Have £2k to invest? A FTSE 250 dividend stock I’ve bought for retirement and think that you should too

Retirement saving and pension planning

These are testing times for investor confidence. A soaring gold price is a perfect indication of market nervousness right now, a steady slew of negative economic news from across the globe turbocharging demand for safe-haven assets in favour of riskier options like stocks.

But now’s not the time for share investors to retreat into their shells. Equity investment has long been proven an effective way to generate great returns over the long haul, irrespective of the sort of hair-raising bumps we are currently seeing. And the recent sell-off has seen some pretty terrific bargains emerge.

Take Cineworld Group (LSE: CINE), for instance. This particular FTSE 250 share’s lost a whopping 36% of its value from its 2019 tops of 320p struck in April, a descent which now leaves it trading on a bargain-basement forward P/E ratio of 7.9 times.

A slow start…

As a financial journalist, I find this fall to be somewhat baffling. And as a holder of the cinema operator’s stock, I find it most frustrating, as I’m sure you’d imagine. But I’m not massively concerned. In my eyes, Cineworld is still a great stock and one which I’m confident will create some splendid long-term returns.

Apart from being a victim of the broader dip in stock market sentiment in recent weeks, it’s also been on the back foot because of some disappointing trading numbers of late. Last week, it advised that, because of the unfavourable timing of major film releases in the first half, admission numbers dropped 14% in the period to 136m while revenues slipped 11% to $2.15bn.

As a consequence, pre-tax profit fell 13% year-on-year to $139.7m. Better news was that it kept its 2019 guidance frozen, the business encouraged by “a strong box office performance in July” and a strong slate of releases such as Star Wars: The Rise of Skywalker, Frozen 2 and Joker for the second half.

…but a bright future

And now we get to the crux why I believe Cineworld has a very bright future. Notwithstanding some occasional box office lumpiness owing to release timings, the immense pulling power of Hollywood’s most powerful film franchises (some of which I’ve mentioned above) mean that over the longer term profits remain on course to keep on surging.

Indeed, there’s a wealth of information to show the film industry is going from strength to strength and pulling the likes of Cineworld with it. Fresh financials from Disney released this week illustrate this point perfectly. The so-called House of Mouse reported that the immense success of Toy Story 4 means it’s the first studio in history to have released five movies in a single year which have grossed $1bn or more.

It’s no wonder then that City analysts expect another year of strong profits growth in 2019, this time by a solid 15%, and that it’ll keep lifting dividends too. Current forecasts are suggestive of a 17-US-cent ordinary dividend this year, one which yields an outstanding 6.6%. But this isn’t the only reason why the company’s a great income stock, of course. Cineworld also chucked out a special dividend of 20.27 cents in July.

There’s a lot to like about this cinema operator and I’m tempting to buy some more following those recent share price falls. I’m convinced it’s a share that will make me a fortune for my retirement.

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Royston Wild owns shares of Cineworld Group. The Motley Fool UK owns shares of and has recommended Walt Disney. The Motley Fool UK has the following options: long January 2021 $60 calls on Walt Disney and short October 2019 $125 calls on Walt Disney. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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Fear a recession? Here are 3 ways to tap into the rising gold price

A golden egg in a nest

Bar the odd exception, the value of gold has a habit of rising over periods when markets are tanking. As such, the precious metal’s long been regarded as a safe haven for investors in times of trouble. Based on its performance over the last few weeks, it would appear many believe we’re now about to enter such a downturn. 

This being the case, what options are available to investors looking to gain gold exposure, if only for the short term?

1. Track the gold price

Perhaps the simplest way of profiting from gold’s growing popularity is to buy an exchange-traded commodity fund that tracks its spot price. One of the best-known examples of this kind of fund (which is passively managed and subsequently charges very low annual fees) is offered by iShares.

Unsurprisingly considering ongoing concerns over slowing global growth, the US/China trade spat and the never-ending saga that’s Brexit, its Physical Gold fund has had a great 2019 so far, rising 18% in value. 

