UK Inflation is well above its target, so interest rates have risen and probably will keep rising. Yet I am still in the market for UK stocks to add to my Stocks and Shares ISA. There is no harm in looking for stocks that offer better performance now, so long as I am happy to stay invested in them for the long term. Higher rates squeeze consumers’ budgets. That means most businesses get less revenue as demand for their goods and services dries up. So my first thought is to look for stocks that won’t suffer as much in this regard.

Consumer defensive and healthcare stocks

Companies selling consumer staples like food, beverages, and household and personal care products should not take as significant a hit to their revenues as those selling fridges, TVs, and cars when inflation and interest rates are rising. An example of a consumer defensive (or staples) stock is Reckitt. Now, there is nothing to say that Reckitt’s price won’t go down as interest rates rise. But I expect its price to be less volatile than consumer-sensitive (or cyclical) stocks that sell white goods.

Consumer healthcare companies like Haleon, which sell, for example, toothpaste, indigestion remedies, and painkillers, tend to enjoy relatively stable revenues in times like these. Pharmaceutical giants like AstraZeneca might also perform better than more sensitive stocks when interest rates are on the rise.

Value over growth

Companies that are growing fast might need to invest a lot. In a rising interest rate environment, capital expenditures become more costly. Growth companies, therefore, might find it hard to sustain the very thing that underpins their valuations: rapid expansion. There is another problem for growth companies. Since most of their earnings are in the future, they are discounted to today for valuation purposes. Higher interest rates mean higher discount rates and lower valuations.

Value stocks tend to perform better than growth stocks in higher interest-rate environments. They tend to be established companies making big money today and hence are not hit by discounting and increased borrowing costs quite as hard. They also tend to pay dividends more reliably. There are, of course, exceptions, but I am looking for value stocks over growth stocks right now.

Interest rate rise beneficiaries

Some companies might benefit from interest rate rises. Banks can increase their net income margins — the difference between what they lend and borrow at — and improve their profitability. Of course, profitability might fall if the bank’s customers stop taking loans and defaulting and missing payments, even as interest rates rise.

Insurance companies hold a lot of bonds to back the insurance policies they write. If the yield on these bonds increases, the company gets greater cashflows from them. The insurer’s profitability should improve, assuming that claims do not also rise.

But I can’t pick a bank or insurer at random. Nor will just piling into value stocks or any of the stocks mentioned work just because rates are rising. I would have to research any company thoroughly to make sure it makes sense to invest now and for the long term. But, at least, I have narrowed down the number of UK stocks to look at for a rising interest rate environment.

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James McCombie has positions in Haleon plc and Reckitt plc. The Motley Fool UK has recommended Haleon plc and Reckitt 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.

Investors in International Distribution Services (LSE: IDS) got a treat, not a trick, this Halloween. It was not news that the company had reversed its name change and its shareholders would own Royal Mail shares again. Instead, the IDS share price was increasing by about 8%, which must have been a welcome change of pace.

IDS — which owns and was formerly called Royal Mail — shares are down about 50% in price over the last year. Royal Mail is struggling. It estimates it will report an adjusted operating loss between £350m and £450 for the 2022 financial year. UK parcel and letter volumes are declining. Postal workers have been striking over pay, conditions and cost-cutting plans, which include redundancies. Further strikes are planned for the run up to Christmas.

On the other hand, IDS’ international parcel division, General Logistics Services (GLS), is doing well. It should report an operating profit roughly equivalent to Royal Mail’s loss. Part of why Royal Mail shares became IDS shares at the start of this month might well be a desire not to be named after the problem child. IDS stated the reason was to reflect the structure of two separate companies and recognise the increasing importance of GLS.

Vesa Equity Investment in Royal Mail shares

Vesa Equity Investment, a Luxembourg-registered investment vehicle, first bought what was then Royal Mail shares in May 2020. Since then, it has built up its position. By July 2022, Vesa held 22% of the total voting rights in Royal Mail. In August 2022, the UK Secretary of State for Bussiness, Energy and Industrial Strategy, got in touch with Royal Mail to say that Vesa might be increasing its stake to over 25%, triggering a review of the situation under the National Security and Investment (NSI) Act 2021.

Today, the Secretary of State told what is now IDS that he will take no further action under the NSI Act. That presumably clears Vesa to increase its stake in IDS shares. The report of this decision was the trigger event for the rise in the IDS share price today.

