Rolls-Royce (LSE: RR.) shares have taken off in the past three years and could soon become even more valuable. With earnings through the roof, the aerospace and defence giant is enthusiastically refocusing on dividends.

In 2024, dividends were introduced at 6p per share and in 2025, this was boosted to 9.5p. 

The full dividend is now forecast to reach 14.3p by 2027 and 17.3p by 2028. It’s realistic to assume that by 2029, they’ll be paying out over 20p per share.

But if today’s price of £12.28 holds, that only equates to a meagre yield of around 1.7%. Sure, it’s a step up from 0% but still, not much.

Of course, if the share price dips, the yield will ramp up. But that’s hardly encouraging if you’re looking to invest today.

So what does the dividend story look like going forward?

Valuation matters

If you bought 333 shares today, it could bring in around £220 in dividends over the coming three years. From an investment that currently costs around £4,089, that’s not much.

In 5-10 years, Rolls may once again be a top dividend-payer on the FTSE 100. But at the current valuation, it doesn’t make much sense for income investors.

Don’t get me wrong – the company’s doing a great job of rewarding shareholders. But after a 1,000%+ price rally, the yield simply can’t compete with the growth.

So what looks better right now?

When thinking in terms of income, it pays to lock in a dividend share when the price is low and yield high. That way, if the price rises and yield dips, your shares still pay out at the yield you bought. Plus, any capital gains add value to your investment.

Currently, Hikma Pharmaceuticals (LSE: HIK) appears to fit that narrative. In 2025, it paid a full year dividend of 84p per share, which is expected to reach over 100p by 2029.

At £14 a pop, 333 shares would cost around £4,662 – not cheap! However, over a three year period, they’d pay out £617.88 in dividends.

That’s still not life-changing money, but the key here is valuation. The price is estimated to be only 8.6 times forward earnings, while Rolls’ is closer to 32 times!

In my opinion, that growth potential combined with the higher yield could deliver far greater returns than Rolls.

After all, the average 12-month price target from 11 analysts monitoring Hikma is £18.77. That’s a potential 33.9% increase from today.

So what’s the catch?

Rolls and Hikma are very different companies, so a purely income-based comparison doesn’t tell the full story. While Rolls still benefits from recovery momentum and steady government contracts, Hikma faces more immediate challenges.

In February, it downgraded its 2026 guidance as stiff competition hurt its injectables business and US tariffs ramped up costs. But it still has a solid pipeline of products in play, so I think it’ll recover quickly from this short-term dent. As always, nothing is guaranteed.

On balance, Hikma is the more appealing stock to consider for investors targeting income over the coming three years. For Rolls, I’d take a breather and see where the price goes before revisiting the stock.

The post How much passive income could 333 Rolls-Royce shares pay out in 3 years? appeared first on The Twelfth Magpie.

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• Investors need to face the truth about booming Rolls-Royce shares 
• Is £15 the next stop for the Rolls-Royce share price?

Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals Plc and Rolls-Royce Plc. 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 you feel a workplace pension doesn’t offer enough freedom and flexibility, a Self-invested Personal Pension (SIPP) may be the answer.

Like a Stock and Shares ISA, a SIPP allows investors to choose freely from a wide range of stocks, bonds and commodities.

But unlike an ISA, it provides tax relief at the time of investment (as opposed to tax relief on gains down the line).

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.

For retirement investors happy to lock up their money for multiple decades, this can be highly advantageous. The investment is likely to compound quicker, leading to faster growth — especially if dividends are reinvested.

So how could I use a SIPP to deliver a steady (and liveable) income stream in retirement?

Crunching the numbers

A quick Google search tells me the average UK resident spends approximately £35 per day (after rent and bills). When accounting for inflation, this would equate to around £55 in 20 years from now.

So the average investor looking to maintain their current lifestyle should aim for passive income of £1,650 a month (55 x 30).

That’s £19,800 a year, which seems like a decent amount to supplement a State Pension.

Retirement experts recommended withdrawing no more than 4% per year to avoid depleting the pot too quickly. Since £19,800 is 4% of £495,000, that’s how much to aim for.

