For me, recent market weakness makes it a good time to target passive income from dividend-paying shares. And if I had spare cash I’d buy some more.

For example, I like the look of Moneysupermarket.Com (LSE: MONY). The company operates price comparison websites for insurance, money, home services and other products.

On 18 October, the third-quarter update showed 15% growth in revenue and 6% for the year so far. And as with many businesses, such a positive performance disagrees with the fallen share price.

Ahead of expectations

The directors said the outcome was “ahead of expectations”. And they predict full-year earnings before interest, tax, depreciation and amortisation (EBITDA) will likely come in “towards the upper end of market expectations”.

I see this enterprise as a ‘cash cow’ rather than a growth proposition. And that reflects in the record of steady shareholder dividend payments. Indeed, payments continued even through the pandemic. 

There’s competition in the sector. And that could threaten the progress of the business in the years ahead. However, this is a well-established brand. And that will be hard to replicate for would-be challengers.

Meanwhile, with the share price in the ballpark of 178p, the forward-looking dividend yield is around 6.8% for 2023. I think the stock could make a useful addition to my diversified portfolio.

But I’m also keen on DS Smith (LSE: SMDS). The firm provides sustainable packaging solutions, paper products and recycling services worldwide.

Very good trading

On 10 October, Smith surprised the market with an upbeat trading statement. Performance had been “very good” and the directors said they expect full-year trading to April 2023 to be “ahead of expectations”.

The company skipped dividend payments in the depths of the pandemic. But cash flow held up well. And, since then, the company has made payments and they are set to rise. 

Smith faces competition in the sector, and there’s quite a bit of debt on the balance sheet. Those factors could make life difficult for the business in any severe economic turndown.

Nevertheless, I’d embrace the risks to include this stock in my portfolio. And with the share price around 290p, the forward-looking dividend yield is about 6% for the trading year to April 2024. 

I’d also go for National Grid (LSE: NG), the operator of energy transmission and distribution systems in the UK and the US.

Steady operational progress

On 10 October, the company delivered its pre-close update. And trading had been “in line” with directors’ expectations. We’ll find out more with the interim report due on 10 November.

I think the firm occupies a well-defended niche within the power systems at home and abroad. But there is a lot of debt on the balance sheet. Although that’s not unusual for utility companies that need to plough a lot of capital into maintaining and improving networks.

However, rising interest rates and regulatory demands could make it difficult for the company to keep up its shareholder dividend payment in the future. Nevertheless, the multi-year dividend record is robust. And I’d embrace the risks and aim to hold this stock for the long term.

With the share price near 940p, the forward-looking yield is near 6% for the trading year to March 2024. And that’s attractive to me.

I think it’s a great time to buy FTSE 100 shares to hold for the long term. The general economic and geopolitical news has been gloomy for a protracted period now. And company valuations have been driven down in many cases.

But lots of companies keep releasing positive trading updates. And many businesses are paying generous-looking shareholder dividends and buying back their own shares. I think the situation speaks volumes about the resilience of incoming cash flows.

One day, investor sentiment will turn more positive. And that could drive share prices higher. On top of that, I expect ongoing operational performance to lift company earnings for years to come. Nothing is certain, but valuations may not look as attractive as they do now in the months and years ahead.

I’ve been buying some of these decent-looking FTSE 100 stocks. But I don’t have enough spare cash to buy every opportunity I see. Nevertheless, plenty of shares now inhabit either my portfolio or my watchlist.

Connecting Africa

For example, I like the look of Airtel Africa (LSE: AAF). The company is rolling out telecommunications and mobile money services across the African continent. And recently-announced radio spectrum acquisitions in Tanzania and Zambia prove growth is on the company’s agenda.

We’ll find out more about operational progress with the half-year report due on 27 October. Meanwhile, with the share price near 125p, the forward-looking dividend yield is around 6% for the trading year to March 2024.

It’s possible that a general economic slowdown in Africa could affect earnings ahead. And the company carries quite a bit of debt. Nevertheless, debt reduction appears to be a priority with the directors. And I bought a few of the company’s shares to hold for the long term as the growth story unfolds in the years ahead.

Energy infrastructure

I also like National Grid (LSE: NG), the electricity transmission and distribution company with operations in the UK and the US. Over many years, the business has been a steady payer of shareholder dividends.

But lately, the share price has dipped lower. And I reckon that move could be linked to rising interest rates. Indeed, National Grid has had a big pile of debt for as long as I can remember. And when interest rates rise, it could become harder for the business to service its interest payments and shareholder dividends.

However, National Grid isn’t the only company in the utilities sector to suffer from this challenge. High debts tend to be an outcome for businesses that always need to invest vast sums to maintain operations.

Nevertheless, I’m optimistic that interest rates won’t rise much further than they have already. And City analysts are not predicting any dividend cuts ahead for the company. In fact, they’ve pencilled in mid-single-digit percentage rises in the shareholder payment. And that’s for the current year to March 2023 and for the year following.