Activist shareholder

Since becoming active in 2019 and announcing a reportable stake in French mass-market retail group Casino Guichard-Perrachon, Vesa has been snapping up shares in other retailers. In 2020, it bought stakes in Footlocker, an American sportswear retailer, Macy’s, a US-based department store operator, and Sainsbury’s, the second-largest supermarket chain in the UK. In 2022, it revealed a stake in Fnac Darty, a French entertainment and leisure product retailer.

Vesa is taking sizeable stakes in retail companies and one postal service and courier company. One thing they all share in common is that their share prices have been on broad downtrends for years. Significant positions in companies performing poorly in the markets suggest an activist investor. Activists put pressure on management to make changes to boost shareholder returns. The bigger the position, the more power wielded.

Vesa now has the go-ahead to further increase its stake and influence in IDS. Aside from forcing operational changes, a suggested split of Royal Mail and GLS could be fast-tracked by Vesa, unlocking the value of GLS. Finally, thoughts of a total takeover bid for IDS by Vesa might be entering investors’ minds.

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James McCombie has positions in International Distributions Services. 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.

Penny stock Woodbois (LSE: WBI) hit a new 52-week price low of 2.6p on 26 October 2022. In the year to date, the stock has lost 37% of its value and currently trades at around 2.8p per share. It’s always tempting to look at low prices and compare them to past values. For example, Investors were willing to pay 9.4p for Woodbois shares on 5 May 2022.

I could look back further. At one point in May 2017, Woodbois shares were worth 22p. Looking even further back to February 2011, Woodbois was still a penny stock but traded closer to a pound one than at any other time in its history at 53p per share. Could it get there again?

AIM-listed penny stock

Woodbois is still an AIM-listed penny stock, but it is a very different company now than it was back in 2017, let alone 2011. Woodbois was formally known as Obtala when it was a diversified African resources company. In 2011, it held exploration licenses for diamonds, iron ore, and tin in Sierra Leone and Tanzania. These activities appear to have captured investors’ minds over a decade ago. Its forest concessions probably did not get as much attention.

In 2017, the company had assets in Tanzania, Gabon, and Mozambique. But the diamonds had gone. The company was involved in agriculture, food processing, and forestry. By 2019, the company was entirely focused on wood after disposing of a fruits and vegetable business in Tanzania. It changed its name to Woodbois in March of that year.

Woodbois had $66m in net assets in 2011. Today it reports closer to $260m, yet its share price today is a fraction of what it was back then. How can that be? Well, I imagine that the possibility of striking a rich vein of diamonds or tin can inflate a stock’s price well beyond its identifiable asset base much more than owning a lot of forestry concessions can.

Carbon offsets

I think Woodbois is a better business now than it was back then. It owns 485,373 hectares of forest concessions across Gabon and Mozambique. Trees are harvested from these concessions and processed into lumber and veneer products for sale through its trading arm. Woodbois has been steadily increasing its revenues from these operations over the last five years and is getting closer to reporting a profit without the assistance of substantial non-cash gains.

I certainly don’t think it is the type of business that can support a quick run-up in price to 2011 levels. There was a lot of expectation baked into that 2011 number. It has a new business line that could see it get involved in the market for carbon offsets and afforestation projects. There are viability and regulatory hoops for this carbon solutions business to get through, but it could get the share price moving again if it does. The company’s existing operations could also grind its share price higher if they continue the way they have been going.

But ultimately, I don’t own Woodbois in my Stocks and Shares ISA and I don’t think now is a good time to add this speculative penny stock. But I am keeping a close eye on the company to see if it can change my mind.

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James McCombie 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.

At the time of writing, the NatWest (LSE: NWG) share price is down 8.9% for the day. Investors looking for a reason for the decline need to look no further than the company’s third-quarter 2022 report, which was released this morning.

What a difference three months make. On 29 July 2022, NatWest released its half-year results, and the FTSE 100 member’s share price moved about 8%: but it went up, not down. As always, July’s interim results started with a commentary from the group’s chief executive. The opening paragraph began with “NatWest Group delivered a strong performance…“. The second paragraph opened with, “We know that continued increases in the cost of living are impacting people, families and businesses…“.

Today’s commentary started like this: “In a challenging environment, NatWest Group continues to deliver a strong financial performance”. The second paragraph began with, “At a time of increased economic uncertainty, we are acutely aware of the challenges that people, families and businesses are facing…“. 