By investing £500 a month into a portfolio achieving average market returns of 10% a year, it could reach that in just over 21 years.

The steady growth portfolio

Chasing aggressive growth can be risky – one mistake can wipe out years of gains. But you can mitigate this risk by building a foundation of slow but reliable compounders.

Some good examples include Scottish Mortgage Investment Trust, Games Workshop, Experian, and RELX.

These are all companies with durable competitive advantages, higher earnings growth potential, and exposure to either innovative or global markets.

Then, add more growth potential to the mix by considering higher-risk options like Gamma Communications, Hochschild Mining, or Syncona (LSE: SYNC).

Let’s take a closer look at why I think a mid-cap biotech investment trust has growth potential.

Is biotech the future?

A big benefit of Syncona is that it offers exposure to a diversified basket of biotech assets. That makes it less risky than a company relying on one big product.

The team has secured reliable funding and positioned the portfolio around several key value inflection points over the next few years.

Since biotech is increasingly viewed as a potentially explosive industry, this is a key attraction. Plus, it’s backed by a powerful financing environment that’s helping companies raise capital.

Still, it is speculative in many ways. Syncona’s success depends on clinical progress, fundraising, and exits, so returns can be volatile and sentiment-driven.

A recent strategy update shows it’s reshaping its approach to maximise value and support shareholder returns. That’s great – but if the strategy doesn’t pay off, it could hurt the share price.

The bottom line

The reason I think Syncona is a smart stock to consider is two-fold: biotech could be the next big thing, and its diversified portfolio reduces risk.

However, these types of growth-boosters are best allocated only 3%–4% in a portfolio. Ideally, 50% of core holdings should still be well-established, large-cap growth and income blue-chips.

The post How much do you need in a SIPP for monthly income of £1,650 in retirement? appeared first on The Twelfth Magpie.

More reading

• £503 buys 14 shares in this FTSE 250 stock that returned 23.9% annually for the last 15 years
• £1,000 buys 25 shares in this FTSE 100 stock that’s returned 29.2% annually for the last 10 years
• Down 47%, is this growth stock finally worth buying in May?
• 2 REITs yielding 7%+ to consider for passive income in 2026
• Just 97 shares of this UK dividend stock generate £238 in passive income

Mark Hartley has positions in Experian Plc, RELX, and Scottish Mortgage Investment Trust Plc. The Motley Fool UK has recommended Experian Plc, Games Workshop Group Plc, Gamma Communications Plc, and RELX. 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-paying shares can be a useful way to target passive income through regular shareholder rewards. But the key lesson I learned when first picking stocks to buy is that not every dividend is built to last.

The best income shares are not just those with the highest yields. It’s the ones that can keep paying even when the market takes a tumble.

So how can investors spot reliable dividend shares?

Avoid these three common mistakes

Novice investors often focus on making a quick buck and fail to ask the right questions. That’s one quick way to end up with weak income or, worse, a dividend cut. Make sure to avoid these dividend traps:

• Chasing high yields. A big yield can look exciting, but sometimes it is high because the share price has fallen sharply.
• Ignoring the payout ratio. If a company is handing out too much of its profits, the dividend can become fragile.
• Neglecting diversification. If you own too many income stocks from one sector, a downturn can hit all of them at once.

The clearest example for me was Vodafone. As a company I was very familiar with, I didn’t do sufficient research. Blinded by the high yield, I didn’t check the strength of the dividend properly and soon after buying, it was cut by 50%.

That was a costly reminder that every company, no matter how familiar, requires a closer look. So how can investors identify a sustainable dividend?

How to spot a winner

“The market is often stupid, but you can’t focus on that. Focus on the underlying value of dividends and earnings.” – John C Bogle.

The key metrics you want to focus on are those that indicate long-term dividend sustainability: cash coverage, payout ratio, and historical track record.

I just did a quick screener for those metrics and one stock jumped out at me: Paragon Banking Group (LSE: PAG). Its Q1 FY26 trading update shows lending up 6.9%, along with net loan balances up 3.9% year-on-year to £16.5bn.

Straight off the bat that shows the business is still growing at a decent pace. But more importantly, its dividend credentials are all well above the UK average.

