Owning shares in FTSE 100 companies can be a great way of earning passive income. But finding businesses that can return cash to shareholders is only part of an investor’s job. 

The other part of the equation is finding ways to buy them when they offer good enough returns. And a falling stock market can be a great opportunity to do this. 

Discounted dividends

Legal & General (LSE:LGEN) is a stock that is popular with income investors – and justifiably so. It often trades at prices that mean there’s a high dividend yield on offer. 

Right now, the dividend yield is around 9.25%, but during the recent volatility, investors were able to buy the stock with a 10% yield. And the difference can be significant over time.

Compounding a £10,000 investment at 9.25% over 30 years results in £142,116. But the result of achieving a 10% annual return is £174,494 – over £30,000 more. 

From a passive income perspective, that’s the difference between receiving £12,032 per year and £15,863. Over time, taking advantage of unusually good opportunities can really pay off.

Caution

Investors, however, need to be careful when share prices are falling. The stock market often overreacts to unexpected developments, but it rarely does things for no reason.

In the case of Legal & General, falling share prices could actually be bad news for the underlying business. There are a couple of important things to consider here.

First, the firm has solvency ratios to maintain. And the value of its investments falling might mean it has to hold on to more of its cash, reducing the amount available for dividends.

Second, demand for its investment products might fall as customers become more nervous with share prices going down. Whether or not it’s the right thing to do, it does tend to happen.

Opportunities

It might be the case that a 10% dividend yield is enough to offset these risks. But I find this hard to assess accurately given the uncertainty around share prices at the moment. 

While I’m certain investors who bought the stock at £2.15 won’t do worse than the ones who are buying it at £2.31, I’m not minded to jump in myself. I am, however, looking elsewhere.

Shares in Games Workshop (LSE:GAW) have also had a volatile few days, with uncertainty over trade tariffs causing the stock to fall 16% before recovering 11%. Nonetheless, I’m interested.

The company might have to increase its prices as a result of tariffs and this is a risk. But very strong gross margins mean it’s unlikely to have to raise prices by much to offset the costs.

Buying the dip

A volatile stock market can give investors the chance to buy stocks with unusually high dividend yields. And over time, the result of taking these opportunities can be huge. 

Being greedy when others are fearful can be a winning strategy, but investors need to tread carefully. Sometimes there can be real impacts on companies that need to be considered.

I’m staying away from Legal & General shares at the moment for this reason. But I’m actively looking for opportunities to add to my Games Workshop as the share price fluctuates.

Four years ago, shares in Renishaw (LSE:RSW) were trading at £64.75. Today, the FTSE 250 stock has a price of £22.20. 

That makes it look as though a lot has gone wrong with the business. But I think the reality is quite different and things aren’t nearly as bad as they look. 

Why is the stock down?

Renishaw is one of the leading manufacturers of precision measuring equipment. Its products are used in production facilities for things like medical devices, robotics, and semiconductors.

It’s the last of these that has been a big drag on the business recently. Semiconductors are a notoriously volatile industry and after a boom in 2021, investment in factories has slowed.

On top of this, the company isn’t easily able to give guidance as to when this will turn around. Its order book only provides it with visibility of around two months ahead on average.

That makes it much more difficult to forecast earnings. And this in turn means the share price can be much more volatile. 

Long-term growth

From a long-term perspective, though, there’s a lot to like about Renishaw. It has a strong position in a growing industry – and this can often be a powerful combination for investors.

Semiconductors, robotics, and medical devices look like industries set for long-term growth. And the FTSE 250 company’s products are difficult to compete with in these environments.

Renishaw’s own equipment is highly technical, which creates a barrier to entry for competitors. But its products also feature as parts of machines made by other companies.

In these cases, its components are often specified by the equipment manufacturer. And that makes them almost impossible to compete with. 

Valuation

I think the end markets Renishaw sells into will grow over time, even if it’s not clear exactly when and at what rate. But the current share price arguably doens’t reflect this.

The stock trades at a price-to-earnings (P/E) ratio of around 17, but this is based on earnings that have fallen significantly. A recovery could cause this multiple to contract sharply.

With this type of business, I think the price-to-book (P/B) ratio is a good one to consider. The firm’s book value (the value of its assets minus its liabilities) is more stable and less cyclical.

On this basis, Renishaw shares are historically cheap right now. So, for investors who are prepared to live with the uncertainty, I think this is a good stock to consider buying.

