I’m on the lookout for stocks offering large and reliable dividend payouts. By investing in such shares, I aim to build up an enviable passive income flow.

And I believe Rio Tinto (LSE:RIO) ticks all my boxes when it comes to investing in income stocks.

My three rules

There are three quick-and-easy rules that I apply to separate the wheat from the chaff.

1. I ask myself whether the stock pays a dividend that’s at least 50% above the average yield of the index it belongs to. After all, if I could get a similar yield just by investing in a FTSE 100 tracker, for example, I think I’d be safer doing that as I’d get the added benefit of diversification across sectors and companies.
2. Once a stock passes that test, I dig deep into its dividend payout history. Here, I’m looking to see if it has been able to consistently pay out such returns to shareholders over the course of a decade or longer.
3. Finally, I look at the dividend coverage ratio. I divide the company’s net income per share by its dividend per share. If the net income is more than two times larger than its dividend payout, I feel reassured that the company isn’t resorting to debt or neglecting capital investment to maintain its yield.

A copper-bottomed dividend stock?

Rio Tinto, a multinational mining company, pays out a whopping forward dividend yield of 11.8%. Given the FTSE 100 (the index to which Rio Tinto belongs) yields 4.1%, it’s fair to say the stock is a cut above the rest in the dividend department.

Meanwhile, over a 10-year period, Rio has grown its payout by 158%. Over that period, the annual dividend increased compared with the 12 months prior on seven occasions. That signals to me that Rio Tinto has historically been a reliable dividend payer.

Meanwhile, in 2021 net income per share was £14.90 while its dividend payout was £2, giving it a very comfortable coverage ratio of over seven times.

My calculations

How much would I need to invest to get £100 per month in passive income from Rio Tinto stocks?

The dividend yield is a reflection of the share price, which ticks up and down every second the market is open. Therefore, the amount I’d need to invest to get £100 a month is constantly changing too.

However, using the share price as I write of £45.37 and the implied forward dividend yield of 11.8%, I find I’d need 224 shares.

Given I don’t have £10,170 spare to generate £100 a month from Rio Tinto shares, what could I do instead?

Regular investing

If I started investing £100 per month today, I could achieve my target investment amount in fewer than five years. To get that result, I assume the dividend yield and price stays unchanged and that I put all of my dividend payouts back into buying more shares.

I’ll pull the trigger on that plan starting this month.

Rio Tinto is a solid dividend payer. In addition, I believe demand for the commodities that the company mines will only increase due to population growth and ‘green’ infrastructure projects. However, I must be prepared for volatility, as the prices of commodities like copper and steel tend to plummet when economic times get rough.

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Mark Tovey 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.

Warren Buffett once said that “the stock market is a mechanism for transferring wealth from the impatient to the patient“. I intend to heed Buffett’s words by holding this stock at least until the end of the decade.

The nuclear option

Yellow Cake (LSE:YCA) is a fund that holds uranium, the fuel used to produce nuclear energy. By investing in it, I get exposure to the spot price of uranium without any of the exploration, development or operational risks of a mining company.

But why would I want exposure to the uranium price? Put simply, I believe the clean energy transition, in addition to a supply shortfall, could drive the uranium price up.

Uranium supply squeeze?

On the demand side, there are around 440 nuclear reactors globally, requiring some 62,500 tonnes of uranium each year, according to the World Nuclear Association.

Meanwhile on the supply side, mines produced 48,303 tonnes of uranium in 2021 – or 77% of the utilities’ annual requirements.

How is this shortfall being plugged? Utilities are having to dig into their stockpiles, which are sizeable (estimated at 200,000 tonnes globally in 2020).

Although utilities still have rainy-day funds, I believe a supply crunch could come. Stockpiles can’t fill the gap between demand and the supply mined indefinitely.

At the same time, Yellow Cake has bought up 8,000 tonnes of uranium since 2018. Its Canadian counterpart, the Sprott Physical Uranium Trust, has taken 26,000 tonnes off the spot market since 2021. In total, that represents 70% of the uranium that’s mined worldwide in one year.