The only drawback to holding something like this is it doesn’t generate any income. Gold is, after all, regarded as a store of value, not something that produces any cash flow in itself. If dividends are what you’re looking for, there are some other options.

2. Buy a gold miner 

An alternative to buying a fund that merely tracks the spot price would be to buy shares in a gold miner or two. Examples of such firms listed on the London Stock Exchange are Fresnillo and Centamin. They yield 1.6% and 3.2%, respectively.

Of course, buying shares in individual companies carries considerable risks but particularly so when it comes to those in this often-volatile sector. For less risk-tolerant investors, pumping some money into an exchange-traded fund that tracks a bunch of gold producers (such as giants Barrick Gold and Newcrest Mining) might be more appealing.

Again, the iShares Gold Producers ETF is one of the most popular examples of such a fund. It’s up 39% in the year to date and has an ongoing charge of 0.55% — fairly reasonable considering the diversification it offers.

3. Buy a pawnbroker

A final option for investors would be to buy shares in a company that benefits from the rise in the price of gold but doesn’t carry the inherent risks that come with mining for it. Within this category, I’d include pawnbrokers H&T and Ramsdens, both of whom purchase gold from customers and then sell on the non-retail pieces to bullion dealers. 

Last week’s half-year results from the former were decent enough with a 7.9% rise in pre-tax profit to £6.8m, and a further reduction in net debt. Ramsden’s most recent set of results weren’t bad either. 

Another reason for buying stock in H&T and/or Ramsdens are the dividends on offer. At their current prices, the shares have forecast yields of 3.3% and 3.9%, respectively. So, not only will counter-cyclical stocks like these benefit from a rise in the gold price, they should also be able to pay holders a steady income during economic downturns. 

The above, when combined with the fact that shares in Ramsdens and H&T are still very reasonably priced — trading as they do on 10 and 11 times forecast earnings — makes me think either could be a great buy for investors wishing to protect their portfolios from a likely recession. 

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Paul Summers owns shares in Ramsdens Holdings. The Motley Fool UK has recommended Fresnillo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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3 FTSE 100 dividend stocks I think are absurdly cheap right now

One pound coin

When markets start falling, some investors choose to sell and wait for the climate to improve.

As a long-term investor, I’m not keen on this approach. Timing such trades so that they’re profitable is very difficult. You also miss out on dividend income while you’re out of the market.

I don’t sell anything just because the market’s falling. Instead, I like to top up some of my existing holdings, taking advantage of cheaper prices. Today, I want to look at three stocks I think look cheap at the moment.

A takeover target?

One of my larger personal holdings is broadcaster and media group ITV (LSE: ITV).

The ITV share price has fallen by about 35% over the last year as investors have questioned the company’s ability to replace profits from broadcasting advertising with lower-margin online revenues.

I agree that this is a valid concern. But in my view, the bad news is already in the price. ITV is still making a profit of about £500m a year, with an operating profit margin of 18%. In my view, even if profits fall by another 20%, the valuation would still look reasonable.

As things stand, the shares trade on a forecast price/earnings ratio of 8, with a 7.6% dividend yield. I rate the shares as a buy. I also believe that ITV could become a takeover target at this level.

Buy the best

Another stock I own that’s unloved by markets at the moment is FTSE 100 landlord British Land (LSE: BLND).

There are good reasons to hate this stock, starting with its exposure to retail property. But only 45% of British Land’s portfolio is in retail. And the company intends to reduce this to between 30% and 35% within five years.

It’s also worth noting that 96.1% of British Land’s retail property was occupied at the end of March.

The majority of the group’s assets are prime London office buildings. History suggests that while demand for these properties can dip during recessions, over longer periods, this asset class is always in strong demand.

At under 500p, BLND shares are trading at a 45% discount to net asset value and offer a 6.7% dividend yield. Over time, I think that’s likely to be good value. I’ve topped up recently and may buy more if the current weakness continues.