Meanwhile, with the share price near 919p, the forward-looking yield for next year is running at just above 6%. I think that’s attractive and I’d aim to buy some of the shares to hold for the long term in my diversified stock portfolio.

If I had a spare £5k to invest, I’d split it between out-of-favour stocks where the potential long-term returns could be much higher from today’s prices.

Growth at a more reasonable price

One sector that has been hammered this year is growth stocks, particularly in the US. The valuations of some of these stocks reached ridiculous levels last year. Now though, many have fallen substantially, opening up some interesting opportunities.

Shopify (NYSE:SHOP) is one such company. The share price is down an incredible 81% in 12 months. As a holder, I’m personally feeling the pain, with my Shopify shares down around 60% from when I invested.

Despite the drop, I have no intention of selling my shares because I’m still encouraged by the progress of the company. Shopify sells tools to enable merchants to run their businesses online and offline. The platform has massive scale, with an estimated 3.6m jobs created globally by Shopify merchants. This scale has recently enabled it to sign partnerships with the likes of Facebook, YouTube, and TikTok.

A strange disconnect

Shopify has grown its gross merchandise value and revenues threefold since the start of the pandemic. Yet the share price since then is down around 40%. I think that disconnect between the strength of the company and the weakness in the share price offers me a great opportunity.

There’s an investing adage that says we should only water our flowers, not our weeds. Down 60%, Shopify certainly looks like a giant weed in my portfolio right now. So of course, there’s a risk here that I’m throwing good money after bad, especially with the risk of a global recession looming.

However, I’m inclined to see this as throwing more money into a good company and will be adding to my position this year.

Solid income generator

I’d also be looking for solid income stocks that are down. One that catches my eye is National Grid (LSE:NG), with the shares falling 17% so far this year. The dividend yield is forecast at 5.7%, which I think looks attractive.

This utility giant transmits and distributes electricity and gas, connecting millions of people to the energy needed to live. It’s essential and basically has a monopoly on what it does.

Yet one obvious risk is the potential for energy blackouts this winter. Management has even called this out, saying: “In the context of the terrible things that are going on in Ukraine and the consequences of that [it is] right that we set out what some of the potential risks could be.” These blackout times in the UK would be between 4pm and 7pm, by the way.

Obviously, this wouldn’t be great for a company that connects households to the power grid. Nevertheless, I’d expect blackouts to be temporary and not affect National Grid’s long-term dominance. So I’ll buy this stock if winter passes without blackouts.

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There are several approaches that I reckon could help with the inflationary pain of the next 12 months. I’ve picked one UK share for each.

Dividend yield

Seeking high dividends is one way. If inflation climbs reaches 10%, then adding 10% in dividend cash to our pot seems like a good choice.

I’d go for Persimmon (LSE: PSN) to try to achieve that. It’s hard to guess what the full-year dividend will be, but forecasts currently put it at around 18%. That’s come about due to a hefty share price fall.

If the housing market slumps, housebuilder shares could fall further and dividends could be cut. But I rate the sector as a relatively safe one for long-term investors, even if we suffer short-term volatility.

Others I’d consider for one-year high dividends include Rio Tinto (10.5%) and M&G (10.8%), bearing in mind the risk that these are only forecasts and could change for the worse.

Essentials

Investing in essential goods or services is also, I think, a good way to help offset inflation. I’m thinking of National Grid (LSE: NG), which is on a forecast dividend yield of 5.7%.

That’s not enough to beat double-digit inflation in just one year, but it’s a start. More importantly, it’s a company that provides an essential service. I know we’re in the middle of an energy crisis, and people will be cutting back on usage. But it’s not something like holidays, or fashion accessories, which people can simply stop buying during tough times.

The National Grid share price has fallen in the past few months, and it looks good value to me.

Alternative choices for essentials include Tesco (5.7% forecast dividend) and United Utilities (5.2%).

Progressive

Investing in shares usually wins out over inflation not in one year, but over time. If a company pays only modest dividends, but keeps them growing progressively, it can come out well ahead. The dividend only needs to beat long-term average inflation, not each individual year’s.

I’d also go for an investment trust. Specifically, one of the the Dividend Heroes (as selected by the Association of Investment Companies) which have raised their dividends for at least 20 years in a row.

My choice is City of London Investment Trust (LSE: CTY), whose dividend has risen for 56 straight years. Currently its dividend looks set to yield 5.2%.

Alternatives include Merchants Trust (40 years, 5.4%) and Murray Income (49 years, 4.8%)

Bottom line

There’s a key risk with relying on dividends to help with inflation. They might be cut, or annual rises might be reduced. And that could affect share prices. We need to consider these risks when we invest.

But for me, the bottom line in trying to keep my investments ahead of inflation is straightforward. If I don’t plan to sell my shares this year, then the purchasing power of my cash doesn’t matter right now. All that matters is that I beat inflation in the long run, over the years I intend to keep investing.

