Much of this fall materialised in August, when the stock decreased from 128p to 108p across the month. It reported a big decline in net cash with its half-year results. This led to many investors abandoning it.

However, with a FTSE 100 constituent taking such a heavy beating, now may be the perfect time for me to grab shares at a bargain price. Let’s take a look. 

Considering the cash

The company’s net cash fell from £906.5m to £642.2m, a 26% decline in a year. Work-in-progress constructions were significantly delayed by prior covid-linked restrictions. Also, build cost inflation has increased to an estimated 9-10% this year. This led to Taylor missing typical cash inflows as construction deadlines weren’t met and operational expenses rose. Clearly this has turned investors away.   

Yet this didn’t hit the operating margin, which remained at £424m. Expanding operations in Spain have brought in an additional £18m profit as the total number of homes completed rose from 83 to 203. This partially offset the impact of domestic conditions. 

Estimates for net cash for the end of the year still fall to £600m. However, the company has opened 50 new property developments this period. Also, management will further increase land investment. While continued decreases in net cash may scare off investors, I think this is the right move for the firm. It’s clear the company is preparing to hit the ground running in FY23 as a Covid-driven aftermath retreats and housing prices stabilise.

Despite net cash raising red flags, I think management has its financials under control. The company has mitigated macroeconomic impacts and is gearing up for a growth-focused FY23. That’s why I think the shares will be a great buy for my portfolio — particularly after such a heavy fall this year. 

The industry perspective

While I have little concern over the builder’s net cash, a broader look at its position in the property sector does raise some worries. Nationwide economist Robert Gardner stated: “There are signs that the housing market is losing momentum.” 

Persimmon‘s share price has plummeted 50% across the last year. The company’s home completions fell 11% to 6,652. Its pre-tax profit fell from £480m to £439m. Market’s conditions have clearly created struggles for many industry leaders. 

Yet competitor Berkeley has only suffered a 21% fall over the last year. It’s one of the few homebuilders that actually increased pre-tax profits across FY21, rising 6% to £551m. This resulted from the sale of 3,760 homes, representing a 25% increase against the year previous. 

While not in the lead, it’s clear Taylor Wimpey has managed to mitigate industry conditions to a considerable extent with a 37% decline in share price. This is partially due to operational developments in Spain. Also, continued outlet development and land investment also seems to have kept some investors hopeful for the company’s future growth.

Indeed, I think net cash will begin to stabilise. With healthy prospects for FY23 I’ll be looking to add Taylor Wimpey shares to my portfolio.

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Hamish Cassidy 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.

Building durable passive income is an excellent approach for investors who don’t want the constant stress of watching share price movements. Targeting shares with high dividend yields provides me more personal time and financial freedom as regular payouts flow through in the background.

But identifying rewarding dividend stocks is tricky. Payouts can depend on the company’s quarterly and annual performance. Therefore, I favour companies that have a consistent dividend history alongside stable financial performances. Let’s look at two UK shares that stand out as key candidates for my passive income portfolio. 

M&G

Global investment manager M&G (LSE: MNG) currently trades just under 197p. Half-year results crashed the share price in August and it fell 12% to 196p. Yet the stock remained robust over the last 12 months with just a 1% fall. With an impressive dividend history, I think this UK share can help deliver the second income I’m after. 

M&G offers a 9.11% dividend yield. Its interim payout follows previous figures, with 6.2p per share to arrive on 29 September. A buyback should elevate shareholder value as £150m of a total £500m is deployed. By the end of September, M&G will have returned an impressive £1.5bn to investors since FY19. 

Yet the company needs to financially sustain this. Assets under management fell from £370bn at the beginning of FY22 to £349m in its half-year report. Management blamed this on adverse market movements. Consequently, post-tax profits plummeted 75% from a loss of £248m to £1.04bn. 