Is this 11% yield for real?

Iron, coal and steel group Evraz (LSE: EVR) is one of those stocks that always looks cheap. As I write, the shares are trading on 5.5 times 2019 forecast earnings, with an 11.4% dividend yield.

Is this for real? I think so. The group’s financial performance over the last 18 months suggests to me that these forecasts are realistic.

Of course, there are risks. Evraz’s majority ownership by a group of wealthy Russian businessmen means that UK shareholders are never likely to have much influence.

However, Evraz operates in the US, as well as Eastern Europe. I see this as a positive, in terms of reducing political risk.

I also believe that the group’s owners see the firm as a safe place to store their wealth and generate income. I wouldn’t expect them to do anything that was likely to jeopardise this.

These shares aren’t without risk. But for investors who are comfortable with the cyclicality of the mining sector, I think Evraz could be an interesting choice.

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

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The State Pension: all your questions answered here

question marks written reminders tickets

We’ve all heard of the State Pension. Most of us expect to receive it, when we reach retirement age.

But here at the Fool, we also get a lot of questions about the State Pension, suggesting many people are unsure of exactly how it works.

In this article, I’m going to answer all the most common questions about the State Pension and suggest two ways you may be able to generate extra retirement income.

My answers will all relate to the new State Pension, which is for men born after 6 April 1951 and women born after 6 April 1953. If you were born before those dates, you’ve already reached retirement age and should be receiving the ‘old’ State Pension.

When will I get the State Pension?

At the end of 2018, the State Pension age was 65 for both men and women. The government is now in the process of increasing this age to 66. This will affect men and women born between 6 December 1953 and 5 April 1960.

For people born between 6 April 1960 and 6 March 1961, the pension age will gradually increase to 67. Current proposals suggest that for people born after 6 April 1970, the pension age will gradually be increased from 67 to 68.

How much is the State Pension?

The current full State Pension is £168.60 per week, or £8,767 per year. To receive this amount, you currently need 35 qualifying years of National Insurance contributions.

The gov.uk website provides a handy State Pension forecast tool you can use to calculate your current entitlement.

Under current government policy, the pension increases each year by the highest of:

  • Average percentage wage growth in Great Britain
  • UK Consumer Price Index (CPI) inflation
  • 2.5%

For example, someone due to retire in 25 years could expect a payment of £312.58 per week, assuming an increase of 2.5% every year.

Is it paid automatically when I reach retirement age?

The State Pension isn’t paid automatically. Although everyone is entitled to it, regardless of wealth, you do have to claim.

You should receive an invitation letter two months before you reach State Pension age. This will explain how you can claim your pension. If you don’t receive this, there are various other ways to claim, including phone, online and by post. Check the gov.uk website for more information.

Can I increase the State Pension?

Depending on your circumstances, you may be entitled to additional benefits when you retire. But the State Pension itself is fixed and cannot be increased.

If you feel that you’ll need more to live on than £8,767 per year when you retire, then the first step I’d take would be to check your entitlement to company pensions, including all of your previous employers.

If you still have at least 10 years left until you retire, then the next thing I’d do would be to open a Stocks and Shares ISA. I’d set up an automatic monthly payment into the account and put the cash into a cheap FTSE 100 index tracker fund.

The dividend yield on the FTSE 100 is about 4.6% at the moment, so you should immediately start earning an attractive annual return. Over the long term, I’d hope to see some capital gains as well.

When you retire, this fund could be used to supplement your income or provide a lump sum.

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

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The 2 best dividend stocks I’d buy for high yields in a recession

Dial being turned up to 'high'

The warning signs are here. Euro powerhouse Germany is heading for recession. Protest-hit Hong Kong saw its economy shrink in the second quarter. The US two and 10-year bond yield curve has inverted. Trouble is coming and it’s time to future-proof your portfolio.

Investors tend to overreact when things take a turn for the worse. Lucky for us, that means there are some great FTSE 100 dividend stocks that are cheap as chips right now.