Critically, it’s been paying dividends for 31 straight years, which is exactly the kind of record income investors like to see.

Admittedly, the share price has slipped 18.2% in the past year but that’s short-term. Zoom out, and it’s up 52.7% over five years.

So what could go wrong?

Paragon has already set aside £6.5m for the ongoing motor finance scandal, but the final bill remains unclear. If it’s more, profits could take a hit. It already carries £1.71bn in debt against £1.42bn of equity, so the balance sheet is at risk of being stretched.

Even so, the bank is widely regarded as a trusted specialist lender and its income appeal is undeniable.

For a passive income portfolio, I think it’s certainly worth a closer look. But don’t go all in on one stock — there’s a wealth of other excellent dividend stocks I’ve covered recently that are equally worth considering as part of a diversified portoflio.

The post Here are 3 mistakes I made when picking stocks to buy for my passive income portfolio appeared first on The Twelfth Magpie.

More reading

• £503 buys 14 shares in this FTSE 250 stock that returned 23.9% annually for the last 15 years
• £1,000 buys 25 shares in this FTSE 100 stock that’s returned 29.2% annually for the last 10 years
• Down 47%, is this growth stock finally worth buying in May?
• 2 REITs yielding 7%+ to consider for passive income in 2026
• Just 97 shares of this UK dividend stock generate £238 in passive income

Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended Vodafone Group Public. 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.

Quitting work to live off passive income sounds like the ultimate dream, doesn’t it? No more alarm clocks or commutes — just dividends rolling in to cover the bills, and more..

That’s why so many UK investors tuck money into a portfolio of high-yielding dividend shares each month. And to get the most bang for buck, using a tax-free ISA can minimise how much goes to HMRC.

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.

But how much should you really put in each month to hit something like £21,000 a year in income?

Running the numbers

Income portfolios chasing high-yield stocks often achieve 6%-8% yields. To generate £21,000 annually, you’d need a pot of £262,500 at 8%, or £350,000 at 6% — a hefty sum, but do-able over time.

Let’s be generous and say you achieve a slightly above-average 10% total return yearly (with dividends reinvested). Investing £500 monthly compounds to around £303,283 after 18 years. At 7% yield, that spits out £21,229 in dividends.

ONS data shows the UK median full-time salary is £39,039 a year, or £2,600 monthly after tax. If you can survive on just £2,100 a month by trimming expenses, you could afford that £500.

Naturally, anything less would just take a few extra years, so the sooner you start, the better. But even investors in their mid-40s should have more than enough time before retirement.

Stock hunting

To aim for that 10% return, don’t just chase sky-high yields — spread risk by building a solid, diversified portfolio.

Here’s one example blending growth and income shares across sectors including engineering, banking, insurance, property, and retail.

This mix achieved annualised total returns of 11% since 2016, but the average yield’s a bit low at 5.2%. To remedy this, you could weigh more toward higher yielders like Legal & General once the pot is big enough.

Why Legal & General?

Legal & General’s a FTSE 100 insurance giant with a very long and reliable dividend history. In 2025, it posted a full-year dividend of 21.79p, up 2%, with analysts eyeing a 8.7% prospective yield ahead.

The forward price-to-earnings (P/E) is 10.5, reasonable versus its 10-year average of 9.1, suggesting fair value. Earnings grew 9% in 2025, with 2026 forecasts at the high end of 6-9%.

These are typical characteristics of a sustainable income stock, rather than a growth leader.

But it’s still risky in some ways. Interest rate swings can hurt investment companies, credit spreads can widen on bonds, and longevity trends can strain pensions. Fortunately, its pension risk transfer business helps mitigate these risks.

Final thoughts

A passive income stream in retirement can spell the difference between surviving and thriving. It cuts out the stress about whether a pension will be sufficient and reduces the need to dip into savings.

But the payoff doesn’t come easy. You must stick to the plan, do the research, and make financial sacrifices. The most important step is the first one — start small in an ISA, stay diversified, and let compounding work.

Legal & General’s a good example of the type of starter stock to consider for an income portfolio. But conditions change constantly, so don’t get too comfortable and always keep abreast of new developments as they arise.