This suggests the dividend aristocrat may struggle to deliver future payouts. But I’m not concerned. M&G increased capital generation from £309m to £439m. Management also announced acquisition of Continuum Financial Services. This indicates the company can remain afloat through short-term profit falls and begin increasing revenues through its new customer base.

I think M&G can recover from its wavering financials and continue to deliver on its average final payout of 17.4p (since FY19). Indeed, I’ll be adding M&G shares to my passive income portfolio. 

Imperial Brands

Imperial Brands (LSE: IMB) is another UK share I’d consider. Strong revenue increases resulted in its share price leaping 10% in mid-May, while the tobacco company has seen a 26% rise over the last year. It now trades at 1933.

Yet the half-year report wasn’t all positive. Operating profits fell 27% to £1.2bn. A departure from Russian markets (estimated at £201m) and divestment from the Premium Cigar Divisions (£281m) clearly took a hit.  

However, the company has expanded its Pulze product range in European markets and Blu marketing proposition in the US. Net revenues from next-gen products increased 39.5%, totalling £77m. This indicates Imperial has successfully adapted to the changing market as consumers increasingly switch from cigarettes to electronic vapes. 

The company also boasts an impressive dividend history. With an average final payout of 167p since FY17. Its dividend yield currently stands at 8.4%. With the successful launch of NGPs in Europe and the US, I think payouts will continue to arrive at similar figures.

Despite a fall in operating profit, the company is increasingly adapting to its market and demonstrating high prospects in overseas markets. This gives me faith that Imperial can continue to deliver strong payouts for the foreseeable future. Imperial will certainly be a staple of my passive income portfolio. 

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Hamish Cassidy has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.

Atlantic Lithium (LSE: ALL) is a UK stock that has appeared on many investors’ radars recently. Its share price skyrocketed 26% since last week, jumping from 34p to 42p. This resulted from news that it had closed a dual listing offering on the ASX (providing 22.8m shares at A$0.58) last Monday. 

The mining stock has had a very successful year. Its share price rose 100% over the last 12 months. And in its FY21 report, Atlantic said total assets have risen from $42.5m to $72m. This largely results from expanding operations in West Africa, which have generated strong investor interest. 

But with the stock now priced at 42p, some investors may think it’s too late to join the party. I don’t agree. Let’s look at why I’m buying this lithium UK stock now for the long term.

Piedmont project

As said, Atlantic has driven forward operations in West Africa through its Piedmont project. While I have concerns over the project’s stability, I have faith that it can generate robust returns for the business. 

The project has secured 560 sq km of land in Ghana, meaning the company now pioneers lithium mining in the area. This builds upon Atlantic’s overall holding in West Africa, with 774 sq km of land held in Ivory Coast. 

I have concerns however. Mining projects typically span decades — with profits not being realised for a long time. During development, market prices could change drastically — or funding could fall through entirely. 

Indeed, The project’s funding has only just entered stage two, with $23m secured. But a further $70m is still needed from Piedmont Lithium to fund the operation. If funding was withdrawn, this could cause huge disruption to Atlantic’s operation.

I’m not too worried though. The company generated $28.8m in issued shares in FY21. Its recent ASX listing suggests similar generation can be expected this quarter. Also, total cash rose from $7.3m to $19.1m. I’m confident management can ensure project completion over the next few years, and deliver strong long-term returns on my investment.

Mind the market

Investing in lithium stocks has become increasingly popular as the metal’s market price continues to rise. Its use in electric vehicle batteries has caused the demand for lithium to surge as total EV production doubled across 2021-22. This bodes well for Atlantic’s future prospects.

Management intends to capitalise on this demand — funnelling 50% of its Ghanian production straight into the market. Profits are expected to be further bolstered by the company’s indirect partnership with EV manufacturer Tesla. 

Yet it will be a few years until investors see the estimated 30.1Mt of lithium ore turned into hard profit. While the company seems financially strong, a minor operational disruption could considerably hinder progress. Without regular cash flow, the company will have to rely on current financing capabilities to resolve development issues. However, Piedmont’s agreement to purchase 50% of Ewoyaa’s annual lithium output will hopefully stabilise the company’s financial position within the next few years.