The best thing about these well-established blue-chip stocks is that their dividends are generally reliable. It’s all very well Centrica boasting an 18% dividend yield, but when it’s only covered 0.28 times by earnings I don’t reckon that payout will actually materialise.

I also avoid highly-geared companies. Mountains of debt sloshing about in the background tend to put undue strain on dividends.

Companies in my sweet spot have a solid track record, high (but sensible) dividend yields with plenty of cover, P/E ratios under 15, and consistent EPS growth. These are the pick of the bunch.

Legal & General

Legal & General (LSE: LGEN) shares are 20% cheaper than they were three months ago, with a dividend yield now at 7.31%. LGEN has not paid lower than a 4.5% dividend in the last five years, the dividend is always covered at least 1.5 times by earnings, and hit 7.1% in 2018.

In the background, solvency is good, judging from its own releases. Adding £300m to operating profit from 2017 to 2018 reflects “increased annuity profits driven by strong performance from front and back books,” says the 2018 annual report, with ongoing good performance from the investment management side of the business and “strong fund inflows across regions, channels and product lines.” Surpluses in the group’s own funds (which means more delicious dividends for you and I) were up £1.1bn in 2018 compared to the year before.

Pre-tax profits have risen strongly alongside earnings growth, giving us a trailing P/E ratio of just 7.47 today. With an average of City analysts rating future earnings per share at 33.4p, we also have a forward P/E of 6.7.

Aviva 

With a healthy balance sheet, £2.3bn in cash, over 8% yields and a trailing P/E ratio of 9.3, £14bn market cap insurance giant Aviva (LSE: AV) seems to have it all.

A consensus of earnings estimates for the next two years suggest earning per share of 61p. With a share price now 16% cheaper than three months ago, you’ll only pay 5.9 times future earnings for this stock. Low earnings growth might be the cause of this excessively cheap figure, but the debt load could be a factor too — although new CEO Maurice Tulloch has made reducing Aviva’s 49% debt a major part of his strategy. Recent half-year results show weaknesses in Aviva’s Asian arm too, with Tulloch “reviewing strategic options” to ditch underperforming subsidiaries.

Still, over the past five years, it has paid reliable dividends and looks good value compared to the wider insurance market.

It won’t set hearts racing, but half-year results show operating profits are up 1% while interim dividends rose 3% to 9.5p per share. I don’t mind stability right now, to be perfectly honest.

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Tom holds a position in Legal and General. 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.

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Looking to get rich and retire early? I’d buy these 2 FTSE 100 growth shares in an ISA today

Screen of price moves in the FTSE 100

The FTSE 100’s track record of capital growth may be somewhat disappointing. For example, the index currently trades only a few hundred points higher than it did 20 years ago.

Despite this, a number of its members appear to offer strong growth potential. Furthermore, they seem to be fairly priced, which could present a buying opportunity for long-term investors.

With that in mind, here are two large-cap shares that may be able to outperform the FTSE 100. They could improve your financial prospects and help you to retire early.

Rolls-Royce

The uncertainty surrounding the prospects for the world economy could continue to weigh on the Rolls-Royce (LSE: RR) share price. Investors may adopt an increasingly risk-averse attitude towards companies that are reliant on the prospects for the world’s major economies, with civil aviation also being a somewhat cyclical industry.

As such, the recent fall in the Rolls-Royce share price could continue. Already, it has declined by 25% in the last year. This, though, could present a buying opportunity for long-term investors.

The company is expected to successfully implement changes to its business model in order to reduce costs, improve efficiency and create a more competitive entity. It is also investing heavily in new products which could increase the growth potential of the business through entering new, fast-growing markets.

Following its share price decline, Rolls-Royce now trades on a price-to-earnings growth (PEG) ratio of just 0.3. This suggests that it may be significantly undervalued and could deliver improving returns in the long run that allow it to outperform the wider FTSE 100.