The post Here’s how much to put in your ISA if you hope for passive income of £21,000 appeared first on The Twelfth Magpie.

More reading

• 3 top income-focused stocks to buy in May 2026, according to experts
• How to invest £150 a month in shares to target a £7,660 passive income for life
• The Legal & General share price is at a 10-year low – but the dividend income is stunning!
• How much do investors need in a SIPP to cover the UK’s £1,377 average rent?
• A £3.8bn warning for Legal & General shareholders

Mark Hartley has positions in Legal & General Group Plc. The Motley Fool UK has recommended J Sainsbury Plc, LondonMetric Property Plc, and Rolls-Royce Plc. 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.

Volatile oil prices are rattling stock markets around the world as the ongoing Middle East conflict continues to disrupt passage in the Strait of Hormuz.

As of Friday (8 May), Brent crude was hovering above $100 a barrel — roughly 40%-60% higher than February. Global stocks have felt the pinch: the MSCI World index is down around 4% in the first quarter and over 6% just in March.

Markets in Europe, the UK and Asia tend to suffer single-day dips of 2%-3% whenever escalation headlines hit the news. Meanwhile, energy stocks have benefited, with oil companies up 40%-45% and the broader energy sector nearly as strong.

So the market hasn’t crashed yet, but if this volatility keeps eroding confidence, things could get shaky.

What are major institutions saying?

We already know that central banks aren’t rushing to cut rates anymore. The Fed, ECB and Bank of England are holding steady and warning that this energy shock could keep inflation stubborn — and rates higher — for longer than anyone hoped. 

A brief look at investor chatter and anyone can see that anxiety is on the rise. Talk revolves around slower growth, sticky prices and even stagflation if oil prices don’t drop. People are even hinting at the possibility of a 1970s-style impact if the energy crisis worsens.

Yet the IMF, along with big insurers, aren’t losing their minds just yet. They believe that while the situation’s serious, it’s contained — for now.

Their worst-case warnings? A drawn-out mess pushing oil toward $150, sparking a global recession and forcing central banks to pick between fighting inflation or propping up growth.

So how should investors prepare for that scenario?

Safeguarding a portfolio

Most forecasts expect some de-escalation, with prices easing over time. For long-term investors with diversified portfolios, it would make sense to tilt toward sectors such as energy, defence, staples and infrastructure.

Keep some cash handy too but don’t try timing every headline or guessing the next twist. One area that many investors neglect is defensive tilting: instead of selling stocks to cut risk, shift to shares that weather storms.

One example for investors to consider is RELX (LSE: REL).

The threat of AI has knocked it down nearly 40% over the past year, but that’s arguably a plus. The fear now looks priced in, unlike a cyclical bet like Rolls-Royce that could drop more.

But AI disruption’s still an undeniable risk. If freely available tools outpace RELX’s ability to innovate, profits could dip and investors could flee.

So could it bounce back?

Personally, I think RELX has strong recovery potential. Here’s why:

• Solid fundamentals: 9.3% annual earnings growth over five years, revenue up 7.1% on average.
• Wide moat remains despite AI threats (could even be an opportunity).
• Analysts’ average 12-month target suggests 39.6% upside.
• The geopolitical situation increases demand for risk analysis tools.

Looking at its other financials, the valuation shows a price only 20 times earnings, which I think is cheap for a company of this quality. Plus, while its yield’s modest at around 2.7%, it’s growing steadily and is supported by buybacks.

At the end of the day, defensive shares like RELX remain one of the most popular methods to reduce risk exposure. And it’s just one of many I’ve covered recently.

The post How oil price volatility is impacting stock market sentiment — and how to prepare appeared first on The Twelfth Magpie.

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• 3 FTSE Shares experts think will lead the next bull market charge

Mark Hartley has positions in RELX. The Motley Fool UK has recommended RELX and Rolls-Royce Plc. 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 slipped a further 3.66% this week, extending a losing streak that began in mid-April 2026. The leading index for UK shares is now down almost 5% from its 52-week high, hinting at a potentially prolonged downturn.

This decline is primarily driven by heightened geopolitical instability in the Middle East and concerns over its impact on global energy infrastructure. That means investors are getting extra jittery about the UK economic situation – in particular, sticky inflation and a weaker labour market.