It’s clear the Piedmont project has considerable financial backing. The company can begin accessing huge lithium reserves while the metal’s price skyrockets. This leads me to believe that Atlantic is set to deliver strong profits once ore is pulled out. Indeed, I’ll be looking to add this UK stock to my portfolio for long-term returns.

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Hamish Cassidy 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 UK real estate agent offers an industry-unique model. It provides instructions at fixed rates via its digital platform. Yet extensive operational costs and lack of consumer engagement have clearly driven investors away. 

The share price rebounded in mid-August (roughly 12%) when Chairman Paul Pindar purchased 1.5m shares. This pulled the stock’s market cap just above £50m. Yet the company’s performance remains fairly poor.

However, a plunging Purplebricks share price may be opportunity for me to grab shares at a bargain cost. Let’s take a look.  

Changing the model

Investing in property shares is a staple choice for long-term investors. The housing market has shown consistent returns over the last decade. But in the case of Purplebricks, its operational model raises concerns. 

The company has driven a transition of 600 employees to permanent positions through a £2.2m investment over the last few years. Management intended this shift to enhance its field force and increase instructions. However, instructions fell 31% to 40,141 in FY22. Gross profits followed, dropping to £42.1m from £57.7m in FY21. Indeed, Paul Pindar stated that the new model “has yet to deliver the expected improvement in performance”. 

This transition also led to a cash outflow from investing of £5.1m, compared to an inflow of £30.4m in the year previous. While this seems worrying, it actually results from Purplebricks’ sale of its Canadian business in FY21, creating £36.4m in cash. 

This means total cash for FY22 sits at £43.2m — enough to mitigate the financial consequences of the employee model transition. However, this investment is yet to produce intended results and the company’s gross profit has fallen an alarming 37%. This doesn’t lead me to have confidence in management’s capabilities. 

Fixed rates

A key aspect of the company’s model is its fixed rate offering. Most real estate businesses offer instructions on a commission basis. While this distinguishes Purplebricks within the industry, it hasn’t helped it.

The UK property market saw a rise in sales this year — driving companies’ commission profits upward. With a fixed fee model however, Purplebricks was left out of the party. Indeed, its market share decreased from 4.6% to 3.4%. 

In response, the company raised flat fee rates by 20%. This could potentially help the gross profit back bounce in FY23. However, this pricing increase arrives at a time when consumer engagement in Purplebricks has spiralled downwards. Higher prices definitely won’t help. 

But CEO Helena Marston has stated plans to remove £13m in costs during FY23. I think a 16% reduction in the operating cost base is the right move. Management has unsuccessfully attempted to accelerate operations. A conservative approach for the year ahead is necessary.

Purplebricks remains in a grave situation. While total cash has kept afloat through the disposal of the Canadian business, it may begin to sink. Huge change to its operating model  and continued fixed rates have failed to increase instructions. I think the Purplebricks share price is set to fall further. I won’t be adding this real estate agent to my portfolio any time soon.

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Hamish Cassidy 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.

Berkshire Hathaway CEO Warren Buffett has long been regarded as a legend within the investment community. Bloomberg estimates Buffett’s total wealth at £84.6bn. This has largely been driven through decades of very smart trading. 

Many investors follow Buffett’s tips and trades obsessively, including myself. His value-driven philosophy is clear: “Price is what you pay. Value is what you get”. His investment fund reported just under £0.8bn in net earnings for FY21. It seems this philosophy holds some truth. 

Berkshire Hathaway also disclosed its total holdings on June 30. Two of the top four shares held are Chevron (NYSE: CVX) and Coca Cola (NYSE: KO) — adding up 15% of its portfolio. I think it’s time to look at whether I should buy these stocks too. 

