At the time of writing, BP trades at 522p with a decent yield of 5.95% and a reasonable price to earnings (P/E) ratio of 13.74. BP’s profits have been rocketing forward from £172 million in 2016 to £9,578 million in 2018.

Here is a key fundamental reason why I have been bullish on oil for over a decade: there is only a limited amount of oil in the world with a fairly consistent rising demand.

BP only needs an oil price of around $40 a barrel to break even. Brent oil is currently trading at $63.32, and has been above $50 a barrel since mid 2017. I firmly believe that oil will eventually reach $100 a barrel again (as it did in 2014) primarily due to supply and demand, which I’ll dive into further in this article.

In addition to this, oil is increasingly difficult for UK companies to obtain. Lord Ron Oxburgh, former chairman of Shell, stated in 2008: “It is pretty clear that there is not much chance of finding any significant quantity of new cheap oil. Any new or unconventional oil is going to be expensive.”

For example, companies will have to either drill hundreds of miles underwater to capture black gold, as BP is increasingly doing in the North Sea, or often attempt to procure it from regions where there are a number of difficulties.

Oil made headline news recently when two British-owned tankers were seized by Iran in the Strait of Hormuz. Geopolitical tensions remain high in this region, which is a further factor that can push prices up.

In terms of increasing demand, I believe that many people underestimate the potential growth of China and India to guzzle oil. Millions more citizens in these nations will have cars in the coming years, I believe, and the vast majority of those vehicles won’t be electric.

BP is being resourceful in finding different forms of energy other than oil. It has paid BHP Group $10.5 billion for its shale assets, and has other renewable assets such as wind power.

Dividends are a crucial part of overall investment returns. So with the company increasing its dividend to 10.25 US cents per share, I will certainly continue to hold BP.

The same is true for Royal Dutch Shell. Currently trading at 2,563p with a decent dividend yield of 5.63%, the worldwide giant has a low P/E ratio of 11.24. Like BP, it is pumping some of its spare cash into buying back its own shares.

Its dividend record is one of the best out there, having not cut its dividend since 1945. Dividend cover is 1.5, higher than BP’s 1.14.

If I had to pick one quality oil producer between BP and Shell, I would opt for the latter: BP is still paying out compensation from its massive oil accident in 2010. Yet I first purchased Shell in 2015, with my last buy on 28 January 2019 at 2,269p. Overall in capital gains I’m up over 30%, plus juicy dividends.

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Mark owns shares in BP and Shell. 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.

In the news, housebuilder Persimmon (LSE: PSN) seems to me to be one of the most interesting prospects in the major UK index. The fundamental metrics seem to indicate a cracking deal with a bargain basement price-to-earnings (P/E) ratio of just 6.67. The dividend yield is huge too, coming in at 12.55%, and has been held steady at 125p for the last two years.

It’s pretty rare to find a company that has consistently seen its profits grow over the past five years, but Persimmon has done just that. There has been a steady climb from £372 million in 2014 to £886.4 million in 2018.

So why does the share appear so cheap?

Brexit and customer complaints

The spectre of Brexit seems to have haunted all housing shares, with practically every company mentioning the ‘B’ word in their trading statements. And share investors will remember just how hard housebuilders fell following the Leave vote in 2016. However, I believe we are on the final stage of the Brexit journey, and think there is a good chance Britain will leave by 31^st October 2019. Either way, with immigration constantly rising year on year, and more single-person households, there remains a structural demand for more housing.

Now on to the issue of customer complaints, and this seems to be more worrying. There seem to be hundreds of homeowners complaining about ‘snagging issues’ in their homes, such as cracked window frames. This has generated plenty of negative publicity and newspaper articles.

In contrast to this, I have seen some positive reviews and actually have visited some newly built Persimmon homes a few miles from where I live. Upon a quick inspection (with pictures), they do seem to be in reasonable condition.

So despite these two fears, one of which I would describe as negative sentiment, I would rate Persimmon a buy around its current level of 1,877p for the great yield.