While nobody likes to sell at a loss, holding on to shares that face structural challenges might do more damage in the long run.

So in this tempremental environment, here are two shares I’d consider avoiding for now.

Associated British Foods

Associated British Foods (LSE: ABF) is a well-established supplier of everyday goods, giving it defensive credentials. Prior to Covid, it enjoyed 20 years of unbroken dividend increases, making it attractive to income investors.

But disappointing festive trading in 2025 led to a profit warning, putting the share price under severe pressure.

Recent earnings reports reflect a struggle to maintain volume growth in a cost-cutting environment. So even with a decent dividend history, sustainability is now questionable. Not ideal for for those eyeing long-term dividend returns.

Of course, this means the valuation is weakening as analysts downgrade profit forecasts, which could offer a cheap entry point for value hunters.

The primary risk is its heavy reliance on consumer discretionary spending. With inflation still tightening consumer’s wallets, traditional retail faces a difficult road to recovery.

Endeavour Mining

Mining stocks are often treated as safe havens, but Endeavour Mining (LSE:EDV) tells a different story. Its fortunes (and share price) exploded recently inline with a rallying gold price. So long as gold remains strong, it could keep growing.

But the firm has seen high volatility as geopolitical instability ripples through the commodity markets.

From a financial standpoint, it’s doing well but rising costs are a concern. Subsequently, the market has responded with caution, which naturally has hit the share price.

On top of that, the dividend story has been erratic, largely because management is currently prioritising capital preservation and debt reduction over shareholder payouts.

So now we have a company that relies heavily on operational stability in politically sensitive regions. That’s not exactly a low-risk investment. If gold demand softens, it could all come tumbling down like a house of cards.

What are some better options?

Avoiding these stocks isn’t about panicking, it’s about recognising that the capital might be better deployed elsewhere. Both ABF and Endeavour Mining face specific pressures that could persist for some time, whether weak retail demand or operational hurdles in volatile regions.

Keeping your money tied up in underperforming cyclical assets during a market downturn is a classic investing trap.

Rather than clinging to stocks that are under water, shifting toward more defensive, reliable options might be worthwhile. Consider utility companies like SSE and National Grid, or blue-chip pharmaceutical giants such as AstraZeneca. They look more stable than retail and mining stocks right now.

These firms typically offer more consistent dividend payouts and possess the ‘defensive moats’ necessary to weather economic storms.

By strategically allocating capital into more resilient sectors, you can safeguard a portfolio while waiting for the market outlook to improve.

The post 2 UK shares to consider avoiding as the FTSE 100 extends losses appeared first on The Twelfth Magpie.

More reading

• £503 buys 14 shares in this FTSE 250 stock that returned 23.9% annually for the last 15 years
• £1,000 buys 25 shares in this FTSE 100 stock that’s returned 29.2% annually for the last 10 years
• Down 47%, is this growth stock finally worth buying in May?
• 2 REITs yielding 7%+ to consider for passive income in 2026
• Just 97 shares of this UK dividend stock generate £238 in passive income

Mark Hartley has positions in AstraZeneca Plc and National Grid Plc. The Motley Fool UK has recommended Associated British Foods Plc, AstraZeneca Plc, and National Grid Plc. 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.

With global markets suffering under geopolitical risk, long-term FTSE 100 investors should prepare for more volatility. It could be years before normality returns, but that doesn’t mean all sectors will suffer equally.

For me, I see the most promise in sectors tied to long‑term global trends rather than short‑term headlines. That means energy and infrastructure, healthcare and finance. 

Here’s why I see value in these areas.

Tangible demand

Energy and infrastructure’s an obvious choice, with huge planned spending on net zero projects, power grids and energy security. Governments and companies cannot easily cut those budgets without risking trouble down the line. Think National Grid or a hydrogen play such as ITM Power.

Healthcare demand is clear: ageing populations and chronic health conditions mean it tends to grow even when markets take a dive. AstraZeneca is my first thought, while up-and-coming gene therapy specialist OXB could thrive here.