Chevron

Energy company Chevron currently trades at a share price of $158. The stock dropped 4% last week, having leapt 63% across the last 12 months. Warren Buffett emphasises the need for reliable investing, saying he puts “a heavy weight on certainty”. But can I be certain of Chevron’s long-term prospects? 

The company reported a strong performance in its FY21 report. Net income bounced back from a loss of £0.48bn (all GBP figures at current exchange rates) to a gain of £1.4bn. Also, the stock continued its dividends of roughly 4.5p a share, demonstrating consistent financial strength. 

Yet Chevron’s position in the energy industry makes me uncertain. Governments are increasingly turning away from oil producers. Instead, aiming to use more renewable energy sources and reduce greenhouse gas (GHG) emissions. Management stated intentions to achieve net zero GHG emissions for upstream productions by 2050. 

But I think this transition is too slow compared to other industry players. For example, Powerhouse Energy has already begun development of its fully-renewable energy plants. Because of this, I don’t hold Buffett’s ‘heavy-weight certainty’ in Chevron’s long-term prospects. I won’t be adding the shares to my portfolio right now. 

Coca-Cola

Coca-Cola’s stock has enjoyed a smoother recent journey. The share price has slowly risen just under 10% in the last year, now sitting at $61 a share. 

Yet Coca-Cola didn’t inspire confidence with its recent Q2 report. Operating margins fell from 29.8% to 20.7% year on year. This led to cash flows from operations declining a total £0.87bn. Management blamed this fall on currency headwinds and increased marketing investment. Also, total assets decreased by £1.03bn. This all led to the share price falling 4% in the last month. 

However, it’s not the share price Buffett focuses on. It’s the value found in the business’s core structure that he underlines. In this case, Coca-Cola would seem to be a no-brainer buy. Huge brand recognition and operations spanning across five continents suggest that the beverage titan could be a safe long-term hold. 

But the company has recently suffered sizeable crashes in margins and total assets. Because of this, I think Coca-Cola may not have such good prospects across the coming years. While Warren Buffett has added shares to his portfolio, I won’t be adding them to mine any time soon.

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Hamish Cassidy 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.

With its share price at 150p, the UK Investment stock has seen a staggering 44% decline in the last year. Its half-year report included missed sales targets, running it down 5.5% this month alone. A decline in the share price decreases the stock’s market capitalisation, pushing it closer to FTSE relegation. 

But is there a chance for Abrdn shares to rally before the final decision, due next week? And is this plummeting stock perhaps a cheap addition to my portfolio? Let’s take a look. 

Interactive Investor

The company’s interim report raised concerns for many investors. Financial downturns, and a costly acquisition, have prompted many to sell their shares. 

Some growth sectors have seen large falls this year. Indeed, the FTSE techMARK 100 reported a 13% fall in tech constituents since January. This has taken a big swing at Abrdn’s growth-focused investment strategy. Since half-year FY21, losses from investment increased from £4.6bn to £5.2bn. Pre-tax profits fell 83% to a total loss of £320m. Management said it would refocus on the real asset market (such as property) to better position it against future volatility. But such intentions are unlikely to move the share price enough in time to avoid FTSE relegation

The company’s £1.4bn acquisition of Interactive Investor in late May possibly scared off some shareholders. The cost-of-living crisis suggests interest in the investment platform would have dwindled as the market is increasingly disrupted. However, the platform actually saw increased customer acquisition, subscription revenue growth, and operating leverage. This led to Interactive Investor driving £0.2bn of a total £0.3bn of Abrdn’s net cash flow. 

Management took a risk in such a big expense, but it seems to be paying off. Yet a £1.4bn acquisition during tough times like these has clearly dampened investor interest, I feel. 

Managing investor relations

Abrdn has shown continued commitment to its shareholders however. A strong dividend yield and share buyback indicates the company possesses some strength.

Its dividend yield currently sits at an impressive 9.74%. Management again delivered a 7.3p interim payout. Indeed, the company intends a 14.6p annual payout for the year. This builds upon a strong dividend history. The company has generally increased its final payouts since 2009. This makes Abrdn something of a Dividend Aristocrat, in my opinion. 