A radioactive rethink

There are 52 nuclear reactors currently under construction globally. The Japanese are planning on restarting 17 shutdown nuclear plants and developing next-generation reactors, a major policy shift on nuclear energy a decade on the from the Fukushima disaster. Even notoriously anti-nuclear politicians in Germany are looking at extending the operating life of the country’s three remaining nuclear reactors as winter blackouts loom.

Nuclear energy offers a reliable source of baseload power with zero carbon emissions. For that reason, it wouldn’t surprise me to see demand for uranium continue to increase over the coming decade.

Once stockpiles are depleted, I feel the price of uranium would have to rise to bring marginal miners online to fill the deficit in production.

Of course, this could take many years. Or, more worryingly, another nuclear catastrophe could cause the world to fall out of love again with uranium. I have to bear this in mind as a risk to my investment.

How high could it go?

Uranium has been in a bear market since the 2011 Fukushima disaster. The price of uranium dropped like a stone from $71 per pound to an all-time-low of $21 in late 2016. Today, it floats around the $50 mark.

How high might it go?

According to Rick Rule, former President and CEO of Sprott US Holdings, an incentive price of $75 per pound is needed within five years.

He said in an interview in June: “Either that, or the lights go out. Those are the only two choices.”

Assuming Rule is right, that could mean a 50% upside over the next five years.

I’ll continue buying the shares, as I think the price of uranium per pound could even overshoot $75 given a strong enough supply squeeze.

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

As interest rates rise around the world, dividend stocks are paying out fatter yields as the prices of shares decline.

I think selecting dividend stocks from the FTSE 100 is a good idea as dollar-denominated stocks are costly right now. Of course, if the pound never recovers against the greenback, I might regret having focused on the UK stock market.

But I’ve found the two stocks on the FTSE 100 with the highest forward dividend yields. How confident am I that these juicy payouts are sustainable?

Safe as houses?

Persimmon (LSE:PSN), a housebuilder headquartered in York, pays the highest forward dividend yield on the FTSE 100 at 19.3%. In its half-year results for 2022, the company boasted of “strong demand” in the sector, with 6,652 new homes completed in the six months to 30 June.

But is the company a reliable dividend payer?

Leafing through Persimmon’s historical dividend payouts, I find that from 2016 to 2022 the dividend has been consistent and growing, from 110p to 235p.

It was a similar pattern from 2001 to 2007 when the Persimmon dividend grew every year, from 12.8p to 51.2p.

On the other hand, 2009 to 2015 was a bleak dividend winter for shareholders, with an average payout of 1.2p a year and four years when the figure was zero.

Housing is a boom-and-bust sector, and I fully expect Persimmon to cut its dividend when the next crash comes. With mortgage borrowing costs rising and inflation cutting into people’s disposable income, I don’t think the next housing bust is far away. I’ll be avoiding Persimmon shares.

Sitting on a copper mine

Rio Tinto (LSE:RIO), a multinational mining company, pays the second-highest dividend yield on the FTSE 100 at 12.3%. From aluminium to iron ore, copper, uranium, and diamonds, Rio Tinto’s £60bn revenue in 2021 is well diversified across a broad basket of commodities.

Unfortunately, Rio Tinto’s low price-to-earnings (P/E) ratio of five isn’t the screaming buy signal I might assume it to be. Companies in cyclical sectors (like mining) tend to show their lowest P/E ratios just at the top of the cycle. That’s because earnings swell as the price of the commodities they sell skyrocket.

It’s true that high interest rates and Covid lockdowns in China have already conspired to drag down commodity prices in 2022. However, I suspect they might have further to fall if major economies dip further into recession in 2023 and 2024 than currently expected.

Still, Rio Tinto’s dividend history doesn’t tell the same famine-and-feast story as that seen with Persimmon.

It’s true there have been occasional years since the turn of the millennium when the dividend rose and fell precipitously. However, taking a three-year moving average of Rio Tinto’s dividend payments from 2000 to 2020 shows a fairly smooth line of consistent growth.