Volatility

The danger with Renishaw is obvious – it sells into markets that are cyclical and that means demand is out of its control. And a potential recession could cause profits to decline further.

Investors interested in buying the stock need to judge for themselves whether or not this is a risk they’re comfortable with. For some, it might – entirely reasonably – not be. 

For those that can live with the volatility, though, I think this looks like an interesting stock. At historically low multiples, there’s arguably never been a better time to consider taking a look.

Despite all the turmoil in the financial markets, the last five years have been pretty rewarding for Stocks and Shares ISA investors.

The most recent data from the official statistics from HM Revenue & Customs show that the market value of investment ISAs has grown significantly since 2020. Some of this comes from new investors leveraging the tax advantages of an ISA. However, a large chunk also stems from impressive capital gains achieved since the pandemic.

So how much money have ISA investors actually made?

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Crunching the numbers

Most investors rely on a passive index fund investment strategy. The returns earned since April 2020 obviously depend on which index they choose to track. The FTSE 100 is by far the most popular here in the UK. And while it’s not known for its stellar growth potential, a chunky dividend paired with relatively low volatility still makes it a solid pick for growing wealth in the long run.

Over the last 15 years, the UK’s flagship index has yielded an annualised gain of around 6% a year. But in the last five years, investors who capitalised on the stock market crash at the height of Covid-19 have enjoyed an annualised return closer to 9%. And when compounded over time, a 3% difference can lead to a significant difference in wealth creation.

To demonstrate, £20,000 invested at a 6% annual return for five years would be worth £26,980. But when this return is bolstered to 9%, the value climbs notably higher to £31,315. And if left to run for longer, the gap grows ever wider.

For example, after 10 years, these figures would stand at £36,390 and £49,030 respectively. Or £66,205 and £120,185 after two decades. In other words, an extra 3% can deliver almost twice the wealth generation in the long run.

Pushing returns even higher!

Given the power of an extra 3%, what if investors strive for even higher gains? Even if it just amounts to a slightly bigger 12% annual return, after two decades, a Stocks and Shares ISA could reach £217,850 without putting any more capital into the stock market.

Needless to say, having close to a quarter of a million pounds by investing just £20,000 is an alluring prospect. And it’s a reality that stock picking can potentially provide. Take Diploma (LSE:DPLM) as an example.

Since the lows of the pandemic, the value goods distributor has continued to demonstrate its importance within its customers’ value-chain. That’s translated into a combination of acquisitive and organic growth for revenue and earnings.

Subsequently, the dividend per share has almost doubled from 30p to 59.3p, with share price following suit. And shareholders who bought and held over the last five years were rewarded with a staggering 18.2% annualised gain!

Obviously, no investment is without its risks. Diploma relies on global supply chains to meet its customers’ demands, with a large chunk of sales originating from the US market. However, with a global trade war brewing, the impact of potential tariffs in three months’ time could impede the firm’s ability to keep delivering double-digit gains.

Nevertheless, the long-term potential of this enterprise remains promising. So for investors looking at a stock-picking strategy for their ISA, Diploma could be worth a closer look.

Using the stock market to earn a second income is a powerful wealth-building tactic. And despite popular belief, investors don’t need to be rich to leverage this tool.

In fact, investing just £100 a month over the long run can make an enormous difference – that’s less than the median £180 monthly savings of British households. But how big of a second income could investors unlock with this modest monthly capital?

Building wealth £100 at a time

Over the period of 10 years, putting aside £100 each month builds to £12,000 in total savings. However, the stock market also offers compounding returns from both dividends and capital gains. On average, UK shares have delivered a long-term average annualised gain of around 10% when looking at the FTSE 250. For reference, this figure’s closer to 8% for the FTSE 100.

At a 10% annual return, investing £100 every month for a decade yields a portfolio worth £20,485 when starting from scratch. Following the 4% rule, that translates into a second income of £820.

Obviously, that’s not a life-changing sum. But patience can go a long way along an investing journey. What if an investor continues to invest for 20 years? Well, then the portfolio grows to £75,940, or £3,038 passive income.

What about 30 years? That translates into a £226,050 portfolio from just £36,000 of savings, generating an extra £9,042 passive income each year. And for those able to wait a full 40 years, an investor’s nest egg could reach £632,408, generating a retirement income of £25,296 that would continue to grow, year after year.

Earning 10%

Index funds are a terrific way to grow a portfolio on autopilot. However lately, the FTSE 250 hasn’t been keeping up with its historical average. In fact, over the last 15 years, returns have been lagging even the FTSE 100 at just shy of 6%. For reference, 40 years of compounding at 6% only yields a £200,000 portfolio – a third of what an extra 4% in annual gains can deliver over the long run.