Barratt Developments (LSE: BDEV) is Britain’s biggest housebuilder. Again the fundamentals look attractive here, with a cheap P/E of 8.59. The dividend yield is good at 4.6%, yet this doesn’t tell the whole story. For both 2017 and 2018 the company paid a special dividend of 17.3p, and if this is maintained then the potential yield is well over 5.5%. The dividend cover is very good at 2.51, so the company has plenty of scope to continue paying this special dividend as it sees fit.

The trading statement released on 10^th July 2019 gives further cause for optimism. Operating margins are now at 18.9% and profit before tax is expected to beat market expectations at around £910 million.

Overall, I would rate Barratt Developments as a strong hold at its current price of 575p at the time of writing. There is perhaps a slight concern over the selling prices of its London properties, yet there could well be an opportunity for canny investors to buy in the future.

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Neither Mark nor The Motley Fool UK have a 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, Sainsbury’s shares trade at 205.7p, sporting a decent dividend of 5.36%. The Sainsbury’s board made a conscious decision years ago to keep the dividend cover at twice earnings, and the current cover is at this figure now.

The key price-to-earnings metric stands at just 9.11, which is a reasonable level, lower than its rivals. However, when you look at the profit earned since 2016, the picture is exactly the opposite of what I want to see in a share: the profits are consistently decreasing every year…

2016 profits: £471 million
2017 profits: £377 million
2018 profits: £309 million
2019 profits: £219 million

There are a number of factors for this, but I believe the main one is the growth of German rivals Aldi and Lidl. I used to be a Sainsbury’s shareholder but made my first ever sale of any shares for more than 10 years in 2017 and I am glad I did: my selling price of 278.1p is far higher than the current price.

So what would I do now if I was a Sainsbury’s shareholder?

At current levels I would probably hold the shares, but not buy any more. The fundamental metrics do not make this share a sell, but there are better prospects out there to buy. Sainsbury’s profit margin is tiny at just 1%, and I can see Aldi in particular relentlessly gaining more market share.

Now let’s look at the giant with the blue hue, Tesco. At the time of writing the shares are trading at 237.8p, up from around 200p six months ago.

While Sainsbury’s is suffering from negative sentiment at the moment due to its botched Asda takeover attempt, Tesco is currently enjoying positive momentum. However, the fundamentals for the share are not good: the P/E comes in at 17.21, which is too high for my liking, and the dividend yield is just 2.43%.

And it gets worse. The company paid no dividend at all for the 2016 and 2017 financial years. It must be said that cover is good at over 3 times earnings, though.

Although Tesco has recovered from its whopping loss of £5,719 million in 2015 to post a profit of £1,320 million in 2019, I believe Britain’s largest supermarket is even more vulnerable to Aldi than Sainsbury’s.

I have visited a number of Tesco stores and there seems to be little positive to say about them. You could describe them as very similar to Aldi but with more brand names and higher prices. The key difference, though — they are much less busy.

I do practically all my shopping at Aldi and the stores are always packed. It is a ruthlessly efficient operation, in effect incentivising shoppers to work as trolley gatherers by the £1 loan fee imposed on them. The queues are as large as ever, but Aldi has efficiency measures such as multiple barcodes on stock to make them more quick to scan.

With Tesco not having the same overall quality as Sainsbury’s, I would certainly avoid Tesco shares.

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Mark does not own shares in any of the companies mentioned in this article. The Motley Fool UK has recommended Tesco. 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 dividend yield at the time of writing is a tasty 5.52%, comfortably above the FTSE 100 average, and is covered 1.71 times by earnings. There has been a consistent rise in the dividend since 2014, with the last three years seeing rises of 13.33%, 19.61% and 5.25%.

The bank’s price to net asset value currently stands at a bargain 0.8 while its common equity tier one ratio is an impressive 13.9%.

There is one key event, though, which I predict could see substantially more cash being distributed to share holders in dividends, which will soon be paid quarterly.

That is the end of PPI payouts, which is fast approaching on 29 August 2019. This can’t come soon enough for Lloyds, with the bank being forced to shell out £19.4 billion to date over the 16 million policies it sold since 2000.

In addition to this, there are signs of strength for the UK economy, which is of paramount importance to Lloyds. Unemployment is at a 43-year low and wage growth is reasonable. The end of the public sector cap gives scope for extra income to millions of households.

