International Consolidated Airlines Group (LSE: IAG) is a FTSE 100 company comprising five airlines, including British Airways and Aer Lingus, and other cargo operations. Over the past two years, IAG stock has been battered by crippling travel restrictions enacted in response to the Covid-19 pandemic. While cargo flights continued to provide some income, the company and its five airlines have been as good as grounded for most of the pandemic. The real question for me, however, is should IAG be considered as an addition to my portfolio?

The 2020 Annual Report states that passenger numbers were down 66.5% from 2019 levels. In the second quarter of 2021, capacity was still only 21.9% of 2019 levels. Clearly, a recovery will take time, relying on fewer international restrictions and confidence from passengers. With many European states locking down, IAG’s business will inevitably be affected. This is because all of its airlines operate throughout Europe. In the longer term, management will have to address a debt pile that has increased from €7.9bn to €12.1bn. This need was demonstrated, for instance, by the £2.5bn rights issue that was launched in the summer of 2020.

The news is not all bad, though. Transatlantic travel resumed at the beginning of November 2021, which, considering it makes up about 30% of Available Seat Kilometres (ASKs), is something of a godsend for IAG. The management has also taken the opportunity to bring forward the retirement of old aircraft, including British Airways’ Boeing 747s and Iberia’s Airbus A340s. While the new Omicron variant has caused alarm on account of its greater transmissibility, it does not appear to cause such severe illness, and the chances of those crippling international restrictions returning seem low.

From a technical analysis perspective, the share price bounced off a low of 88p in October 2020 and currently trades anywhere between 130p and 160p. It is interesting to note that the share price fell 15% with news of the Omicron variant, but it has nearly recovered and it appears that this news only caused a temporary price correction. Nonetheless, the prospect of future variants — together with the arbitrary nature of international lockdowns — are preventing IAG’s price returning to pre-pandemic levels. This is reflected in the sideways price action we are currently seeing. On the other hand, if these variants are indeed less severe and governments do not lockdown for a prolonged period of time, I think investor confidence will have a very positive impact on IAG’s share price. Personally, I will be continuing to steadily buy up this stock, especially when there are dips in price. This is because I believe there is significant upside potential in the medium term – the sky’s the limit!  

Andrew Woods owns shares in IAG. 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.

Dividend shares are what I call compounding machines. When I receive a dividend, I can immediately reinvest it to buy more shares. These additional shares can pay dividends in the future, and the cycle continues. 

Renowned investor Warren Buffett once remarked, “My wealth has come from a combination of living in America, some lucky genes, and compound interest”. This compound interest would have come from reinvesting dividends.

Dividends can make a huge difference to total returns over time. For example, £10,000 invested in the FTSE 100 in 2010 more than doubled to £20,400 by 2020 with dividends included. However, excluding dividends the total pot grew to just under £14,000. That’s quite a difference. 

What I’d look for

The average FTSE 100 dividend yield is currently 3.5%. But there are several stocks that offer a much more lucrative passive income. When I’m looking for dividend shares, I try not to look at companies that offer over 10%. These much higher yields can be tempting but I’d be wary. Particularly high dividends can be at risk of being cut. In my experience, dividend yields greater than 9% or 10% aren’t the most reliable. So for me, the sweet spot is to look in the 6%-7% range. There are several companies that meet this criteria right now and I’m considering them for my 2022 Stocks and Shares ISA.

Which dividend shares?

The top dividend shares I’d consider for 2022 includes Jupiter Fund Management, Vodafone Group, and Legal & General. Each of these three FTSE 350 companies currently offers a dividend yield between 6% and 7.2%. In addition, Vodafone and Legal & General have been paying regular dividends for almost three decades. That’s an impressive track record, which gives me some comfort that they can continue to reliably pay dividends over the coming years. That said, there are no guarantees. These companies will need to ensure their earnings continue to grow. There are also market factors that may not be in their control. 

A balancing act

These three companies are quite different to many of the other shares I hold. For instance, I own plenty of growth shares in my Stocks and Shares ISA, many of which don’t pay any dividends at all. But that doesn’t concern me. I buy them for their growth potential, not for any income they distribute to shareholders. That said, I like to have some balance in my portfolio. In addition to diversifying across a variety of growth stocks, I also like to buy and hold a selection of dividend shares.