Whitbread

Also undergoing a period of change is Premier Inn owner Whitbread (LSE: WTB). The company is now focused on its hotel operations following the sale of its Costa Coffee shops earlier in the year. While this reduces the diversity of the business, it means that it could become more efficient as it focuses on the growth prospects within one industry.

In terms of Premier Inn’s outlook, there seem to be significant growth opportunities in international markets. This could increase Whitbread’s geographical diversity, while also allowing it to access faster-growing markets.

Alongside this, the company is investing in its presence in the UK. With consumer confidence continuing to be weak, and likely to remain so as Brexit moves along, customers may trade down to better-value options. This could increase demand for the company’s budget offering.

Since the stock traces on a price-to-earnings (P/E) ratio of 14.5, it seems to offer a margin of safety relative to its historic valuations. It is expected to post a rise in earnings of 6% in the current year, while further growth could be ahead over the long run.

As such, now could be the right time to buy a slice of the business. It could beat the wider index and improve your chances of retiring early.

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Peter Stephens owns shares of Rolls-Royce and Whitbread. 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.

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Why I think the BT share price could be a FTSE 100 bargain buy

Screen of price moves in the FTSE 100

It feels like forever since there was any good news about BT Group (LSE:BT.A) and its share price, which has seen its value decrease by more than 50% over the last five years. 

Having edged over 500p per share at one point in 2016, the telecoms provider has been on a downward spiral ever since, and many doubt whether BT can ever regain that valuation. The shares are currently languishing around 165p, and another earnings dip in its most recent quarterly report was far from unexpected.

So where now for BT Group? Is there any hope for a potential recovery in the shares?

Return to growth

New CEO Philip Jansen has been adamant that BT would return to growth, particularly through the expansion of its UK base. The company’s acquisition of EE in 2016 allowed it to become the only firm with access to both landline and mobile networks, and this has yet to be fully exploited.

As far as I can see, that is an area of untapped growth potential which (with good management) should be unlocked in the years to come and could help the share price recover.

The fact that Jansen and the board have maintained BT’s generous dividend payout up to this point is an encouraging sign, as they clearly believe it is sustainable, in the short term at least.

Although much of this is due to its falling share price, a dividend yield of over 9% is surely worth serious consideration to income investors.

Now to those aforementioned quarterly results reported on 2 August. Profit before tax for the three months to the end of June was 9% lower at £642m, with adjusted EBITDA also down to £1.96bn.

However, both of these figures came in ahead of analysts’ expectations, and there was an 11% increase in capital expenditure as a result of the first rollouts of 5G networks in the UK.

Dividend cut?

The company has hinted that its dividend may be cut at some point over the next few years in order to free up funds, and that should always be an option for management, although there does not appear to be any risk of that in the near term.

Earnings have fallen every year out of the last three, and are only expected to reverse that trend by 2021, but at least that would be a step in the right direction.

Several cost-cutting and money-raising measures have been launched in order to reverse the earnings trend, including the sale of its central London office for £210m. One of the key issues facing BT is that it burns through cash, so measures to cut costs should be welcomed and taken as another sign that management is willing to do what it takes to stem the tide.

At the moment I imagine that there could be a further reduction in the share price in the short term, but with a return to growth potentially on the cards I’d buy it as a value play. I’m not always a fan of the ‘buy the dip’ mantra but I see a company with the size and status of BT as well able to stage a recovery.

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Conor Coyle 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.

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How I think the rule of 72 could help you get rich

Various denominations of notes in a pile

Do you know how long it will take for the value of your investments to double?

Of course, no one can provide a guaranteed answer to this question. But if you own assets that provide stable returns each year, then you can make a useful estimate.

If you’re aiming to retire rich, I’d suggest this should be an important part of your retirement planning.

In this article, I’ll explain how you can use this simple rule to estimate future gains.

The rule of 72

The rule of 72 is a simple way to work out how long an investment will take to double in value, based on a fixed rate of interest.