This is where stock picking offers a solution. Building a custom portfolio comes with greater risk and involvement. But it opens the door to higher, potentially market-beating gains.

Take Future (LSE:FUTR) as an example. The media giant has had some rocky times of late with an initially underperforming expansion into the US market. Nevertheless, despite its recent woes, the value creation for shareholders has been exquisite, with an average total annualised gain of 17% over the last decade.

Given that its market capitalisation is only slightly over £700m, there’s still ample room for growth. And this is also backed up by management’s ambitions to capture more market share in America, which could see its audience sizes for its Fashion & Beauty, Homes, and Wealth verticles surge.

Of course, there are never any guarantees. And as shareholders have recently seen, a failure to deliver on ambitious targets is a big reason why the Future share price is still down over 80% from its 2021 highs. This goes to show that even with a strong business, investments can underperform if bought at the wrong price. As such, stock picking may fail to deliver the expected results.

Nevertheless, the business does appear to be getting on track to hit its 2026 organic growth targets. Although with a recent change in leadership, Future might be best left on an investor’s watchlist. At least for now.

Regardless, with prudent decision-making, robust diversification, and consistent monthly saving, even a small investor can potentially earn a substantial second income in the long run.

With the US stock market crashing by double digits earlier this month, opportunistic contrarian investors have begun asking what are the best stocks are to buy now?

Historically, some of the best investments are high-quality companies trading at a deep discount on their underlying value. But finding such opportunities isn’t always easy, especially when everyone’s looking in the same place. That’s why I almost always start my search among the businesses that have been beaten up the most.

Finding value in unloved stocks

Companies that get sold off aggressively can end up getting mispriced. With that in mind, here are five of the worst-performing US stocks over the last 12 months.

Company	Industry	Market Cap	12 Month Performance
Novo Nordisk (NYSE:NVO)	Pharmaceuticals	$217bn	-47.9%
Advanced Micro Devices	Semiconductors	$139bn	-42.1%
Merck & Co	Pharmaceuticals	$206bn	-35.4%
ASML	Semiconductors	$246bn	-29.5%
The Walt Disney Company	Media & Entertainment	$151bn	-21.9%

Chances are, each of these businesses is getting caught in the panic-selling crossfire of the US tariff-induced market sell-off that started earlier this month. And while the subsequent announcement that tariffs are being paused for 90 days created a rebound, each of these businesses is still trading close to their 52-week lows.

However, just because a firm is getting sold off doesn’t instantly make it a bargain. Each is tackling notable challenges right now. As such, investors need to examine operational risks and potential rewards before jumping in. To demonstrate, let’s zoom in on Novo Nordisk.

The challenge of pharmaceuticals

As more people become more health conscious, Novo Nordisk is finding tremendous success with its GLP-1 weight loss drugs. In particular, Ozempic now has a 44% estimated market share, with demand growing at an accelerating pace. The impact of this is made perfectly clear in its latest set of earnings, which reported revenue and profits surging by over 30%.

With plenty of other drugs in the pipeline, this could just be the tip of the iceberg. However, like all pharmaceutical enterprises, Novo Nordisk isn’t immune to the challenges of clinical trials. And last December, shareholders were reminded of this when the results of its brand-new weight-loss drug, CagriSema, fell short of expectations.

While the drug appears to be effective, average weight loss came in at 22.7% over 68 weeks, versus the 25% Novo Nordisk was aiming for. That led to a steep double-digit sell-off, demonstrating that bad results from a clinical trial can cause pharmaceutical stocks to plummet. Nevertheless, given the enormous market opportunity of weight-loss drugs, such volatility may be a price worth paying, in my mind. That’s why I think Novo Nordisk’s recent slip could be a potential buying opportunity and deserves further research.

Looking at the other businesses on this list, there are a variety of challenges investors need to take into consideration.

Advanced Micro Devices is facing fierce competition from the likes of Nvidia, while ASML is caught in the middle of a brewing trade war between the US and Europe. As for Disney, subscriber attrition from its Disney+ streaming platform is causing concern.

Of course, each business also has promising long-term potential. So when looking for the best stocks to buy, investors must dig deeper to determine whether the risks are worth the reward.

Investors searching for passive income could do a lot worse than consider the London Stock Exchange‘s large range of investment trusts. Here are two that I think are worth a close look today.