The £300m share buyback has progressed. With a current £150m financed, shareholders should be able to look forward to their share value increasing as Abrdn buys up its shares. The company reported a £0.6bn capital surplus (after its acquisition of Interactive Investor ). This gives me confidence that it can deliver the declared buyback, alongside continued dividend payouts.

So why have shareholders continued to jump ship? Abrdn has been hit particularly hard by the market’s turbulence this year. Pre-tax profits and investment inflows plummeted, alongside that untimely acquisition of Interactive Investor. I think many investors have seen the financial instability of this wealth manager, and decided not to stick around for the FTSE Russell decision.

I believe Abrdn’s market cap will continue to drop, and with it, the company’s FTSE 100 presence will end. Because of this, I won’t be looking to add Abrdn shares to my portfolio any time soon.

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Hamish Cassidy 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.

Anglo-Australian mining company Rio Tinto (LSE: RIO) is a FTSE 100 giant that I think will drive my passive income strategy. 

Passive income is an excellent approach to investment. Building a stream of dividend payments can lead to consistent cash returns. With a dividend yield of 10.84%, Rio Tinto seems like a key player for this strategy.

The dividend stock is currently trading at 4,873p, having risen just 2% over the last month. However, falling iron ore prices in June have led the share price to decrease 7% over the last year.

Yet I think Rio Tinto is set for long-term consistent returns. Let’s look at why this dividend stock will drive my passive income portfolio.

Dividend commitment

Rio Tinto understands how fundamental its dividend commitment is to shareholders. Management’s shareholder returns policy includes a pledge to deliver a huge 50% of underlying earnings back to investors each year.

The company has held true to this. Interim dividends have been consistently within the range of 2.22p to 3.07p over the last three years. In the half-year report, Rio Tinto boasted its second-highest-ever total dividend payout at £3.6bn. Also, the company launched its Dividend Reinvestment Plan, offering shareholders a special dealing arrangement to trade payouts for more shares.

However, the dividend per share fell to 222p from 271p. This 18% decrease followed a large fall in underlying earnings. Yet as I explain later, much of this drop was due to rising fuel costs and fluctuating ore prices. Of course, this had an impact on the company’s bottom line for this year. I can only hope that industry conditions are better contained next year.

The board has a stated aim to deliver 40%-60% of underlying earnings to shareholders in cash returns. This is bolstered by intentions to supplement ordinary dividends with additional returns during periods of strong cash generation. These are impressive objectives.

With a consistent history of dividend payments, and plans to improve this further, Rio Tinto seems an excellent addition to my passive income portfolio.

Explaining the earnings

So, it seems like a clear buy for my passive income portfolio. But are its large payouts sustainable?

Across its half-year, underlying EBITDA decreased by 26%, from roughly £18bn to £13bn. This was largely for industry-wide reasons. Transport costs were hit by rising diesel prices, creating an approximate £473m reduction. Management estimated that changes to commodity prices resulted in a £2.8bn reduction in EBITDA.

However, I think that Rio Tinto will be able to turn this around. The first ore has been delivered from the new Gudai-Darri mine. It has an expected 43m tonne per year capacity for 2023. Also, the board has approved a new lithium carbonate plant, with a 3,000 tonne capacity per year. First production is set for 2024. As industry conditions begin to settle, I think these projects can pull earnings back up to pre-FY22 level.

It has been a tough year for the company and industry, yet management has successfully adhered to the dividend policy. With new projects beginning to operationalise, I think Rio Tinto is set for healthy earning reports for the foreseeable future. Managerial aims to supplement payouts, and offer a special dealing scheme, are attractive bonuses. This would mean excellent dividend payouts for my passive income stream. I’ll definitely be looking to add some Rio Tinto shares to my portfolio.