Best of both worlds

One company that offers growth potential and a decent dividend is housebuilder Persimmon. This is a high-quality share in my opinion. Not only does it steadily grow its earnings, but it offers an 8.5% dividend yield. With a price-to-earnings-ratio (P/E) of just 10 I’d say it’s also reasonably cheap. I’d need to keep an eye on rising interest rates as that is a risk for the sector, but overall, I’d buy this share.

Harshil Patel owns Persimmon. The Motley Fool UK has recommended Jupiter Fund Management. 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’m on the hunt for the best cheap UK shares to buy. Here are three penny stocks I think could deliver terrific profits growth over the next decade.

A penny stock for the homeworking boom

Fresh Covid-19 restrictions in Britain could potentially provide a boost to software firms like 1Spatial (LSE: SPA). New ‘Plan B’ rules have put homeworking firmly back on the agenda, meaning companies will have to keep spending to keep their workers connected. This bodes well for 1Spatial because it provides location master data management (or LMDM) software that allows users to connect and to share data from multiple sources in different locations.

Latest financials showed 1Spatial’s revenues rise 8% in the six months to July as the steady migration from office working to remote working continued. I think this penny stock’s a great way for me to make money from this theme in spite of the company’s elevated valuation. Today 1Spatial trades on a forward price-to-earnings (P/E) ratio of 68 times at current prices of 50p. Eye-popping multiples are extremely common among tech shares that have high growth prospects. But they also mean share price collapses can happen if news flow begins to worsen even marginally.

Full steam ahead

The prospect of new Covid-19 lockdowns also bodes well for UK hobby shares like Hornby (LSE: HRN). Sales at the models mammoth rocketed in 2020 as housebound Brits sought to entertain themselves. They’ve kept rising since then, too, even as restrictions have been scaled back. Revenues rose 3% in the six months to September.

I wouldn’t just buy Hornby because of the near-term profits boost it could receive from the pandemic. Its packed stable of products like Airfix model kits, Corgi miniature cars, and own-branded train sets are considered market leaders. The have a timeless appeal that allows the business to raise prices even when broader retail conditions are tough. I think this immense brand power makes them a top buy even though supply chain pressures are hitting sales right now. Hornby shares can be picked up at 40p apiece.

Cleaning up nicely

I believe Photo-Me International’s (LSE: PHTM) expansion into other rapidly growing self-service markets could help to turbocharge profits growth. The penny stock is perhaps best known for its photo booths and laundry services but it also operates amusement machines, digital photo printing points, and food vending machines. It has a broad geographic footprint, too, giving it extra strength through diversification as well as exposure to fast-growing emerging markets. Its roughly 45,000 machines are spread across 17 countries all over the globe.

Sales at Photo-Me could suffer if broader economic conditions worsen. Its machines are located in shopping malls, travel hubs, and supermarkets, places where footfall could drop if consumer spending comes under pressure. However, I believe the penny stock’s low valuation reflects this ever-present risk. At 58p per share Photo-Me trades on a forward P/E ratio of just 7.7 times.

Royston Wild 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 have been looking for FTSE 250 shares to buy for my portfolio in 2022. I want to buy into a couple of investment themes next year, and I have been looking for the best companies to play these trends. 

As such, here are the five FTSE 250 stocks I would buy next year. 

Shares to buy for 2022

The construction industry is currently experiencing a boom in growth. Both the domestic and commercial sectors are reporting strong activity as money floods into the industry. To play this theme, I would buy Volution and Balfour to target two different sections of the industry.

Volution is a leading supplier of ventilation products with primary markets in the UK and Europe. According to its latest trading update, group revenues for the four months to the end of November were up 14.6%. A combination of acquisitions and organic growth contributed to the total. 

Meanwhile, Balfour has rebounded from the pandemic and expects to report a profit in line with 2019 levels for the current financial year. It also has a £15.5bn ordered backlog, locking in around two years of revenue.

Despite their potential, both of these companies are exposed to supply chain risks and rising costs in the construction sector. Both of these challenges could hold back growth. 

FTSE 250 property

As the commercial property sector rebounds from the pandemic, Hammerson could see a recovery in property values and rental income. I like this stock because it is trading at a price-to-book (P/B) value of 0.5, implying the value of the property on the company’s balance sheet is more than double the firm’s current market value.