And financials remain the biggest chunk of the FTSE 100, with higher‑for‑longer interest rates still a support for many banks and insurers. Lloyds remains an ever-popular choice, but I also see lots of potential in OSB Group.

So how should investors strategise this environment?

Portfolio planning

For most people, a solid foundation’s a good starting point. Consider diverse UK equity funds or FTSE All‑Share trackers as core holdings. 

That provides broad sector exposure without having to identify winners in every area. Following that, lean into the sectors mentioned above, with the strongest long‑term potential.

Remember, macro shocks tend to hit most sectors at the same time. A serious 30%-35% market dip (like those used in official UK stress tests), would not spare ‘fashionable’ sectors.

Allocation, diversification and time horizon usually matter more than getting the perfect sector call. Sounds a bit too safe and boring? Well, that’s exactly what I’m going for.

One example

With the above in mind, I think now’s a good moment to look at the information analytics giant London Stock Exchange Group (LSE: LSEG). Aside from operating critical market infrastructure, it provides data and analytics used by investors, banks and asset managers around the world.

And with the shares down 19% in a year, investors could grab this high‑quality business at a cheaper entry price.

But competition from other data and index providers adds risk. Rapid advances in artificial intelligence (AI) and possible regulatory changes to how market data is priced or used could all squeeze future returns.

Core characteristics:

• A large share of recurring and subscription‑style revenues, which can smooth earnings through the cycle.
• Strong profitability and cash generation, helping to fund both investment and shareholder returns.
• Substantial buybacks: around £2.1bn returned in 2025, with a further £3bn authorised to run through early 2027.

In 2025, income rose 7.1% and adjusted EBITDA reached roughly £4.5bn, with margins just over 50% – high for such a large, established group.

The bottom line

For UK investors building a diversified portfolio with a long time horizon, a stock like LSE Group looks like a strong candidate to think about.

There is some risk and it currently trades on a slightly high valuation, but much of this is mitigated by a strong market dominance.

Long story short: it gives you exposure to growing demand for financial data and analytics, backed by resilient, recurring revenues, but without taking on the direct credit risks of a bank.

The post How I plan to lock in sustainable growth on the FTSE 100 in the coming years appeared first on The Twelfth Magpie.

More reading

• £503 buys 14 shares in this FTSE 250 stock that returned 23.9% annually for the last 15 years
• £1,000 buys 25 shares in this FTSE 100 stock that’s returned 29.2% annually for the last 10 years
• Down 47%, is this growth stock finally worth buying in May?
• 2 REITs yielding 7%+ to consider for passive income in 2026
• Just 97 shares of this UK dividend stock generate £238 in passive income

Mark Hartley has positions in AstraZeneca Plc, Lloyds Banking Group Plc, National Grid Plc, OSB Group, and OXB. The Motley Fool UK has recommended AstraZeneca Plc, Itm Power Plc, Lloyds Banking Group Plc, London Stock Exchange Group Plc, and National Grid Plc. 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.

Grocers took a beating this week, with Tesco (LSE:TSCO) shares in particular slipping 2.5% on Tuesday (5 May). Since falling from a high of 508p in late February, it’s struggled to recover the momentum enjoyed in 2025.

Key rival Sainsbury’s was similarly impacted, but to a lesser degree. Meanwhile, more diversified retailers including Marks and Spencer, JD Sports and Kingfisher made moderate gains.

This is likely the result of short-term sector weakness, but it’s worth reassessing Tesco’s long-term appeal as a defensive income play. Over the past few years, the share price has steadily grown from around 10 to 15 times earnings. Its forward price-to-earnings (P/E) ratio is now estimated to be above 15 — the highest among UK retail stocks.

That begs the question: does it still have appeal as a defensive income play, or is it moving into ‘value trap’ territory? Let’s take a look.

Consumer confidence weakens

This week’s dip looks more like a patch of sector weakness than a big change in Tesco’s story. British retail sales rose 0.7% in March, and Worldpanel said UK grocery inflation eased to 3.8% in late April, with no clear early hit from Middle East tensions.

That said, the backdrop isn’t perfect. Consumer confidence has slipped to its lowest level since October 2023, and some UK retailers have reported softer trading in April.