Customer service

It’s important to note that Lloyds still tops the tree for being the biggest provider of both mortgages and current accounts in the UK.

Lloyds’ customers are increasingly using the bank in a more digital fashion. As of 2018 there were 15.7 million active digital customers, a number that has been growing year on year. Over time, I believe this could lead to more branch closures, further reducing Lloyds’ costs.

Customer satisfaction, according to net promoter score – which is a measure of customer service at key touch points and the likelihood of users recommending Lloyds – was 61.8 in 2018, up from 61.2 in 2017. Complaints to the FCA per 1,000 accounts also dropped to 3.9 in the first half of 2018.

The ‘B’ word

The key issue for Lloyds, as with all UK-focused shares, is Brexit. I believe that eventually there will be some form of deal by 31 October 2019. There is a high probability Boris Johnson will be the next Conservative party leader, and the Brexit champion could be a better negotiator than Theresa May. The EU frequently leave deal-making decisions to the last minute, and they cannot afford to be without the UK payment of £39 billion.

So overall at a price of 58.16p at the time of writing I rate Lloyds a buy and will continue to hold the shares myself, as I believe there is a prospect of a decent capital gain, along with a solid dividend.

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Mark Howitt owns shares in Lloyd Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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 first share I will mention is ITV (LSE: ITV). Not only does this have a tasty 7.23% dividend yield, bashing every current account out there, the dividend is covered 1.93 times by the cash it earns. This beats many other FTSE 100 companies, some of whom only have cover of 1.3 times. It took me a while into my investment lifetime to realise the importance of dividend cover yet it is vital. There is no point being seduced in by a high dividend if it is cut.

I own ITV myself, purchasing at 106p including stamp duty and buying fees in June 2019. At the time of writing, the shares trade at 110.6p. I believe that fan-favourite shows such as Love Island and Coronation Street can help boost the TV player up to at least 140p. A 140p price would lead to the price-to-earnings ratio being around 8.1, still a low figure for the media sector.

Another FTSE 100 dividend giant I own is Imperial Brands (LSE: ITV). The cigarette supplier currently boasts a big dividend yield of 9.5%, which is much higher than it has been historically and in this sector is very good. On top of this, Imperial Brands has a commitment to increase its dividend by 10% every year, a track record it has kept up since at least 2014.

Sure, the dividend cover might be slightly low at 1.45, yet Imperial Brands is making plenty of investment into e-cigarettes, which could further boost its earnings. In contrast to ITV, Imperial Brands has worldwide exposure, selling its products in many countries.

Additionally, Imperial Brands has employed a director with experience in the recreational drug industry, which has huge potential.

Some people will not invest in cigarette shares for ethical reasons, which may lower the price for other share investors. Despite myriad health warnings, I still see plenty of people smoking in the UK and new vape and e-cigarette shops are opening, attracting a younger demographic. E-cigarettes have the added bonus of being around 95% less harmful than standard cigarettes.

I would put Imperial Brands firmly on the watchlist of shares to look at. It has recovered recently from its year low of 1,821p to be trading at 1,976p at the time of writing. Three years ago the company was trading at over 4,000p, and I can certainly see scope for the price to rise from where it is today over time.

So hopefully these two shares provide food for thought for giving you a second income. I’ve experienced the feeling of having dividends flow effortlessly into my bank account for over 14 years now, and it’s a great feeling.

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

What does this mean for Centrica‘s (LSE: CNA) British Gas? In a nutshell, probably that its share of the market will gradually decline for gas and electricity. As of 2012 British Gas had 20 million business and domestic customers, SSE had 9.6 million customers, npower had 6.5 million customers, EDF had 5.7 million customers, E.on 5.3 million customers and Scottish Power had 5.2 million customers.

British Gas’ share of the domestic gas market is now under 40%. Other companies seem to be targeting the gas and electricity market aggressively, and in different ways to British Gas. For example, npower sponsored the Football League, and E.on the FA Cup. All the other big six companies also advertise heavily on TV. There is the added threat of new smaller energy companies offering cheaper prices. I’m with First Utility, who are the cheapest for my usage in my area. 40 per cent of switches in January 2014 were to a smaller supplier.