Gains and losses

The tone of this quarter’s results is noticeably gloomier. It is difficult to read the good news in the report without immediately encountering the bad bits. The bank’s pre-tax operating profits of $1.1bn are some 20% higher than for the same period last year. But, they fell short of the $1.2bn analysts were expecting.

This quarter’s net interest margin–the difference between what NatWest lends and borrows at–of 2.72% was 26 basis points higher than in the first quarter of this year. But, other operating expenses were 1.8% higher in the year to date.

The £247m impairment charge that hit this quarter’s income statement has drawn much attention. This charge estimates future losses from defaults and missed payments on loans the bank has made. Last year it was not a charge but a gain for the same period. There can be no doubt that NatWest management is expecting more challenging times.

And those times are seen to be tougher than analysts expected with their estimated charge of £173m. The difference between the bank and analyst estimates goes a long way to explaining why the bank missed the pre-tax profit estimate.

NatWest share price fall

Investors must have known about the UK’s cost-of-living crisis ahead of the report. They must have been aware of the potential for NatWest customers to default or miss payments on loans due to that and the rise in interest rates. NatWest’s interim report was full of references to this potential issue. But it would seem that this quarter’s report has suggested to investors that the bank is now expecting to run into problems. NatWest said it is “…not yet seeing signs of heightened financial distress…” from its customers. But, surely it expects it, given the size of that loan loss provision.

That’s probably why the NatWest share price has fallen: Investors expect material impacts on the bank’s performance in the coming quarters. If that comes to pass, then some solace might be found in the idea that a windfall tax on banks’ profits — an option that Rishi Sunak has said is still on the table — is less likely if those profits are being eaten away by such things as loan loss provisions in a period of tougher economic times for lenders.

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James McCombie has positions in NatWest Group. 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.

Shell (LSE:SHEL) shares moved about 5% higher in price today following the release of the company’s third-quarter (Q3) 2022 results. Here are the highlights:

• Adjusted earnings of $9.5bn, beating analyst expectations of $9bn
• A $4m share buyback programme, expected to be completed within three months
• Q3 dividend of 25 cents per share (same as Q2)
• Q4 dividend (paid in March 2023), expected to be 15% higher subject to board approval

The potential Q4 dividend increase, which smashed analyst expectations, will please shareholders. The buybacks — which now total almost $19bn for the year — should support Shell’s share price. Shell’s Q3 2022 adjusted earnings were less than the bumper $11.5bn reported for Q2. But they were more than double the $4.1bn announced for Q2 2021. Adjusted earnings for the first nine months of 2022 are almost double what they were in the whole of 2021.

There are plenty of projects that should keep money flowing. Shell announced this year that it had been selected as a partner in Qatar’s North Field east expansion and North Field South gas projects. It is developing another gas project in Malaysia. And importantly for the future, a hydrogen project in Holland got the go-ahead in July this year. Also, Shell bought an Indian company that develops and manages solar and wind farm projects in August 2022.

Volatile energy prices

How much money Shell makes in the future depends on the price of oil and gas, among other things. Dividends and share buybacks are likely to fall if energy prices cool after recent highs. The European benchmark for gas was up 250% from the start of the year in August. However, Shell is a cyclical business. The price of oil and gas has fallen since the highs in August. Yes, winter is coming, and might see prices move higher. But how about beyond? That is something I have no confidence in forecasting.

Shell’s latest quarterly results have prompted fresh calls for a windfall tax on oil and gas producers. This will happen every time the company and its peers report above-average profits, particularly when there are concerns that citizens will struggle to heat their homes. This is a risk that I cannot ignore, as if a windfall tax is implemented, there is no way of knowing its size and, thus, its impact on the company’s ability to reward its shareholders.

Renewing interest in Shell shares

Oil and gas has to be an industry in decline if the world is serious about net-zero targets and climate change. That, and the growing antipathy to oil majors, might explain why Shell is trading at a P/E multiple of around seven. The company is pivoting towards a renewable energy future, and that’s a big change. However, Shell has expertise in managing big energy projects. I believe it will leverage that expertise in renewables, and the transition will be successful.

On balance, I should buy Shell shares right now as the company seems well-positioned to take advantage of the volatility in the energy markets. But, beyond that, the company also makes sense to me mid to long term. However, I already own a position in Shell in my Stocks and Shares ISA, and I am happy with the size of my allocation and, therefore, won’t be adding to it today.