I plan to add Rio Tinto to my portfolio, because I’m bullish on what the ‘green revolution’ and population growth mean for commodity demand long term. In addition, the dividend payment is well covered by earnings.

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

The Royal Mint has reported a spike in its sales of precious metals in the year ending 31 March. But I prefer to buy gold, silver, and platinum through a Stocks and Shares ISA.

It’s no surprise some investors are increasingly looking to park their savings in precious metals. In 2022, the pound has tumbled against the dollar and global stock markets have tanked.

As well as producing the UK’s currency, the Royal Mint – a limited company – sells gold, silver, and platinum to private investors. The business reported last week that sales were up 30% in 2021/22.

Precious metals are non-interest paying and can see volatile swings in their prices, but I believe gold, silver, and platinum have a place in my portfolio.

At the end of the rainbow…

Historically, gold, silver, and platinum prices have moved in ways that aren’t correlated with equities. Therefore, by having them in my portfolio, I hope to hedge against market panics and stock market collapses. That’s key now as I see the storm clouds of recession gathering.

I wouldn’t buy precious metals through the Royal Mint though.

Instead I’ve invested in WisdomTree Physical Platinum (LSE: PHPT). For gold and silver, I’d also consider adding WisdomTree Physical Gold (LSE: BULP) and WisdomTree Physical Silver (LSE: PHAG).

Gold and silver actually benefit from a huge number of competing funds. However, I prefer WisdomTree as it offers a rock-bottom average expense ratio of 0.45%. And for investing in platinum, I haven’t found any alternative to WisdomTree on the London Stock Exchange.

Why not the Royal Mint?

The Royal Mint offers a range of coins and bars. Although I’m drawn in by their enchanting, lustrous designs, I have to pass.

I want exposure to precious metals as an asset class. While there’s a collectible value to limited edition coins and bars, I’d prefer not to get bogged down there. That seems about as speculative as trading Beanie Babies.

And, unlike Scrooge McDuck, I don’t have a vault in my home where I can hoard my stash.

For me, investing in precious metal funds like WisdomTree’s is a far better alternative.

All that glitters is not gold…

Royal Mint does offer a completely online service for unromantic, practical-minded gold bugs like me: DigiGold. So, why do I prefer investing in WisdomTree funds?

DigiGold is a platform that allows investors to buy a stake in gold, silver, and platinum stored at the Royal Mint.

However, in the small print it says: “The Royal Mint is required by law to charge VAT at 20% on purchases of Digital Silver and Digital Platinum. This is passed to HM Revenue & Customs and is not refundable upon sale.”

Gold, at least, doesn’t attract VAT. However, when I come to sell it, I’ll have to pay a 1% fee and capital gains tax.

A golden solution

Through a Stocks and Shares ISA, I’m guaranteed never to pay capital gains tax.

In addition, I can invest in platinum and silver funds, like those offered by WisdomTree, without burning 20% of my money upfront on VAT.

They say death and taxes are the only certainties in life, and so far, no one has found the golden elixir for immortality.

But through a Stocks and Shares ISA, I can at least keep the taxman away from my precious metal investments!

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.

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Mark Tovey has shares in WisdomTree Physical Platinum. 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.

Governments around the world turned on the money printers in 2020 and 2021. The inflation that we’re seeing now (partly as a result of that) is worrying and I’m buying this UK stock to try and protect myself.

Economist Milton Friedman once said: “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.”

Of course, the war in Ukraine and supply chain bottlenecks have also contributed to the UK consumer price index (CPI) hitting 9.9% in August.

But M0, a measure of the money supply controlled by the Bank of England, has increased by 16% since 2020. In my view, that has watered down the value of the pound.

Although central banks around the world are working to rein in the excesses, I’m skeptical. I think the temptation to go back to money printing will be too great if a big recession hits.

What if…?

What if I could invest in something that would see its supply reduced instead of inflated every year?