What I would say based on personal experience, however, is that there is an amount of brand loyalty towards British Gas. Some people take the view that they always have been supplied by British Gas and always will. I know it’s a generalisation, but a large proportion of these people are over fifty. Since energy bills are such a popular news topic, and affect so many people I predict that the amount of people switching will only increase.

Here are the key British Gas results for the year ended 31 December 2013:

So I think we can describe British Gas’s share of the UK energy market as managed decline. Overall I would say that its customer service has improved over the past ten years, and employees are treated well.

Remember, though, British Gas is only one part of Centrica. Centrica is making efforts to expand into the USA, in terms of both increasing customer numbers and storage and supply capacity. At the current share price of 312.3p, with a yield of 5.44% and a P/E ratio of 13.1, Centrica is at least a solid hold, and a reasonable buy for a long-term ‘buy and hold’ investor.

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Mark Howitt owns shares in Centrica and SSE. The Motley Fool has no position in any of the shares mentioned.

National Grid

National Grid is the only distributor of gas and electricity in the UK. Also, it supplies over 9,000 miles of electricity to USA states Massachusetts, New Hampshire, New York, Rhode Island and Vermont. That’s 3.3 million electricity customers and 3.4 million gas customers. I didn’t even know this when I first invested in the share, but it is a useful piece of diversification to have. It’s sticking to quite a prosperous English-speaking area.

National Grid has a decent dividend yield of 4.83% and is trading on a fairly good P/E of 12.4. What I particularly like about National Grid is its consistent profits and rising dividend.

Both the profit and total dividend paid are key factors to check before you buy a share — investment experts recommend you check this for a number of years.

As you can see, the dividend has been rising above the rate of inflation at around 8%. However, in future the dividend increases may only track retail price inflation, which is 2.9% this year.

National Grid does have to take on quite a lot of debt to maintain its infrastructure, although this seems to be at a manageable level. National Grid has total borrowings of £25.9 billion and net debt of £21.1 billion at the end of March 2014. A high percentage of this debt is in US dollars and the strength of the pound has had the effect of reducing net debt by approximately £1.2 billion pounds.

I bought National Grid on 15^th January 2013 at 689.95p and on 9^th October 2013 at 743.69p. (The first time I bought it was slightly before The Motley Fool recommended it in a special free report, I believe, ‘great minds’ and all that!). I’m pleased with the gains since then.

At 871p now, what should you do? I would definitely say put National Grid on a watch list, especially if you’re into high yield shares. I have no plans to add to it at the moment, but if you don’t have any then you may want to consider it. It’s easy to see National Grid has had a steep rise over the last year. Personally, I would keep it on a watch list and look to buy in at around 850p, provided nothing significantly bad happens to the business. You do have to keep an eye on weather events in the USA, though, with Hurricane Irene and Super Sandy causing damage in the past…

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Mark Howitt owns shares in National Grid.

I’m going to be upfront about this right away — not only do I own shares in Centrica, but I also worked for them for two years. My role was selling gas, electricity, Home Care and many other products ‘door to door’, and I did it for two years. I also worked for SSE and NPower in a similar role, too. You could describe it as ‘quite tough’ (I’ve been bitten by a couple of dogs and had to work with snow up to my waist), but I’ve managed to see a lot of customers and save them a lot of money.

Anyway, much more importantly, should you invest in the company? Centrica currently has an attractive yield of 5.54% and the P/E ratio is reasonable at 13.1. Centrica also has a good history of rising dividends, as you can see from the table below:

Centrica is more than just British Gas, too — it operates in many countries around the world, including America, Canada and Australia, and even offer financial service products. So it’s a more globalised offering than many of its sector peers.

However, in the UK, energy companies are under quite a lot of political pressure. Ed Miliband would like to ‘freeze’ energy prices if he comes into power. Whether he would legally be able to do that is another question; I’m sure the companies would fight it very hard, and it would at best take quite a while to implement. However, this is one of the main factors why Centrica and other utility shares have taken quite a hit recently. At their high point in 2013, CNA shares traded at 400p. They’re now trading at 307p.