As you’ll see, their forward dividend yields sail past the UK blue-chip average.

Foresight Environmental Infrastructure

Investing in utilities can be an effective strategy when broader economic times are challenging.

Sure, earnings can be impacted by higher interest rates. But on the whole, the essential commodities they provide to homes and businesses — whether that be water, gas, or electricity — can provide excellent profits stability.

This is an essential quality that gives utility companies financial means and the confidence to consistently pay a decent dividend.

Investors have a huge range of utilities shares and related investment vehicles to choose from today. One investment trust I like is Foresight Environmental Infrastructure (LSE:FGEN), whose forward dividend yield is a gigantic 10.9%.

This company has its finger in many pies when it comes to harnessing the growing green economy. It owns wind and solar farms, hydro plants, waste management sites, and biomass projects, to name just a handful of asset categories it’s involved with.

In total, it owns 41 projects spanning Europe. It’s a range that provides added protection for investors, as localised issues like adverse weather conditions and regulatory changes can be effectively absorbed, safeguarding earnings and dividends.

Renewable energy trusts like this also have considerable long-term growth potential as the world steadily switches away from fossil fuels. Dividends here have risen every year since it listed on the London stock market in 2014. It’s a run I expect to continue.

Schroder European Real Estate Investment Trust

Schroder European Real Estate Investment Trust (LSE:SERE) is another investment trust I think’s worthy of attention from dividend chasers. Its classification as a real estate investment trust (REIT) means at least 90% of annual rental earnings are guaranteed to be paid out to shareholders.

Furthermore, at 7.9%, its forward dividend yield is more than double the FTSE 100 average.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

As the name suggests, this trust focuses on Europe and holds a diversified portfolio of properties. These include food and DIY retailers, warehouses, logistics hubs, and office space. And they are based in so-called “winning cities” (including Paris, Berlin, and Hamburg) that have substantial long-term growth potential.

Theoretically, the trust’s focus on cyclical sectors could leave earnings more vulnerable to turbulence during economic downturns. However, with around 50 tenants, it effectively minimises rent collection and occupancy issues at the group level.

I also like Schroder European Real Estate Investment Trust because of its strong balance sheet. With a loan to value of just 25%, it has substantial flexibility to continue paying a large dividend even if profits disappoint in the near term.

Dividend stocks have long been a popular destination of capital for investors seeking to earn a passive income. And while higher interest rates have led to attractive opportunities within the bond market, rate cuts are slowly putting an end to that.

A quick glance at the NS&I website shows that British Saving Bonds now only offer around 3.5%. That’s almost half the 6% being offered only a few years ago. Yet in the stock market, there are still plenty of impressive yields on which to capitalise. And one sector that seems to have a lot on offer is energy.

Oil & gas opportunities

While fossil fuels aren’t particularly fashionable among environmentally concerned investors, oil & gas companies still play a vital role in the global energy landscape. And even as the world slowly transitions towards alternatives like nuclear and renewable energy, oil & gas remain vital to this process.

In fact, natural gas is currently considered to be one of the most effective stopgap solutions as nuclear power plants are built and the hydrogen technology ‘revolution’ develops.

Right now, the FTSE 350 is home to just seven oil & gas producers. What’s more, some of these companies offer jaw-droppingly high dividend yields. So much so that the average across this basket of stock is 9.3% compared to the 3% to 4% typically offered by the stock market.

Company	Market Cap	Dividend Yield
Shell	£137.9bn	4.7%
BP (LSE:BP.)	£55.7bn	7.0%
Harbour Energy	£2.3bn	12.6%
Ithaca Energy	£2.0bn	14.1%
Energean	£1.4bn	12.2%
Diversified Energy Company	£660m	11.0%
Hunting	£420m	3.5%

Why so high?

A quick glance at the list shows an interesting pattern. With the exception of Hunting, all the small-sized FTSE oil & gas producers offer remarkably high dividend yields compared to Shell and BP. This isn’t entirely surprising, given that these smaller players also come paired with a lot more risk.

• Harbour Energy and Ithaca Energy are tackling political and regulatory uncertainty surrounding future oil & gas developments in the North Sea.
• Energean’s operations are right next door to the ongoing conflict in Gaza.
• Diversified Energy Company is facing a regulatory probe over alleged mismanagement of retired wells.

Needless to say, that’s a lot of risks, making the larger industry players more attractive to risk-averse investors. The payout may not be as high. However, with deeper pockets and a more diversified portfolio of assets, Shell and BP are likely to fare better during a cyclical downturn while still offering a higher dividend yield than NS&I bonds right now.