All you do is to divide 72 by the expected annual rate of return. For example, 72/4 tells us that an investment which returns 4% per year should double in 18 years.

Applying the rule of 72 to a few common scenarios gives us some interesting numbers to work with:

 

Annual rate of return

No. of years to double

Best buy easy access cash ISA

1.44%

50

Best buy 3 yr fixed-rate ISA

1.9%

39

UK CPI inflation

2.1%

34

UK stock market (average long-term annual return)

c.8%

c.9

As you can see, even a small change in interest rates makes a big difference to future returns.

I hope you can also see that saving money in cash means that the value of your money will fall, after inflation. This is why trying to saving for retirement in cash is so hopeless.

One more example

You may think I’m exaggerating the importance of inflation. I don’t think I am. When I started my first proper job, I remember paying less than 70p per litre for petrol and under £2 per pint for beer.

Today I’m paying double those figures. The rule of 72 tells me that inflation on beer and petrol has averaged about 3.6% since I started work.

If you want your savings to help you get rich and retire comfortably, then you need to be earnings positive returns after inflation.

Investing to beat inflation

If you’ve got 20 years or more until retirement, I would suggest that the simplest and safest way to build a worthwhile fund is to put as much as you can each month into a FTSE 100 tracker fund (inside a tax-free Stocks and Shares ISA).

According to research by Barclays, the long-term average return from the UK stock market is about 8% per year. At that rate, it could take just nine years to double your money.

In reality, it will probably take a bit longer than this as stock market returns tend to come in cycles. But over long periods, history suggests the stock market is one of the best ways to build wealth.

Invest in dividend stocks

Rather than putting your money into a tracker fund, you might prefer to invest your cash in individual dividend stocks. This can be a surprisingly good way to generate reliable returns.

Income picks on my radar include companies like Royal Dutch Shell (6.4%), WPP (6.1%) and GlaxoSmithKline (4.8%).

The rule of 72 tells us that a dividend yield of 6% will double your investment in 12 years, assuming the shares stay flat and you reinvest the dividend income.

I hope I’ve shown how the rule of 72 is a powerful tool for financial planning. If you’re looking for more investment ideas, read on.

5 Stocks for Trying To Build Wealth After 50

Many people think older investors should sell all of their stocks… but here at The Motley Fool UK, we think those people are dead wrong. To prove it, our UK Chief Investment Advisor has just released a brand-new report detailing 5 of his team’s favourite shares to buy right now…

And because we are convinced that it’s never too late to start trying to build your fortune in the stock market, you can grab a FREE copy of “5 Stocks for Trying To Build Wealth After 50” by clicking here!

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Roland Head owns shares of GlaxoSmithKline, Royal Dutch Shell B, and WPP. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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I’d buy this FTSE 100 share while its price is still falling

The tops of soda cans

The FTSE 100 has been a disappointment in recent weeks, but that needn’t be a deterrent for savvy investors. I think there are plenty of shares that are ripe for the picking because their share prices have taken a beating. A case in point is the little-talked-about bottler, Coca-Cola HBC (LSE: CCH). Despite its share price wobble in the recent past, on average it’s been on an upswing, with the three-month moving average up 20% since the start of 2019.

But that’s not the only reason I was curious about this particular share. It’s now been almost a year since it decided to buy Costa Coffee from hospitality company Whitbread (LSE: WTB), and it’s worth figuring out which of these two FTSE 100 shares has done better since and which is therefore a better investing option. Let’s look at them one at a time.

Coffee operation to bolster business

As far as Coca-cola HBC goes, the financial picture looks respectable. In the first half of 2019, it showed a 3.4% currency-neutral revenue increase and a small net profit rise too. The company expects to continue expanding in the future as well, especially in emerging markets, where it’s already seeing the fastest volume increase.

It’s also moving forward speedily on the coffee business, having launched ready-to-drink canned Costa Coffee products in June this year. It now plans to launch the coffee chain in at least 10 of its existing 28 markets next year. With coffee being a growing and profitable business, I believe the company’s optimism about its prospects are well placed.