However, there is a clear reason why the stock is so cheap. The outlook for the commercial property sector is highly uncertain. This means there is no guarantee the stock will ever trade back up to book value. 

As the world places more emphasis on recycling and sustainability, I believe the demand for Biffa’s services will only expand. As one of the largest refuse operators in the country, it has the economies of scale required to process rubbish efficiently, at a cost consumers are willing to pay. Management is also looking for acquisitions to help improve the overall growth rate.

Despite its position in the market, this is a competitive industry. Biffa’s biggest challenge is to overcome competitor attacks on its market position. 

Oil market 

Harbour Energy is my final FTSE 250 buy for 2022. Rising oil prices are great news for the oil sector, and they have bought a welcome relief for Harbour.

The North Sea operator can use the enhanced cash flows from higher sales and profits to pay down debt and strengthen its balance sheet. This should put the firm in a strong financial position to expand over the next few years. 

The biggest risk the company may have to deal with is another decline in the oil price. This may hit its recovery plans. 

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.

I am always looking for top dividend shares to add to my portfolio. And, right now, I believe investors are spoilt for choice when it comes to finding income stocks. 

Here are three companies I would buy today, all of which offer dividend yields of 6%, or more. 

UK dividend shares

The first company on my list is the Gore Street Energy Storage Fund (LSE: GSF). With a dividend yield of just over 6%, at the time of writing, I think this company looks incredibly attractive as an income investment. It is also an excellent way for me to build exposure to the green energy industry. 

Gore Street buys and builds energy storage facilities. The goal of these facilities is to stabilise the electricity supply through the peaks and troughs of renewable energy generation. The market for this energy storage capacity is only likely to increase as the country invests more and more in renewable energy. 

Still, this is not a risk-free investment. The company has been using a lot of debt to fund its expansion. This could have an impact on profit margins if interest rates suddenly increase. 

Insurance challenger

Mid-cap insurance group Sabre Insurance (LSE: SBRE) offers a dividend yield of around 6.3%, at the time of writing. The company helps consumers find car insurance and has been doing so for several decades. It owns a portfolio of well-known brands, although these only make up a relatively small share of the overall car insurance market. 

The company’s smaller size is not a significant drawback. It can actually be beneficial, especially in a market where insurance rates are falling. In these weak markets, Sabre can pick and choose its customers to maximise profitability. 

Despite this advantage, the company’s most considerable challenge is competition and the potential for additional regulations, which could hit profit margins. 

Global giant

Vodafone (LSE: VOD) is one of the most respected dividend stocks in the FTSE 100. That is why I would buy the telecommunications giant for my portfolio today as an income play. At the time of writing, the stock supports a dividend yield of 7%, which is more than double the market average. 

I am optimistic about the company’s potential because its infrastructure network across Europe means it is one of the largest data-driven network providers. This is a strong competitive advantage in a world that is increasingly driven by data and data processing. 

Cash flows from the organisation’s telecommunications business should more than cover its dividend as we advance, although I am worried about the company’s debt.

Vodafone’s debt levels have increased rapidly over the past 10 years, and management needs to focus on reducing borrowing, or it could jeopardise the group’s financial position. 

Even after considering this risk, I think the company has attractive income credentials. 

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.

As a Fool focused on increasing my wealth over the long term, I’m partial to buying UK growth stocks that others with shorter time horizons are dumping en masse. Here are two examples grabbing my attention.

“Slower than expected” sales

At the time of writing, the share price of video game developer Frontier Developments (LSE: DEV) has tumbled almost 43% in 2021 to date. This isn’t a complete surprise.

Back on 22 November, Frontier announced that PC sales of its latest release — Jurassic World Evolution 2 — had been “slower than expected“, due to a “crowded release window“. That’s despite generally favourable reviews from critics and gamers alike.

Unfortunately, copies of another one of the firm’s titles — Elite Dangerous: Odyssey — haven’t been flying off the shelves either. As a result, Frontier is revising its guidance on full-year revenue to between £100m and £130m. That’s a significant reduction on the £130m-£150m once hoped for. A lot will depend on how the company fares over the run-up to Christmas, hence why investors are understandably skittish.