I worked for Centrica from 2007-2009 and I saw plenty of people back then who struggled with their bills. For some people, sadly, it was ‘heat or eat’. People being hit the hardest were often those who stuck with ‘gas for gas and electric for electric’ and ended up paying the highest prices despite being unable to afford it.

Economic conditions are tougher now. More people switch their gas and electricity in the UK than in any other European country and the regulators want to make it quicker and easier to do so, too. It’s worth people investing their time to, as there are significant savings to be had.

Anyway, I rate Centrica at least as a solid hold now — I have no intention of selling my shares. If you are a long-term ‘buy and hold’ investor, then I believe they are a reasonable buy if you can purchase around the 305p mark.

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Mark owns shares in Centrica.

As I shop there every week, I make a note of the kind of people who frequent the store. I’ve shopped there at different times: I would say around 70% of the people are over 50; some may describe them as thrifty. It’s a good job they are, because Aldi will charge them for a plastic bag.

There is no music playing in Aldi. You have to shove a pound into the trolley if you want one. The floor is made up of yellow tiles, some of which are cracked. At 8:00am, the narrow aisles will often be half obstructed by big boxes.

Yet the prices are all cheap. You could go to a shelf and randomly pick more or less anything and it would actually be good value for money probably, not just cheap. The fresh vegetables and fruit are quite good. And there is always a massive queue at the checkout of people waiting to pay for their goods, rushed through quickly by till operators. At the front of the till, they advertise for new staff.

Even at 8:00am, the car park is so full it’s hard to get a place.

Anyway, I do the other half of my shopping at Morrisons (LSE: MRW). It’s only a few hundred metres away from Aldi; I go there straight after. The car park is much bigger and there’s plenty of space. You don’t have to pay for a trolley and as you walk in there is music playing and the store is warm and bright. There are much more staff around, in fetching green aprons no less.

However, and this is key, the store is nowhere near as busy as Aldi. I’ve been shopping in Morrisons for a long time, roughly from when the store opened 20 years ago. There used to be more customers.

Overall the ‘shopping experience’ is much better than in Aldi, but the prices are quite a lot worse. My tip for shopping in Morrisons is to only buy things that are on offer, or only buy Morrisons’ own brand — but even then it’s still dearer than Aldi.

You can check out your shopping much more quickly at Morrisons, and at the tills they are advertising their online shopping service. Better late than never.

Hopefully this snapshot has given you some insight into how the businesses may be operating on a personal level — it’s important to look at figures with shares, but it’s also great if you can get personal experience with the business. That’s why I check out branches of HSBC when I’m in town, too.

Aldi aren’t on the UK stock market and I don’t have shares in Morrisons. I do, however, have shares in Sainsbury’s (LSE: SBRY). I was attracted by the good dividend yield (currently 5.41%) and the nice P/E ratio (currently 9.6). I believe that Sainsbury’s will be affected less by the likes of Aldi and Lidl than Morrisons or Tesco, but they still will be affected in some way, shape or form. That’s probably why they’re going to open 15 Nettos by the end of the year, and there are rumours that a Sainsbury’s store might be turned into a Netto! Overall, though, I think Sainsbury’s business model has a decent chance of retaining most of its middle-class customers, especially down south.

Looking at Morrisons as a share is interesting, too. The dividend yield is a stonking 7.24% and the P/E ratio is only 9.5. Seems cheap as chips. However, you should think carefully before investing in this share. I have no current plans to do so, even though it’s trading around the level of its Net Asset Value (NAV). Take a look at how much the share price has dropped over the last six months and over the last year. Just over a year ago the share was trading at 312p. Six months ago it was 250p.

I believe Morrisons will be effected quite a bit more than Sainsbury’s by Aldi, Lidl and other discounters. Sainsbury’s has many more stores, including convenience stores, located in London and the South East. And the shopping experience is different in Sainsbury’s, too — some Sainsbury’s have a pharmacy and even a bank to pull customers in and retain them. What’s more, Sainsbury’s online offering is more advanced than Morrisons.

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Mark has shares in Sainsbury’s and HSBC.