I believe I can do exactly this by investing in carbon permits issued by the EU’s Emissions Trading Scheme (ETS).

And there’s a UK stock, WisdomTree Carbon ETC (LSE: CARP), which allows regular investors like me to get exposure to the spot price in this market.

What are EU carbon permits?

The EU’s ETS sees a fixed number of ‘pollution’ permits issued each year. Firms in qualifying EU industries must hold one permit for each tonne of CO2 emissions produced. The industries covered by the scheme currently include power stations, oil refineries, steelworks, and civil aviation.

Firms get ‘free’ allowances each year. If they emit more than is covered by their permits, they can buy those that other firms have left over. The scheme thereby rewards companies that work to become ‘greener’.

At the same time, each year it becomes harder for firms to have leftover permits to trade. That’s because the EU aims to reduce their supply by 61% by 2030, or by 4.2% every year (starting in 2024).

The price to pollute

Currently, the permit price sits at €68, having spiked to €98 in August. This represents an attractive entry point to me. There’s a ceiling of €100 per permit, as firms are only fined this amount for each permit they’re missing at the end of the year. However, this fine grows each year with the CPI.

The market for these permits is volatile, with swings as violent as those seen in commodity prices. This year, traders hyped up the carbon market over expectations firms in the EU would burn more dirty coal this winter. They’ve since backpedalled on that sentiment as natural gas prices have tumbled in the last few months.

Of course, a U-turn by Brussels-based policymakers on the trading scheme could be disastrous for my investment thesis.

Despite the political risk, I reckon the price of emitting CO2 will rise in the EU – and that the value of pound sterling swilling around in my bank account will keep eroding. For that reason, I’ve added WisdomTree Carbon ETC to my portfolio.

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Mark Tovey has shares in WisdomTree Carbon ETC. 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.

US super investors hold £1.4bn worth of this high-flying FTSE 100 stock, according to financial filings.

AstraZeneca (LSE:AZN), a pharma and biotech company, is one of the most popular UK shares for stock market gurus from across the pond.

It’s no surprise considering the stock is second only to Shell in the FTSE 100 index by market cap.

And US investors in charge of multi-billion dollar funds are taking notice of the Anglo-Swedish pharma king.

Who are these super investors? And how have their investments been faring so far?

A hard pill to swallow

Ken Fisher, founder of Fisher Investments, has beaten the return of the S&P 500 index by an average of 4.2% per year over the last two decades.

The skilled stock picker held $1.18bn worth of AstraZeneca shares at the date of his most recent filing. Since his first purchase in 2015, he’s made a net return of 40%.

However, this isn’t actually that impressive given the S&P 500 returned 44% over the last five years.

Many of the super investors on the list have even made a loss through holding AstraZeneca stock.

Steven Cohen – who founded the hedge fund Point72 Asset Management – has suffered a 16% loss on his AstraZeneca shares. The investor, who’s also the owner of the New York Mets baseball team, started dealing in AstraZeneca shares in 2014 and currently holds $109m worth.

So should I add AstraZeneca to my portfolio despite these disappointing results?

Pipeline’s looking fine

A major risk for AstraZeneca investors comes in the potential for drug development projects being frustrated by unforeseen obstacles. At the same time, existing products are only protected by patents for a set period. Pharma companies are constantly in a race to get patented products approved to replace those that are expiring.

But given AstraZeneca has a pipeline of 184 projects in development, I believe it could be less exposed to this risk than comparable companies. Pfizer’s pipeline, for example, comprises only 104 projects in development.

The company is also globally diversified. Its Q2 report, for example, shows 36% of revenue came from the US, 30% from emerging markets and 20% from Europe.

Healthcare also tends to stand up well to inflation and recession, the two spectres hanging over investors in 2022. In the words of Confucius: “A healthy man wants a thousand things; a sick man wants one”. That one thing could be an AstraZeneca drug.

However, at a forward price-to-earnings (P/E) ratio of 14, the stock looks expensive compared to peers Merck (with a P/E of 12) and Pfizer (with a P/E of 8). On the other hand, Moderna’s P/E ratio is higher at 21.