Opportunity knocks?

Could this be a great opportunity? Possibly. As the company itself notes, the arrival of the new Jurassic World Dominion movie next year could generate better demand for its latest release. There are also Frontier’s first F1 management and Warhammer games to look forward to. Demand for video games (and, consequently, video gaming stocks) could also return if further restrictions are brought in to tackle the Omicron variant.   

My issue with Frontier, however, remains its valuation. A P/E is 47 isn’t excessive compared to some tech-related shares. It is, however, very rich for a stock that depends on a small number of titles performing as expected.

Without a compelling margin of safety, Frontier stays on my watchlist for now. That said, further slippage in the share price could force my hand.

Another growth stock disappoints

Online bathroom-related products seller Victorian Plumbing (LSE: VIC) is another growth stock that’s crashing in 2021. Since hitting a high of almost 342p back in June, its value is now down over 70%. 

A good proportion of this fall came following last Thursday’s full-year numbers. Despite posting a 29% rise in revenue to just under £269m, investors were shaken by the company’s rather subdued outlook on trading as the UK home improvement/DIY boom shows signs of having run its course. This was a risk I raised not long after the firm’s IPO.

Does a slowdown in growth justify such an awful share price collapse? I’m not so sure. In fact, Victorian Plumbing shares could offer great value now, even if gross margins fall, as expected.

Barriers to entry aren’t exactly high, but Victorian should continue growing its already significant presence through a hefty marketing budget. Other attractions include a solid balance sheet and a strategy to target more trade customers going forward. Founder and CEO Mark Radcliffe also remains a major shareholder. This should make him even more determined to see the company recover. 

Like Frontier, Victorian Plumbing remains on my watchlist. However, a lot of bad news does look to be priced in. A bounce could be on the way if trading proves even slightly better than a now very pessimistic market is predicting.

For now, I’m letting the dust settle.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Frontier Developments. 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 firmly believe that investing in stocks is one of the most uncomplicated and accessible ways to generate a passive income. Indeed, thanks to the rise of low-cost trading apps, anyone can start investing with just a few pounds every month. 

I am planning to generate a passive income stream on an investment of just £200 a week. 

Growth investing

This might not seem like a lot of money at first. After all, £200 a week is roughly £10,400 a year. Even if I could achieve a 10% dividend yield on this money, I would not be able to do much with a passive income of £1,040 per annum.

That is why I am going to use a growth investing approach to begin with. Rather than focusing on high-income stocks, I will focus on growth stocks for the first couple of years. I want to try and build a large lump sum. I can then invest this nest egg in income stocks. The aim is to generate an acceptable level of passive income every year. 

Over the past few decades, the FTSE All-Share has produced an average annual return for investors of around 8%, including dividends.

While past performance should never be used as a guide to future potential, I will be using this figure as a rough guide to determine how much I can save over a decade. 

Based on this performance target, and assuming a weekly investment of £200, I estimate I can build an investment pot worth around £160,000 within 10 years. 

I believe this could be enough to generate a passive income of around £10k per annum. That is if I can achieve a dividend yield of at least 6% on my investments.

Based on the dividend yields available on the market at the moment, I believe this is possible. 

Passive income investing

A couple of businesses on the market currently offer yields around this level. Corporations like Persimmon, which currently yields more than 8%. I would combine this high-yield stock with a company like Legal & General, which offers a yield of around 6%. 

But dividend yields should never be taken for granted. They are paid out of company profits therefore, if earnings fall, management may have to slash the distribution.

As such, there will always be a risk of a dividend cut. That is why I want to own a handful of dividend stocks in my passive income portfolio. By using this approach, I hope I will be able to reduce the risk of a cut to my income generation. 

While this approach will not produce a guaranteed level of income year after year due to the unpredictability of dividend payments, I am comfortable with the strategy laid out above. I plan to follow this approach to generate a passive income of around £10,000 a year… for life. 

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.

According to S&P Global Market Intelligence, electricity generation from solar and wind power is set to increase in the US. This outlook was reiterated by a recent Economist Intelligence Unit report explaining that as world energy consumption rises next year, solar and wind power will benefit the most. This has again got me thinking about the strong case for investing in renewable energy stocks.