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James McCombie has positions in Shell 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.

A FTSE 100 company can be called a dividend aristocrat when it does two things:

1. Consistently pays a dividend to its shareholders
2. Annually increases the size of the payout

There is no requirement for high yields. I assume the market is forward-looking. Investors might have driven a stock price down because they see trouble is on the horizon for the company. But that will also drive the trailing dividend yield higher. Thus, I could buy a stock just for its high yield and walk straight into a dividend cut.

The yields on my three FTSE 100 dividend aristocrat picks might seem uninspiring. But bear in mind that I am looking for companies to buy and hold in my Stocks and Shares ISA for years. I am looking for a great track record to give me confidence that dividends will be consistent and grow over time.

FTSE 100 dividend aristocrats

The first of my picks is the industrial engineering company Spirax-Sarco (LSE: SPX). It has increased its dividend per share (DPS) every year over the last decade. Over the last five fiscal years, payouts to Spirax shareholders have increased by 12% per year.

Spirax’s revenues and earnings have grown solidly over the last decade, driving dividends steadily higher. The company’s dividend payout ratio (DPR) — DPS divided by earnings per share (EPS) — has remained fairly stable at around 45% over the last half-decade. That speaks to a consistent dividend policy designed to pay out what the company can afford. This is all comforting. It suggests that if the company continues to perform as it has, I should see bigger cash flows into my ISA over time if I buy its shares now.

Diageo is another FTSE 100 dividend aristocrat with solid revenue and earnings growth and a consistently increasing dividend over the last decade. Aside from a very high reading in 2020, the DPR has remained at around 60% over the last five years. The company, which produces alcoholic beverages known the world over, like Johnnie Walker and Smirnoff, has increased its DPS by 4% annually on average over the last five years.

Finally, I like the look of Relx. This provider of research journals, databases, business intelligence, analytics services, and exhibitions has consistently paid a dividend to its shareholders for decades and increased it yearly over the last 10 years. Once again, I see solid revenue and earnings growth and a consistent DPR of about 60%.

Attractive dividend yields

A high dividend yield might not necessarily be attractive. Also, a low yield might not mean an investor like myself should turn away in horror. None of these three stocks has eyewatering yields: Spirax’s yield is 1.3% on a trailing 12-month basis, Relx’s is 2.3%, and Diageo comes in at 2.1%.

But let’s look at DPS instead. Spirax shareholders received a dividend of 136p per share in 2021. If Spirax continues to grow its payments at 12% a year, then after 10 years, the DPS will be 350p, and after 20, 1,088p, which would be a yield of 10% on a 10,620p per share investment in the stock made today. But, as always, there are no guarantees in investing, and I need to be confident that the future of these companies will look like the past before diving in.

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

The UK markets have been increasingly volatile over the last month or so. Over the last year, the FTSE All-Share is down about 8%. But, since 2002, the same index has moved from 1,970 to 3,770 points. I prefer to look to the long term.

I see the recent declines in UK stock prices as opportunities to snap up good companies at relatively low prices. Here are three UK shares that I would buy this week for my Stocks and Shares ISA.

UK pet boom

CVS Group (LSE: CVSG) operates veterinary practices, laboratories, crematoria, and an online retail business. This £1.25bn market capitalisation company has managed to grow its revenues and profits by 15% and 17%, respectively, on average in each of the last five years. That’s a fantastic track record.

The UK’s pet population has almost certainly increased over the last couple of years, and CVS could see a prolonged growth in its revenues as a result.

In March 2020, the Competition and Markets Authority ruled that CVS’s purchase of a smaller vet chain reduced competition. CVS ended up selling the company and saw its share price tumble. The specifics of the ruling will make expansion in the UK small-animal vet field trickier to navigate. However, expansion into Europe and large-animal practice is underway, which should prove fruitful. The company also appears to be dealing fairly well with the industry-wide staff shortage.

A UK software share

Learning Technologies (LSE: LTG) provides in-person and online education and talent management services to corporations in the US (70% of business), Europe, and the UK.

A good chunk of this £810m market cap enterprise’s revenues come through multi-year software contracts. Many corporations must deliver training to satisfy regulations, which benefits Learning Technologies.

After making losses for much of the last decade, Learning Technologies swung to a profit in 2018 and has stayed in the black ever since, including during the pandemic. Annual revenue growth has averaged 56% over the last five years.