So while Tesco remains resilient, analysts are right to be cautious about assuming smooth growth from here.

Income outlook

Caution aside, I’d say Tesco’s latest numbers still offer a strong argument for considering an investment. The company reported adjusted operating profit of £3.15bn, free cash flow of £1.96bn, and adjusted diluted earnings per share of 29p.

Meanwhile, it hasn’t forgotten its shareholders, maintaining a commitment to dividends and buybacks. For income investors, that’s where the core attraction still lies.

The dividend yield‘s expected to grow steadily from 3% to 3.6% over the next three years, while analysts expect annual payouts to reach about 17p per share by 2028.

However, growth expectations are more moderate. The average 12-month price target is only 513p, implying roughly a 7.39% increase from current levels. That certainly isn’t explosive growth, but it’s respectable enough for a defensive stock.

So while the forward P/E ratio of 15 is no longer cheap, it still looks fair for a market leader with strong cash generation.

My verdict

Aside from a slightly high valuation, another risk is that the market may have already priced in future gains. If grocery inflation cools faster than expected, or if consumer spending weakens, Tesco’s earnings momentum could slow.

Even so, the balance sheet, cash flow, and dividend outlook still give the shares a solid defensive profile. So for UK income investors, I feel it’s still worth considering as part of a diversified portfolio. 

The defensive business model blended with moderate income potential is just that right amount of balance a portfolio needs when markets get shaky.

However, for those chasing fast gains, there may be better options on the FTSE 100. Some I’ve identified recently include BAE Systems, AstraZeneca, and RELX – but I’m always eyeing fresh opportunities.

The post With a P/E of 15.4, my Tesco shares no longer look cheap. Are there better options out there? appeared first on The Twelfth Magpie.

More reading

• An ISA stuffed with Tesco shares a year ago would now be worth…

Mark Hartley has positions in AstraZeneca Plc, BAE Systems, JD Sports Fashion, Marks And Spencer Group Plc, RELX, and Tesco Plc. The Motley Fool UK has recommended AstraZeneca Plc, BAE Systems, J Sainsbury Plc, Marks And Spencer Group Plc, RELX, and Tesco Plc. 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.

Smaller‑cap FTSE 250 shares often feel market volatility more sharply than blue‑chip giants. When things go well they can surge, but when the housing sector wobbles or the UK economy flags, they can keep sliding for years.

That’s exactly where Vistry Group (LSE: VTY) finds itself today, with the share price down around 73% over the past five years.

For anyone holding the stock, the question is simple: should you cut your losses, or hang on in hope of a recovery?

What the numbers actually say

Despite the drop, Vistry still looks like an efficient business rather than a basket case. 

Sure, the shares slipped a further 2% this past week, but it remains profitable, with a net margin of 3.8% and a healthy 8.5% operating margin. Earnings per share (EPS) grew roughly 6% since this time last year, and the group is still generating around £270m in adjusted profit before tax.

But the real story here is net income growth. Up from just £31m in H1 2025 to £106.7m in H2, it seems to have already initiated a recovery. On top of that, it boasts a very attractive valuation. The shares are trading at a price-to-earnings (P/E) ratio of just 8, with a price‑to‑book (P/B) ratio of only 0.31.

When adding in earnings growth, we get a super-low P/E to growth (PEG) ratio of just 0.08. That’s the second lowest (after Serco Group) of profitable non-fund stocks on the FTSE 250.

So what’s the catch?

The balance sheet’s still in recovery mode, but it’s not stretched to breaking point. Long-term assets comfortably cover long‑term liabilities and it’s begun an aggressive push to preserve cash.

However, there are real red flags. After pausing dividends in 2023, the board made it clear that further payouts will depend on stronger cash flow and lower debt.

It also faces a tough housing backdrop, with interest‑rate‑sensitive buyers, competition for lower‑margin homes and a historically weak share‑price track record.

Are there better options to consider?

If you like the UK housing story but want a bit more stability, there are alternatives worth looking at. Berkeley Group, Bellway and Legal & General all operate in the housebuilding or property‑linked space and have more consistent dividend histories. They’re not immune to market swings but they seem more stable.