I can’t see compelling investment case for my portfolio today. I do want to invest in healthcare, but lack any special insights into pharma technology, so I’d prefer to insulate myself from individual company risks by buying a healthcare ETF.

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Mark Tovey 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.

Few companies founded over 100 years ago can claim to be ‘growth stocks‘ today. But this hot UK stock, founded in 1844, the same year Charles Darwin started writing On the Origin of Species, has done exactly that.

In a twist of corporate evolution, Pearson (LSE:PSON) is transforming itself from a dull textbook publisher into a “digital-first company” for “life-long education”.

CEO Andy Bird, previously an executive at Disney, told the Financial Times this week that Pearson has become a “growth stock” since he took the reins two years ago.

And it appears people are taking notice. The proportion of the total float held by US shareholders has doubled since Bird took over, from 10% to 20%. Meanwhile, CEO of the ARK Invest ETF Cathie Wood – known for buying Silicon Valley growth stocks like Tesla, Zoom, and Roku – bought 23,300 shares in Pearson in Q4 2021.

Unlike many of Wood’s holdings, Pearson is already profitable. Another difference comes in the stock price movement: it has gone up 50% in the year to date. As a textbook published by Pearson might say, compare and contrast that with ARK Invest’s 60% price crash this year!

Hire education

In a move to digitalise its offerings, the company now sells e-textbooks through a subscription service called Pearson+. For $14.99 a month, students can access 1,500 titles on up to two devices.

It has also recently made bold moves to establish itself in the workforce training market. The company acquired Credly this year, a service for “recognising achievements” by “issuing and managing digital credentials”. In addition, Pearson bought out Faethm, a data and analytics solution that promises to help employers and policymakers “navigate the Fourth Industrial Revolution and the Evolution of Work”.

Andy Bird told the FT: “There used to be higher education. There’s now hire education.”

The sales pitch is an enticing one. Bird said the company could revolutionise adult learning through technology-enabled training pathways. At the same time, Pearson can count on the “real sales and real profits and real cash flows” of its already established arms, according to Bird.

Oldest trick in the textbook…

Of course, Pearson is keen to focus investors’ attention on the workforce skills division of its company. According to its interim results, this segment grew by 6%. But bear in mind the workforce skills division only makes up 7% of Pearson’s sales currently.

Meanwhile, the far chunkier higher education unit – accounting for 21% of sales – softened by 4%.

Is the talk about breaking into the workforce training market all just smoke and mirrors?

One analyst, who chose not to be named, told the FT this week: “In workforce solutions they are so far behind — they don’t really have anything.”

In addition, Pearson faces stiff competition from the likes of 2U and Coursera.

To its credit, unlike most growth stocks, it does pay a dividend (with a forward yield of 2.5%). In addition, it looks very reasonably priced even after shooting up 50% this year, with a price-to-earnings-growth (PEG) ratio of 0.61.  

However, I’m left cold by grandiose terms like “the Fourth Industrial Revolution” and the “Evolution of Work“. And these seem to be the ideas that form the basis of Pearson’s growth story.

Given that I’m unmoved by the growth narrative, and it’s too expensive to be a value stock, I can’t give Pearson a passing grade so won’t buy.

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Mark Tovey has no position in any of the shares mentioned. The Motley Fool UK has recommended Pearson. 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.

JD Wetherspoon (LSE:JDW) shares offer investors a stake in a much-loved British institution.

The pub chain’s cheap and cheery ethos has turned it into a mainstay since its founding in 1979.

But investors in the FTSE 350 stock are perched on the edge of their seats this week. That’s because on Friday, JD Wetherspoon will report its full-year earnings for 2022.

How have long-term shareholders been faring?

The shares have seen big losses since 2017

The pub chain’s shares changed hands at 1,252p in October 2017. Today, they’re trading at 422p – down a stomach-turning 66%.