Large-cap isn’t risk-free

Being a bigger enterprise has its advantages, but it’s not a guarantee of safety. Oil & gas demand is steadily rising. However, with so many players in this industry worldwide, the supply side of the equation is constantly in flux. That can cause oil & gas prices to move in the wrong direction, putting pressure on margins and earnings that fund dividends.

BP, in particular, has the added uncertainty of committing to a U-turn on its aggressive investments into renewables, extending its transition timeline and expanding its oil & gas efforts in the short term. In fact, that’s likely why the shares offer a higher yield at 7%.

Nevertheless, when combined with other dividend stocks in a diversified income portfolio, these energy stocks could be a good source of income. That’s why I think they deserve a closer look today.

When it comes to dividend shares offering high-yield passive income, the UK stock market truly excels. Investors are almost spoilt for choice, with a veritable feast of opportunities to run the rule over.

Here, I’ll show how a simple ISA portfolio of five FTSE 100 stocks could lead to over £12k a year in tax-free dividends.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

What is high-yield anyway?

Earlier in April, the annual ISA allowance kicked in, enabling people to invest up to £20k without worrying about tax liabilities. This means that someone could invest £4,000 equally into five shares.

There’s no universally agreed-upon definition of what ‘high-yield’ means. But the average dividend yield of the FTSE 100 index is around 3.6% today. Therefore, a share sporting a 6% yield or more would definitely count as high-yield, in my eyes.

Also, government bond yields and savings rates are currently below 5%. So a dividend portfolio yielding above 6% would be a good target.

Mini portfolio

According to my data provider, 15 Footsie stocks offer 6%+ yields right now. Here are five of them that could be considered for a mini portfolio.

	Sector	Dividend yield
M&G	Investment manager	11.1%
Legal & General	Life insurance	9.3%
British American Tobacco	Tobacco	7.6%
BP	Oil	7.3%
HSBC (LSE: HSBA)	Banking	6.9%

The average from this portfolio would be a very juicy 8.4%. I should note that this is based on the trailing — or backwards-looking — dividend yields. Moving forward, they could be higher or lower than this, depending on whether the firms raise or cut their payouts.

Asia-focused banking goliath

Ideally of course, investors want profits and dividends to head higher. But this isn’t guaranteed, as each company has its own risks and challenges.

For example, three of those companies (M&G, Legal & General and HSBC) are from the financial sector. Right now, the global financial system’s facing a lot of uncertainty due to President Trump’s tariffs and the potential for an economic slowdown (or worse).

That could put pressure on earnings, especially for Asia-focused HSBC. It has major operations in and around China, which is facing significant trade pressures from the eye-watering US tariffs. Reduced trade activity and an economic downturn across Asia are clear risks to HSBC’s growth.

This is reflected in the share price, which has dipped 15% since the start of April.

Despite these concerns, I still rate the bank’s dividend prospects. The forecast payout is covered twice over by expected earnings, which should provide a decent buffer if profits come in light. Meanwhile, the balance sheet remains in tip-top shape.

Longer term, I expect HSBC’s pivot to Asia to pay off. According to McKinsey, it will be home to two-thirds of the global middle class by 2030, with 700m new members added between now and then.

Therefore, the region should provide ample opportunities for the firm to increase its earnings and dividends over the coming years.

Compounding returns

A £20,000 ISA yielding 8.4% would throw off £1,680 in passive income each year. But if an investor let that build, the total amount would be around £150,232 after 25 years. The tax-free annual income would then be £12,620, or the equivalent of just over a grand a month.

These calculations assume stable share prices and yields. In reality though, an investor would hope for appreciation in both, as well as a significantly higher final amount by investing more cash regularly along the way.

US stocks are going through quite a rough patch at the moment but that might be music to the ears of Warren Buffett.

The billionaire investor had seemingly predicted that the stock market was heading towards a price correction for some time now. After all, President Trump has frequently talked about the prospect of tariffs during and after his electoral campaign. And pairing this with rising stock valuations, there were some early warning signs of volatility ahead.

Looking back, this could explain why, in 2024, Buffett was actually a net seller of stocks, taking $134bn worth of equities out of Berkshire Hathaway‘s investment portfolio. And as a result, Berkshire now has a record $334bn pile of cash sitting on the sidelines.