But I wonder why the company’s five-year average operating margin of 5% is so low, especially for a software-focused company. Also, the company raises funds from shareholders regularly, potentially diluting future returns, and increased its total long-term debt pile from £11m in 2020 to £188m in 2021.

Have cake and eat it

With a market cap of £110m, Finsbury Food (LSE: FIF) —  which makes bread and cakes for retailers (mainly supermarkets) and food service companies, like coffee shops – is the smallest of my three UK shares.

Its revenue growth has been somewhat lacklustre at an average of 2.6% per year over the last five years. But it is impressive how management has managed to preserve operating margins through some tough times, with supply-chains creaking and inflation soaring. It appears to make the kind of treats that customers love, even if they are experiencing tough economic times.

There are plenty of growth opportunities to pursue via organic growth or acquisitions. Gluten-free bread is one new area that looks fruitful, and management has been talking up artisanal bread.

However, I do note that management seems keen on financing acquisitions through debt. The health of this company’s balance sheet is something I should monitor closely.

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James McCombie has no position in any of the shares mentioned. The Motley Fool UK has recommended Learning Technologies. 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.

We encourage a buy-and-hold approach to the stock market here at the Fool UK. It’s not simple to find quality companies with excellent prospects and buy them at an attractive price, but when such an opportunity presents itself, I’ll take it. I’ll hold stocks for years, even decades, assuming their fundamentals don’t change for the worse.

Volatility brings opportunities. It tends to rise when the markets are heading down more often than when they’re heading up. Declining markets tend to be volatile so, it’s at these times when I should be on the lookout for bargains.

But such times usually mean existing holdings are taking a hit. It’s hard not to react when a stock’s price is being dragged down by sour market sentiment even if, operationally, the company behind the stock seems to be doing okay. There’s are tensions linked to a buy-and-hold approach. Bargains are more likely to be found in volatile markets. But existing portfolios, constructed presumably of previously purchased bargains, will suffer during volatile times. Not selling the things that are probably declining in value but instead buying more of the same type of thing takes discipline and courage.

Is the stock market volatile right now?

Is today’s stock market volatile? Of course, it is — what a silly question! It’s all over the news. But, rather than letting the media narrative guide me, I prefer to do my own research.

On a 21-day annualised basis, the volatility of the FTSE All-Share is 16.2% right now. The average for the last five years is 14.1%. So, the FTSE All-Share is just about showing above-average turbulence at the moment. And volatility has increased from a recent low point.

The ups and downs of the market have been above average for much of 2022. The stock market was relatively calm in 2021. This contrast makes today’s situation seem extreme. However, it’s worth pointing out that volatility right now is nowhere near the 69.8% seen during the coronavirus market crash in 2020.

What I’m doing

Refusing to be guided by the news cycle is one step to dealing with times like these. As the exercise above demonstrates, an investor might be led to believe that right now, the stock market is more turbulent than ever. It’s not. But there can be no denying that 2022 has been disappointing. So, what do I do in such times?

I stick rather than twist. I don’t rush to sell shares in companies that I think will do well in the long term, even if their prices are sliding. Most market participants are bad at timing markets. Look at the disclaimer on any trading platform — it will say that most retail traders lose money.

Since I have no reason to believe I can successfully ‘time’ markets, I invest consistently in what I believe are quality companies with funds I don’t need for three-to-five years when volatility is both high and low. For example, I’ve recently added to my positions in GSK and Vistry. I buy at high and low prices over time, which should average out over the long term. And if I buy quality stocks and build a diversified portfolio, the return on my investment over time should be good.

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James McCombie has positions in GSK plc and Vistry. The Motley Fool UK has recommended GSK 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.

Surely the Card Factory (LSE: CARD) share price can only be heading down? It’s a bricks-and-mortar focused card retailer. Surely the days of taping a couple of pound coins inside a birthday card and popping it in a postbox are in decline?

To my surprise, greetings cards seem far from dead. According to entreptneur.com, millennials spend more on cards than any other generation, including baby boomers. Despite their reputation for being digital savvy, millennials are apt to turn to something a little more personal and tangible when the moment matters.

Millennials like cards

Card Factory’s revenue numbers are in keeping with a market that is in good health, with some obvious caveats. From 2013 to 2020, total sales rose from £300m to £452m. There was a lockdown-induced slump to £285m in 2021. But 2022 revenues hit £364m, and analysts forecast 2024 revenues at £464m, surpassing the pre-pandemic peak.