A renewable energy ETF

For my own portfolio, rather than investing in individual shares, I like the idea of using an ETF (exchange traded fund). This allows me to invest in several companies while just holding one stock and ETFs usually have low ongoing charges.

The one I’m contemplating is iShares Global Clean Energy UCITS ETF (LSE: INRG). This tracks the performance of the S&P Global Clean Energy Index, which measures the performance of companies  from both developed and emerging markets. It also takes into account the carbon footprint of these companies.

This ETF is large at over $6bn, it’s well established (launched in 2007) and has good trading volume. I think the ongoing charge at 0.65% is reasonable.

Presently this ETF has 76 holdings, spread over a number of countries and across a variety of renewable energy sectors. I take comfort from this fund being diversified in terms of countries and companies. If any one or two of the companies get into problems then this ETF should hold up pretty well. I also like that it pays a dividend, albeit small and currently standing at 0.73%.

Looking at the holdings, there are some that I think will benefit from a further tilt towards solar and wind power. For example, Enphase Energy is the largest holding in the fund, accounting for almost 9%. This is a solar energy company, which among other things, produces a critical component to convert solar energy into electricity.

Should I invest?

There’s a compelling case for me to invest in renewable energy stocks, I feel. Not only is it an ethical sector, but this area is likely to benefit from international government support over the next decade.

However, year-to-date performance has been poor. At the time of writing, the ETF is down around 20% for the year and is about flat over a 12-month period.

The lacklustre performance is due to a variety of reasons. First, some of the US companies in this fund will have suffered because of bad weather affecting their output and therefore their earnings (for example, in Texas). Second, the energy supply squeeze all around the world at the moment may have seen money move into more traditional energy companies.

Despite that, over the last five years, the fund is up around 160%. This gives me confidence in the long-term outlook for this ETF.

I could be wrong, but I’m upbeat about renewable energy stocks and this ETF. For this reason, I’m seriously considering adding iShares Global Clean Energy UCITS ETF to my portfolio.

Niki Jerath does not own 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.

FTSE 100 dividend stock British American Tobacco (LSE: BATS) is one of my favourite income investments to buy today. I already own shares in the company and would not hesitate to buy more for my portfolio.

At the time of writing, the stock supports a dividend yield of just under 8%. This payout is supported by the group’s highly cash generative operations. 

One of the main reasons some investors might want to avoid this business is its exposure to the tobacco sector. As well as the ethical considerations of investing in tobacco companies, there are also practical reasons for avoiding the sector.

The outlook for cigarette sales is almost impossible to predict. Cigarette sales are declining, and countries around the world are becoming ever more aggressive in clamping down on smoking. This means it is challenging to understand how the company will grow over the next five or 10 years.

However, British American is changing for the better, which is one of the many reasons I am interested in buying the stock. 

Change for the better

The corporation has been investing heavily in its so-called reduced-risk products in the past couple of years. These are mainly e-cigarettes and other similar products, far removed from traditional cigarettes. 

The company’s revenue from these products is expanding rapidly. According to the group’s latest trading update, the number of customers using reduced-risk and non-combustible products for the year to the end of September was 17.1m. 

As a result of this growth, the category is now making a significant contribution to overall group revenue. The company expects overall revenue to increase by more than 5% in 2021. In comparison, global tobacco industry volume is expected to be “broadly flat“.

Overall, the company wants to expand these new categories to £5bn of revenue by 2025. That is around 20% of total group revenue. 

Unfortunately, the expansion of this business will not offset declining volumes elsewhere. So, British American will remain exposed to the risks of operating in the tobacco sector. 

Still, in my opinion, it will reduce the risk. The company may also start looking for new ways to return cash to shareholders in 2022.

FTSE 100 dividend stock

Management believes the company is on track to reduce its borrowing to the targeted level of three times earnings before interest, tax, depreciation, and amortisation (EBITDA) by the end of the year. When it hits this target, the group will be able to return more cash to investors, either with share repurchases or bigger dividends. 

This is the main reason why I think the company is worth buying today. With its high levels of cash generation, the enterprise is a dividend champion, and it has scope to increase its distributions over the next year. For me, the scope for additional dividends compensates for the risks of investing in the tobacco sector. 

Rupert Hargreaves owns 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.