promising companies that then fail to blossom, its profitability could suffer.

Imperial Brands

I hold both of the two main UK-based tobacco companies in my portfolio, British American Tobacco and Imperial Brands (LSE: IMB). Both benefit from the rich cash generation characteristics of the tobacco business. Production costs are low and the companies have strong pricing power, which can help fund large dividends.

BAT’s trading update this week was well-received by the market. The shares have moved up over the past few days. Its yield of 7.9% still looks attractive to me, but right now I’d happily add more Imperial to my portfolio. It currently yields 8.8%.

Imperial has scaled back its ambitions in so-called next generation products, which are cigarette alternatives like vaping. I think that could be both good and bad for the shares. The good aspect is that it saves Imperial from spending heavily to build market share in an area which isn’t yet strongly profitable like cigarettes. But the bad part is that it could mean Imperial becomes more dependent than competitors on cigarettes. Cigarette demand is declining in many markets. Imperial is trying to combat that with price increases and increased marketing to grow its market share. But long term, its cigarette focus could be a risk to revenues and profits. Meanwhile, though, I reckon it could keep making large profits from cigarettes for years or decades to come.

M&G

Another of the high yield dividend shares I would consider adding to my portfolio for next year is financial services firm M&G (LSE:MNG).

Like Direct Line, the company benefits from a strong brand. I also like the economic characteristics of the investment management business in which it operates. The size of many customers’ investments means that even with a modest commission, M&G should be able to earn a handsome profit. Last year, for example, the company reported a post-tax profit of £1.1bn. That compares to its current market capitalisation of £5.1bn, putting the M&G share price on an attractive valuation for me.

Such profitability can translate into chunky dividends. Currently the shares offer a 9.3% yield. M&G is committed to maintaining or raising its dividend, although of course if it runs into unexpected business headwinds that could change. One such headwind could be increased competition in financial services driving down profit margins.

5 high yield dividend shares

With each of these shares yielding 8% or more, I’d pay particular attention on risk as well as potential reward. Do the yields reflect some hidden danger?

I simply can’t know — that’s the nature of a hidden danger. That is exactly why I seek to reduce my risk by diversifying across different shares when I add to my portfolio. I’d happily hold all five of these shares in my portfolio together.

Christopher Ruane owns shares in British American Tobacco, Diversified Energy Company and Imperial Brands. The Motley Fool UK has recommended British American Tobacco and Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

If I had £1,000 to invest in the stock market today, I would buy shares using a diversified approach. 

I would also use a low-cost broker, such as Freetrade. Most online stock brokers charge a commission for every deal placed. This can range from a few pounds to £15, or more. With a lump sum of £1,000, paying a commission on every trade does not make much sense.

Indeed, if I spread my portfolio across 10 different stocks and paid £10 for each trade, I would instantly lose 10% of my money to commission costs alone. The numbers speak for themselves. 

I would also look to buy shares that offer the most growth potential over the next 10 years. 

Buy shares for a portfolio

Following this strategy can be challenging. Even the professionals struggle to pick winning stocks consistently. This is the reason why I would diversify my portfolio across a basket of different growth equities. Some of the most attractive growth stocks on the market at the moment, in my opinion, are technology companies. 

One of the tech stocks I would buy to play this theme is IT consultancy Kainos. As the world’s digital footprint explodes, I think the demand for IT consultancy services will only increase.

Every company now has to have a digital presence, but not every corporation has the skills required to maintain this. Organisations like Kainos will be instrumental in helping these businesses move into the 21st century. 

Unfortunately, the sector is highly competitive. As such, the company’s growth cannot be taken for granted. Dealing with this competition is the biggest challenge the group will face. 

Growth investments 

As well as tech, I would also add stocks in other growth sectors to my portfolio. The property industry is another growth area I want to build exposure to. I would do that with LSL Property. 

This company owns a portfolio of property businesses. This ranges across estate agency to surveying and mortgage broking. It is growing through organic expansion and bolt-on acquisitions. As the UK property market continues to expand, I believe LSL’s growth will continue. 

Once again, the biggest challenge the business will have to deal with is competition, as LSL is a small fish in the big real estate pond. 

The most speculative stock I would buy is hydrogen start-up AFC Energy. This business could revolutionise the hydrogen market through its green technology. This firm is still in its early stage development, which is why it is so risky. There is a high chance the company could struggle to survive before commercialising its technology.

Still, I think the stock has tremendous potential to revolutionise the energy market. In my opinion, this potential more than offsets the risks associated with the business. 

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