Being cash-rich during a time of crashing prices is a powerful advantage. After all, it provides ample flexibility to buy top-notch stocks at a discount. And it’s a tactic that Buffett has been using for decades. In fact, going all the way back to 1986, his shareholder letter stated: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”.

Using the Buffett method

Capitalising on stock market volatility doesn’t mean just buying up shares in businesses that have been beaten to a pulp. Buffett’s notorious for investing only in high-quality companies when the valuation’s reasonable and attractive. That’s something I also prefer to do for my own portfolio.

Determining which companies are top-notch is easier said than done. But investors can cheat a bit by simply looking at the stocks already in the Berkshire Hathaway portfolio. And right now, that list includes Amazon.com (NASDAQ:AMZN).

Buffett first invested in the e-commerce giant back in 2019. And across all his transactions, the average buying price per share sits close to $84.22. Even after the stock’s recent volatility, Buffett has still more than doubled his investment. But with the stock down almost a quarter since the start of 2025, is this a new buying opportunity?

The bull and bear case for Amazon

In terms of revenue generation, the bulk of Amazon’s top line comes from its e-commerce platform. However, when digging into the profits, I see that the cloud-focused side of the business is actually driving growth.

Amazon Web Services (AWS) account for roughly half of the group’s operating income despite only generating 15% of the revenue. And with artificial intelligence (AI) and cloud spending expected to surge over the next decade, the opportunities for this business continue to be enormous.

However, like every business, there are risks to consider. A tariff-induced trade war could trigger recessions that hamper consumer spending. That’s bad news for both sides of the business since economic activity would suffer, leading to less demand for its cloud services and lower order volumes in its marketplace.

Since Buffett’s focused on the long term, the short-term disruptions of tariffs may not be too concerning. However, it’s worth pointing out that Amazon shares still trade at a valuation Buffett may consider to be lofty, at 25 times forward earnings.

Is this a fair price? Time will tell. However, given the volatility in the markets right now, taking a dollar-cost averaging approach may be prudent for investors considering buying Amazon shares in the current climate.

The FTSE 100 is stacked with cheap quality shares following the recent market sell-off. High street bank Lloyds (LSE:LLOY) is one blue chip whose shares offer exceptional all-round value, at least on paper.

At 66.1p per share, Lloyds’ share price commands a price-to-earnings (P/E) ratio of 8.7 times for 2025. Meanwhile, its P/E-to-growth (PEG) ratio is, at 0.5, some distance below the value watermark of 1.

Finally, its forward dividend yield is 5.4%, suggesting the possibility of above-average passive income streams.

Yet I won’t touch Lloyds with bargepole right now. Profits could jump if the UK economy rebounds, and the firm leverages its winning brand to grow revenues. But it also faces a serious of significant challenges today and in the long term, two of which I’ll describe below.

1. House of cards?

The mortgage market is a key profits driver for Lloyds. Its market share towers above the competition, and recent housing industry data suggests homebuyer demand remains pretty buoyant.

Yet the company’s dominance in the home loans segment is under threat as lenders kick off a new ‘mortgage rate war.’ Lloyds — whose margins are already under substantial pressure — may have to keep slicing loan rates if it wishes to keep attracting property buyers and existing homeowners.

This week Barclays became the latest lender to slash rates on some fixed-term products to 4%. This first move by a fellow major player has led to speculation of a spate of similar action from other loan providers.

The danger to Lloyds could be even more significant and long lasting, too, if (as expected) the challenger banks turn their attention here. Changes to UK capital rules last autumn give the smaller players added scope to launch an attack on the mortgage sector.

2. Car trouble

The greatest threat to Lloyds’ profits (and its share price) in 2025 could be the issuing of huge financial penalties from the Financial Conduct Authority (FCA).

Misconduct fines can be a regular annoyance for investors in bank shares. But the ones facing Lloyds — on this occasion related to the mis-selling of motor loans — could be truly staggering. Some analysts have put the total cost at above £40bn, bringing back painful memories of the PPI scandal.

As the sector’s biggest lender, Lloyds would likely be on the hook for the majority of any final bill. So far it’s set aside £1.2bn to cover any future costs, compared with £195m and £165m at Santander and Close Brothers, respectively.

The Supreme Court is currently deciding whether discretionary commissions in car loans are legal, following an appeal by lenders last year to a previous case. The decision could cause an earthquake for banks’ profits.

Lloyds shares might be cheap at current prices. But I feel this is a fair reflection of the huge and numerous risks it poses to investors, so I’d rather go shopping for other cheap stocks today.