Whitbread warns of uncertainty

Whitbread, however, hasn’t had such a good run, with its share price quite inconsistent through 2019 so far. While there have been some periods of increase, the broad pattern is pointing downwards. This is partly because of the recent choppiness in broader markets, but also because of its weak trading update for the latest quarter, which showed a 3.7% decline in like-for-like sales.

While the company is happy with the growth in its foreign business, it has flagged economic uncertainty in the UK as a cause of sluggish performance. Its cyclical Premier Inn hotels business saw a 1.5% decline during the quarter. I’m uncomfortable with the company saying that macro concerns could impact future performance as well.  This doesn’t mean that the business will suffer endlessly, just that at present its prospects are unpredictable, making it a dicey investor choice.

The share price has also been somewhat volatile over the past five years and this doesn’t give me confidence going forward. On the other hand, Coca-Cola HBC has been far more predictable, even though it’s also had its share of ups and downs. As far as growth stocks go though, I would buy the latter’s shares for its past growth and more promising outlook.

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Manika Premsingh 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.

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Is this the best way to make £1 million for your retirement savings?

Stack of new one pound coins

I was staggered to learn that 50% of the UK population play the National Lottery each month, buying an average of three tickets each.

How much?

That’s 33 million people, spending £6 per month, for a whopping total of almost £2.4bn per year. How many actually make it big and get to live the rest of their lives in millionaire comfort? The odds against winning the Lotto jackpot come in at 45,057,474 to 1, so that’s around two tickets per month winning the big one out of tens of millions of people playing.

Playing the lottery is clearly not the best way to provide for our retirement. But the scary thing is, for many people it’s the only investment they ever make. But what if you put that £6 per month into FTSE 100 shares for your entire working life?

If you can achieve the 8%-10% annual returns that are often suggested by financial experts, you could turn your lottery stake into somewhere between £40,000 £90,000 over a 50-year working lifetime. Now, that’s not close to a million, but it does give us some idea of how much potential the average UK lottery player is forfeiting.

1,000 ISA millionaires

On a cheerier note, in the 2017-18 tax year, 10.8 million adults subscribed to an Individual Savings Account (ISA) — and they contributed a total of £69.3bn, far more than the cash spent on the lottery.

An ISA lets you invest up to £20,000 per year (at current allowances), and all the profits you make on it for the rest of your life are tax free. By using up as much of your annual allowance as you can and reinvesting all income, the magic of compound returns can result in your bagging a very significant sum by the time you retire — you might be surprised to learn there are an estimated 1,000 ISA millionaires in the UK now.

Cash ISA

So is that the best way to accumulate £1m for your retirement? For 7.8 million of those 10.8 million ISA investors, sadly, no. That’s how many went for a Cash ISA, and of the £69.3bn invested in ISAs in total, £39.8bn of that went into Cash ISAs.

What’s wrong with that? The problem is that Cash ISA interest rates are truly lousy, and you’ll be lucky to get 1.5%, even if you shop around. That’s due to the Bank of England base rate being down to a lowly 0.75% — and while UK inflation is running at 2%, an ISA return of 1.5% guarantees that you’ll lose money in real terms.

Stocks & Shares

The canny ISA investors are the 2.8 million who went for a Stocks & Shares ISA, investing a total of £28.7bn. If you could invest the full £20,000 per year, it would take you 38 years for your pot to reach £1m using a 1.5% Cash ISA (and you’d have contributed £760,000 of that directly). If you manage an annual return of 8% as many experts suggest is realistic from shares, you’d reach the magic million in just 21 years, having contributed just £420,000.

Few of us can invest the full amount, but £710 per month (£8,520 per year) in a Stocks & Shares ISA at an average return of 8% would make you a millionaire in 30 years — and you’d have more than three times what you’d get from investing the same amount in a 1.5% Cash ISA for the same period.

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Views expressed in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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