If I’d invested £5,000 five years ago, that would now be worth £1,700, but I would have collected £128 in dividends. When the pandemic struck, JD Wetherspoon stopped paying dividends.

So, what has been weighing on the the share price?

Closing time

The end of lockdowns was meant to bring customers flooding back into pubs and restaurants. That has not been the case.

People have got used to spending their leisure time in different ways. They’re working from home more and spending less time in city centres.

In addition, founder Tim Martin’s outspoken views on politics have alienated some punters. An app called ‘Neverspoons’ that promises to point users to independently run pubs has been downloaded over 50,000 times on the Google Play store.

Analysts forecast JD Wetherspoon will report £1.69bn of revenue in FY22, below FY19’s level of £1.82bn. Profit is projected to go from £102.5m in FY19 to a loss of £30m in FY22.

Meanwhile, JD Wetherspoon has said it will sell 32 pubs across the country, representing around 3% of the 861 sites it operated in 2021.

Is this the start of a calamitous downfall?

Leaner and meaner

Maybe not. Contrary to what I might expect, the pub chain has been cutting back its total number of sites every year since 2015 – half a decade before the pandemic began.

From 2015 to 2019, the pub chain said farewell to 72 sites – equal to 7.5% of its 2015 peak total.

Yet sales over the same period went up by 20% and pre-tax profit by 32%.

Therefore, the decision to trim back its property portfolio is not necessarily a bad omen.

JD Wetherspoon’s winning formula involved packing its pubs to the rafters. Like airlines, the chain is a volume-based business. And how did it get such high volumes? With cut-throat prices.

As the cost-of-living crisis continues to bite, I wouldn’t be surprised to see more customers opting for JD Wetherspoon over pricier competitors.

Should I buy?

Analysts predict it will return to profitability in FY23.

At a price of 422p, the stock is trading at around 11 times forecast earnings for that year. Considering that pre-pandemic, 20 was a more normal price-to-earnings (P/E) ratio for the stock, in theory I could be looking at almost doubling my money within a year by buying JD Wetherspoon shares.

But I’m not convinced.

Rising wage costs and energy prices have steamrollered its operating margin from 8.2% in 2020 to just 0.2% in early 2022.

I don’t believe it will get out of the red as early as FY23, despite what analysts are saying.

Therefore, I don’t see the shares as a buy for me – and I’d need a strong pair of beer goggles to change my mind.

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Mark Tovey 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.

Before investing, I find it useful to ask myself, “what would Warren Buffett do?”

Fortunately, I can refer to a handy checklist that the Oracle of Omaha penned for stock picking.

In a 1985 letter to Berkshire Hathaway shareholders, the super investor included a ‘business wanted’ ad.

In the ad, he enumerated the four criteria a business must meet if it is to stand any chance of tickling his fancy. Given I am currently in a quandary over whether to buy shares in Premier Foods (LSE:PFD), I will apply the checklist to this example.

1) At least $10m of after-tax earnings

Because Buffett penned his checklist all the way back in 1985, I need to adjust this figure for inflation. In today’s prices, $10m would be around $30m, or £26.5m.

Premier Foods owns 20 brands – including family favourites such as Angel Delight, Cadbury’s, Loyd Grossman, Oxo, and Smash.

And with after-tax earnings in 2021/22 of over £100m, the tasty empire easily breezes past Buffett’s benchmark.

A strong start!

2) Demonstrated consistent earning power

To this, Buffett added: “future projects are of little interest to us, nor are ‘turn around’ situations“. At Berkshire Hathaway, they are not starry-eyed dreamers looking for an underdog story. They want to invest in businesses that are tried and tested.

Once again, Premier Foods seems to fit the bill. The company dates all the way back to 1837. And with a well-diversified portfolio of familiar food brands in its arsenal, I don’t see Premier Foods going away any time soon.

3) Simple businesses

Again, Buffet clarified, “if there’s lots of technology, we won’t understand it“. I don’t think there are many businesses that are as straightforward as Premier Foods. From desserts to pasta sauces and gravy granules, most people in the UK have had first-hand experience with all of the company’s flagship brands.