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Hamish Cassidy 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 Darktrace (LSE: DARK) share price shot up this week as news of a potential buyout was announced. On August 15, the company confirmed that it was in early-stage discussions with private equity firm Thomas Bravo. Since then, the stock has leapt from 413p to 538p. An incredible 30% jump in the share price within just a few days has certainly caught my attention.

Yet over the last 12 months, Darktrace’s share price actually fell by 4%. The cybersecurity provider saw tremendous increases in total losses and financing costs during FY21. This scared some investors away.

I remain bullish however. The company’s most recent Q4 report demonstrated concrete growth — and its prospects for FY23 seem strong. But what exactly will happen to Darktrace remains to be seen as the potential for a buyout looms. Let’s take a closer look.

Cybersecure and industry safe

Investment in technology stocks remains at the forefront of many investors’ strategies. With the cybersecurity company showing strong growth within the tech industry, I’m increasingly confident about Darktrace’s prospects.

A £40m acquisition of Cybersprint in February indicates the company is expanding its industry presence. Yet while management claims this acquisition will accelerate the capabilities of its Cyber AI Research Centre, I’m worried this will overburden it financially. That’s particularly so as Darktrace suffered an increase in total losses from £24m to £124m across FY20-21.

However, the expansion does come at an excellent time. CEO Poppy Gustafsson said: “Against a turbulent geopolitical background, it’s no surprise that long-term cyber risk is an even higher priority“. Gustafsson isn’t wrong. Continuing conflict between Russia and Ukraine has raised safety concerns for businesses across Europe and the US. With a 42% increase in global cyber attacks, attention has turned toward companies such as Darktrace.

While total losses are cause for concern, I think the acquisition will benefit Darktrace over the long term. At a time when industry demand is rising, the company seems well-positioned to capitalise on expansion and to drive forward its performance.

Looking forward

Awarded TIME magazine’s ‘Most Influential Company’ title for 2021, Darktrace has undeniably made an impact. But where exactly is the company headed?

It’s currently developing its Prevent family product, while its Attack Surface Management and End-to-End products were released at the beginning of this month. However, this was achieved only through an alarmingly-high increase in borrowing costs, rising from £2m to £90m from FY20-21.

Yet the Q4 results demonstrated that progress is being made. Total customers rose 32% to 7,400. As a result, Darktrace boasted a 47% increase in revenues, now sitting at £346m. With further products set to release, that progress could continue.

Also, Thomas Bravo’s takeover decision, with a deadline of 12 September, should have a significant impact on the share price. With FY22 results due on 8 September, this will be a manic few days for the Darktrace share price.

I’m usually averse to such volatility. However, I think the company has performed well this year. Its presence in the industry has expanded considerably. Also, its product development and sales strategy is bearing fruit. With notable growth prospects, I’ll be looking to add Darktrace shares to my portfolio now to hold for the long term. I just need to be prepared for a potentially rough next month if the buyout unfolds.

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Hamish Cassidy 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.

Yet the company has been heavily investing in long-term projects such as its Business Simplification programme. While inflationary pressures have undermined the UK’s financial sector this year, I think Quilter has good prospects for the long term.

With the share price having fallen 36% over the last year, I feel this FTSE 250 stock could be a rewarding buy at 114p. Let’s look at why I’d consider adding Quilter shares to my portfolio.

Simple business

Quilter has been driving forward that Business Simplification programme. With results already flowing in, I’m bullish on the stock.

The programme aims to reorganise Quilter’s structure around its Affluent and High Net Worth platforms while re-engineering its property strategy. It has already brought in an annual run-rate saving of £13m. Total reduction in operating costs is estimated at around £45m by 2024.

However, management stated the initiative will cost roughly £55m. This has been primarily sourced from the sale of Quilter International in November 2021. The International platform brought in adjusted profit before tax of £29m in the first half of FY21. It’s concerning to see Quilter wave goodbye to these profits. Evidently however, the company’s priority is creating efficient operations back home. With such large cost reductions achieved, I’m willing to overlook the departure of Quilter International.