Card Factory’s volume share of the UK greetings card market hovered around 40% before the pandemic. The lockdowns meant Card Factory lost a chunk of volume market share. However, on each occasion, it bounced back. This pattern is evidence of a brick-and-mortar focus as online-focused competitors were able to scoop up market share when shoppers could not take to the streets.

The average price of a greeting card sold online is £2.50, compared to the £1.50 in a store. Perhaps that’s because online cards tend to be customised, which adds value. Card Factory does offer online orders and shipping on its website. It also has the online-only Getting Personal brand, which caters to the customised online greeting and gift card market. However, this is a small business, averaging about 3.5% of total revenues.

Card Factory management focuses on volume market share rather than value. That’s because it is a discount retailer. Its value-based market share of the greetings card market averaged 18% from 2013 to 2017.

Card Factory share price

So would I buy shares in Card Factory for my Stocks and Shares ISA? Well, I would not mind exposure to a market liked by a generation starting to enter its peak spending power. Aside from a few pandemic blips, it has maintained a healthy market share and grown its revenues. The company’s cash flow per share usually exceeds earnings per share (EPS). That’s usually a good sign, and it’s cheap, trading at a P/E ratio of 5.6.

But Card Factory is a discount retailer with limited traction online. This shows in its operating margins. They declined from 22% in 2017 to 16.3% in 2020. Then the pandemic hit, and they now sit around 11.6% over the last 12 months. I am concerned that Card Factory is involved in a price war. Yes, its revenues are growing, but its normalised (stripped of extraordinary or one-off items) EPS was 20.1p in 2017, yet analysts expect them to be 8.56p in 2024.

The Card Factory share price will likely follow earnings and operating efficiency trends more than revenue. So I won’t buy until I feel confident Card Factory is not in a discounted race to the bottom.

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James McCombie 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.

Dividend stocks provide me with regular, but not guaranteed, portfolio income. For the foreseeable future, I will be reinvesting dividends to grow my portfolio by taking advantage of the power of compounding.

Safety first

The recent price action in the UK markets has increased the yield of many shares. But it would be folly to assume a high yield is a safe one. Dividend yields are calculated using historical or forecasted numbers; thus, there are no guarantees.

However, it is possible to at least classify a dividend as relatively safe compared to others. So, I screened the markets, looking for the safest dividend stocks. My screening criteria were as follows:

• The company must have paid a dividend in each of the last 10 years;
• The dividend cover must be greater than two;
• Dividends must have grown by at least 2% per year on average over the previous 10 years;
• The dividend yield should be greater than 5%.

From the list, I selected my top five dividend stocks for October 2022

Three of the stocks, IG Group, Investec and 3i, are from the financials sector. IG Group is a financial technology company best known for its trading platforms used by retail and professional investors alike. It has a forecasted dividend yield of 6.3%, which should be covered at least twice by earnings. Investec has a predicted yield of 8.4% with a cover of 2.1 and is an international bank and wealth manager. Then there is 3i, a private equity and infrastructure investment company. It has a forecasted yield and coverage of 5.1% and 6.3 respectively.

My top dividend stocks

Mondi manufactures paper and packaging solutions for industrial and consumer-focused companies. Its forecasted yield is 5.3%, with a coverage of 2.6. Finally, Redde Northgate provides vehicle fleet rental and management services, motor legal services, and electric vehicle charging equipment supply and installation. Its forecasted yield and cover are 7.5% and 2.1 times, respectively.

Risk and track records

All investments carry risk. Investec is vulnerable to seeing clients pull funds if the global markets continue to wobble. The loss of fees could put dividends at risk. In adverse market conditions, IG Group might struggle to recruit new clients and convince existing ones to trade, hurting commissions. Mondi would be hurt by a slowdown in consumer spending, and Redde Northgate by a fall in business confidence. 3i replies on its extensive portfolio of private businesses for cashflows. I see a lot of consumer-facing businesses in there, so a recession would hurt them and, by extension, 3i.

However, all these stocks have paid a dividend in each of the last 10 years, including some tough times. That track record gives me confidence they would be able to find their way through troubled waters again. Thus, I would be happy to buy them this October and hold them in my Stocks and Shares ISA for their dividends for years to come.

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James McCombie 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.