For income investors, a property-focused investment trust or more diversified housebuilder may feel preferable to a single‑name stock that has halved twice in a decade.

So should I Sell or Hold?

The reality of the situation can’t be ignored: Vistry’s cheap because it has disappointed investors many times before. Yes, the numbers indicate some improvements, with margins edging up and cash flow stabilising. But the stock price still reflects deep scepticism.

For those comfortable with high volatility, a possible multi‑year recovery and the risk of no dividend for a while, it could be worth holding. But even then, only as a small, speculative portion of a portfolio.

From my side, I’m thinking of cutting my losses and looking for a more diversified UK property-focused trust. In the long run, it may be a less stressful way to back the housing market than betting on a single housebuilder that’s already lost three‑quarters of its value in five years.

The post Down 73%, Vistry’s the worst-performing FTSE 250 share in my portfolio. Time to sell? appeared first on The Twelfth Magpie.

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Mark Hartley has positions in Legal & General Group Plc and Vistry Group Plc. The Motley Fool UK has recommended Vistry Group Plc. 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.

Building life‑changing passive income starts with one simple idea: owning companies that can grow their dividends year after year.

And if you hold those shares in a Stocks and Shares ISA, all that income and any capital gains are shielded from UK tax, so every pound of growth works only for you.

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.

But which two UK shares might give you the best chance of achieving that?

Yield isn’t everything

The yield represents how much is paid out per share, but it shouldn’t be the core focus for income investors. Rather, focus on how reliable and sustainable the dividend growth is – this is the cornerstone of any serious income plan. 

Based on long, double‑digit dividend growth records, strong reinvestment economics and current expectations, two standout candidates are Diploma (LSE: DPLM) and Spirax Group (LSE: SPX).

Both have long histories of growing their payouts and operate in specialist areas where they can keep reinvesting at attractive returns.

Diploma

Diploma’s a specialist distributor supplying mission‑critical components and services into areas like industrial controls, seals and life sciences.

These are not glamorous markets, but they tend to be sticky. Once a customer relies on you to keep their factories or labs running, they are slow to switch.

Some key numbers investors might like are:

• Shares up 820% in 10 years.
• Forty-one‑year unbroken dividend track record.
• Cash flow covers dividends by 3.37 times.
• Earnings growth of 43% year‑on‑year.

Put simply, profits are growing fast, and the dividend is well covered by cash. That gives the board room to keep increasing the payout while still funding acquisitions and organic growth. 

The risk though, is that the market may have priced in future growth. After such a strong recent rally, the valuation is asking a lot. Any unexpected earnings decline (or a bad acquisition) could hurt the share price — even if the long‑term appeal remains.

Spirax

Spirax Group lives in a different but equally specialist world. It provides steam and thermal energy solutions and related technologies to factories across the globe.

Think of it as helping industry move heat around more efficiently and reliably, which is a big deal as companies try to cut emissions and energy waste.

Here are some headline figures:

• Forty-six‑year unbroken dividend track record.
• Cash flow covers dividends by 2.3 times.
• Strong balance sheet: only £1bn in debt vs £2.66bn in assets.

Like Diploma, it also faces valuation risk. Trading on a price‑to‑earnings (P/E) ratio of 32.6, it’s high for an industrial business — even a good one. If earnings disappoint, or growth slows for a couple of years, the share price could fall sharply as investors look for alternative options.

A focused ISA strategy

A Stocks and Shares ISA lets you collect every penny of returns from your investments, with no worry about capital gains tax along the way. For long‑term investors, that tax shelter can make a huge difference, especially when you reinvest the dividends so the pot compounds exponentially.

So instead of chasing whatever hot stock offers a high yield today, I prefer to focus on steady, consistent dividend growth.

Diploma and Spirax both have long records of growing their payouts and they operate in niches with room to keep doing so. That’s why I think they’re well worth considering for a long‑term ISA income strategy.

The post How these 2 shares in a Stocks and Shares ISA could deliver life-changing passive income appeared first on The Twelfth Magpie.

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Mark Hartley has positions in Diploma Plc. The Motley Fool UK has recommended Diploma Plc and Spirax Group Plc. 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.