With the smplification programme well-funded, and already driving considerable cost reductions, returns from Quilter could improve.

Consistent yield

A consistent dividend yield is one of the first features of a stock I look at. In the case of Quilter, a 5% dividend yield is a beaming green light to me. With regular payouts, I see it as an attractive long-term hold.

Management recently declared an interim dividend of 1.2p. This fell short of the 1.7p interim payout in 2021. However, rising inflation rates have hurt the UK’s financial sector this year. It’s understandable to me that a wealth manager such as Quilter takes a more conservative financial approach.

Net inflow from the Investment platform fell from £1.8bn to £1.6bn. This may make me question whether Quilter can deliver strong final dividends this year. However, operating margins increased 2%, thanks to expense reductions. Also, adjusted profits pre-tax increased 9% from £56m to £61m. Final dividends across FY19-21 were 3.5p-3.9p. I think, with increased profits and expense reductions, the company will be able to deliver somewhere in this range for FY22.

Clearly, Quilter has managed to weather the storm so far. The Business Simplification programme is achieving impressive reductions in operational costs and is set to go far further. Strong dividend yields indicate the company is proficient in its financial management. Because of this, I think the Quilter stock is no-brainer buy for me at 114p. At that price I really do see it as too cheap to miss. I’ll be looking to add some shares to my portfolio.

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Hamish Cassidy 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.

Centrica (LSE: CNA) recently announced a profit of over £1bn, something that made plenty of UK newspaper and business headlines. The Centrica share price has seen a huge 85% increase over the last 12 months. But with a soaring profit, I think it’s set to climb even higher.

The cost of living crisis has ramped up electricity bills. This has led to investors diving into this energy stock as revenues inevitably increase. But let’s take a look at why I would still add this energy stock to my portfolio at 87p.

Energising finances

Energy bills have been rising steadily over the last decade. But the current cost of living crisis has seen the price of energy consumption skyrocketing. This has been excellent news for Centrica. 

Net cash turned around from a debt of £93m in 2021 to a positive £316m this half-year. Also, gross revenues from Centrica’s energy trading increased from £8.7m to £15.8m. This demonstrates excellent managerial strategy, I feel. However, I’m concerned that the company may overdo its investment in the energy market. Energy prices may become increasingly turbulent and further investment means it would have a large financial, as well as operational, exposure to this volatility.

The company also announced a dividend of 1p per share. This closes the stock’s two-year gap in dividend payments. With the financial instability of the pandemic now fading away, I believe that Centrica can continue its dividends for the foreseeable future.

The share price has slowly crept up from 74p since January. Now, in its half-year report, Centrica has shown a huge turn around in debt, revenue and dividends. This leads me to believe the share price could be set to climb even higher.

Managing expansion

It’s clear that the energy stock is in a momentous position. With accelerating financials, and dividends reinstated, the share price seems to be headed upwards. But this does raise one question — how will the company drive this momentum forward?

Many UK energy companies ceased trading over the last year (just over half). This led to Centrica taking on 0.55m new customers in 2021 and 0.15m in 2022. This is great news for revenues. The creation of 500 customer service roles and 1,000 engineering apprenticeships suggests management is responding well to this expansion.

However, the cost per customer increased £3 to a total £96 in the same period. Also, the company stated that customers have switched to lower-priced products as a result of the cost of living crisis. This has led to cash flow from operations decreasing from £558m to £165m. 

Yet Centrica’s £800m sale of Norwegian E&P business to Sval Energi and Equinor demonstrates a healthy operational reduction. Management aims to minimise portfolio risk and focus on UK interests. With soaring profits back home, I think this is a well-executed strategy.

Overall, Centrica has regained financial strength — and finally got its dividends back on track. Management has also adapted quickly to its UK expansion through a larger workforce and selling of foreign assets. This leads me to believe the share price is set to climb even further and I will be looking to add Centrica shares to my portfolio.

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Hamish Cassidy 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.