4) Businesses earning good returns on equity while employing little or no debt

Investors can easily look up a ticker on Yahoo Finance to find a company’s return on equity (RoE).

This metric is calculated by dividing net income by shareholders’ equity (that is, assets minus liabilities).

Of course, the Oracle of Omaha adds the caveat that the company should have little to no debt. That is because, by borrowing money, a company shrinks its equity (as the liabilities rise relative to assets). Then, net income ‘artifically’ looks bigger compared to equity.

At this point, Premier Foods begins to stumble. With a trailing 12-month RoE of 5.8%, the food purveyor trails comparable businesses like Nestlé (RoE of 36.1%) or Pepsi (54.6%).

Then again, Premier Food’s debt is relatively lower – at 22.5 times shareholders’ equity. To put that into perspective, Nestlé has a debt-to-equity ratio of 119.5, while Pepsi’s is 210.3.

There is a basic trade-off at play here: the more debt, the higher the RoE appears. So, to some extent Premier Foods can be excused for its lethargic RoE insofar as this is due to its more conservative use of debt.

The verdict

From my perspective, Premier Foods meets all of Buffett’s criteria. However, its RoE is nothing to get too worked up over. I think I can find better, so I won’t be buying.

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Mark Tovey 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.

First, let’s examine the story.

Only the Young

On the 15 September, US fintech PayPal banished two right-leaning groups from its platform. These were UK organisations The Daily Sceptic, a news site, and The Free Speech Union, a campaign group.

Both were founded by a well-connected individual called Toby Young, the associate editor of The Spectator magazine. After being deplatformed, he kicked up such a furore that the issue was raised in Parliament, and 42 peers and MPs signed a letter urging the Business Secretary Jacob Rees-Mogg to act.

PayPal backpedalled on Tuesday, unblocking Young’s accounts. However, the experience has left the right-wing firebrand embittered.

In a column for The Spectator, Young vowed not to use PayPal again despite his accounts having been reinstated. He added that he had received “thousands of emails and messages” from supporters who had shut their own PayPal accounts “in solidarity”.

Upside surprise for Wise?

There is plenty of choice in the fintech world for those who don’t want to use PayPal. One option is Wise (LSE:WISE), which allows users to transact in over 50 different global currencies.

Indeed, when it comes to making international transfers, Wise offers a much better exchange rate than PayPal. While PayPal charges the mid-market exchange rate plus a 3.5%-4% markup, Wise offers the interbank exchange rate pure and simple.

Plausibly, some of the ‘thousands’ who quit PayPal in support of Young could turn into Wise users.

The company grew quarterly revenue by 51% year on year to £185.9m, according to its Q2 filing this year.

Wise projects its revenue growth will be between 30% and 35% in the next financial year. Perhaps growing discontent over PayPal’s treatment of right-leaning groups could help Wise hit or even surpass that target.

Sardines in a can

Although I use Wise’s services, and I have considered buying shares, I have never pulled the trigger. That is because the number of options in the fintech space has become bewildering.

In addition to PayPal and Wise, they include Amazon Pay, Apple Pay, Atlantic Money, DonorBox, Google Pay Send, Mercado Pago, Payoneer, Revolut, Skrill, Stripe, Square, and Western Union.

And that is not even an exhaustive list!

If I could buy shares in a well-balanced ETF with exposure to all of the many fintech providers, I would. After all, the sector is forecast to quintuple in size by 2030.

However, many of the emergent competitors – like Atlantic Money, DonorBox, Stripe, and Revolut – are not publicly traded.

A quick look at Young’s news site, The Daily Sceptic, shows me he is now accepting donations using DonorBox instead of PayPal. Meanwhile, on his Free Speech Union page, visitors are encouraged to become members via a payment through Stripe.

The barriers to entry in the fintech space are too low to make any particular company a good investment for me.

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Mark Tovey has no position in any of the shares mentioned. The Motley Fool UK has recommended Wise 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.