Since late August, the National Grid (LSE: NG) share price is down by just over 25%.

But to put that move in perspective, the recent 885p means the energy company’s stock has eased back by less than 1% over the past year. 

Nevertheless, a 25% drop over less than two months is significant. And the current wave of market bearishness has probably affected the stock. But on top of that, I’ve heard rumours that some pension funds have been selling liquid equities (shares). And National Grid is a large business. So, it’s easy to trade the company’s shares in size to raise cash fast.

The business remains sound

But whether problems in the bond market are causing pension funds to sell shares in a fire sale is a matter of speculation for me. And whatever the reasons behind the recent slide in National Grid shares, the fundamentals of the business appear to remain sound. So, I see the move lower as a discount to the amount the shares cost in August.

On Monday, the firm released its pre-close update ahead of its half-year results to 30 September. Overall trading has been in line with the directors’ expectations. Meanwhile, City analysts predict earnings will rise by almost 70% in the current trading year to March 2023. And by almost 12% the year after.

We’ll find out more about recent progress with the half-year results report due on 10 November. But I continue to see National Grid as a worthwhile candidate for my diversified portfolio. I think the business stands out in its sector because of its unique position at the heart of the UK’s energy infrastructure. And it also has a valuable business operating in the US. 

A robust dividend record

The company has a robust history of paying shareholder dividends. My Foolish colleague Roland Head pointed out recently that the company hasn’t cut the dividend in 26 years. And it’s increased the payout in most years since 1996.  

Meanwhile, with the share price near its current level, the forward-looking yield is running just above 6%. That’s for the trading year to March 2024. And it arises because analysts have pencilled in mid-single-digit percentage increases in the shareholder payment for this year and next. Of course, there’s always the potential for estimates to be wrong. But I see the steady and rising dividend as one of the main attractions of the stock.

Regulation and debt

In many ways, National Grid is the ideal dividend-led investment for me. The company operates in a steady sector with consistent demand. And its electricity transmission network in the UK commands a monopoly position. However, operations both sides of the Atlantic are subject to heavy regulation and regulatory scrutiny.

One of the outcomes of this is the requirement for National Grid to constantly invest in its infrastructure. And that has led to the firm’s high level of borrowings. However, I’m inclined to balance debt and regulatory risks against the company’s long and consistent dividend record. And this means, rightly or wrongly, that I’d see the shares as attractive now for me to hold for the long term if I had some spare cash to do so.

Picks and shovels

National Grid (LSE: NG) seems like the ultimate ‘picks and shovels’ investment to me. In a gold rush, not everyone finds gold. But those who supply the goods and services that the prospectors need should make their money.

I see the same in the energy delivery business. However our energy is generated, and by whom, it has to flow through the National Grid networks.

National Grid shares climbed early in 2022, presumably seen as a defensive investment. But the latest energy crisis has sent them down again, back to ‘valuation-as-usual’.

The biggest long-term risk I see is the decline of fossil fuel usage. That could eventually lead to the gas network becoming obsolete. But I reckon whatever doesn’t flow that way must surely flow via electricity instead.

The share price fall puts National Grid shares on a forecast price-to-earnings (P/E) ratio of nine. And there’s a predicted 2023 dividend yield of 6%.

Reliable dividends

Few companies have been paying dividends as reliably as British American Tobacco (LSE: BATS). Well, except maybe its peer Imperial Brands. The British American share price has been in a decline over the past five years.

That’s left the stock on a forecast P/E of only 10. And we have a predicted dividend yield for the current year exceeding 7%. By 2023, analysts reckon the company will be handing over 8%.

The main risk seems obvious. Humans might, eventually, manage to give up on tobacco and consign its producers to history. But tobacco consumption remains stubbornly strong, especially across the developing world. And I suspect its decline will take a very long time.

Meanwhile, British American should have plenty of time to keep developing new tobacco products that don’t involve filling lungs with smoke.

Long-term sentiment

My third pick is not on a low P/E valuation like the first two. It’s Unilever (LSE: ULVR), with a 2023 forecast P/E of around 18.5. That’s higher than the FTSE 100’s long-term average, but relatively low by Unilever’s standards. We’ve traditionally seen a premium valuation because investors like the company’s defensive characteristics.

The Unilever share price is quite a bit below its pre-pandemic peak now.

One danger is that rising inflation and interest rates will lead to people spending less and buying fewer Unilever products. Investors might also see the share valuation as still being a bit rich, and more in line with previous better times.

But I think Unilever’s wide range of essential products makes it one of the most defensive producers of all retail brands.

Portfolio

Starting a FTSE 100 portfolio today, I’d also be attracted to what I see as depressed recovery candidates. In particular, I’m thinking of banks and housebuilders.

But these three would almost certainly be in there, as the three I rate among the strongest defensive buys for 2023.

Having said that, recent stock market panic means that many top-quality British stocks have been unjustly sold off. The result is that many companies with good long-term outlooks now trade at a discount.

Here are three FTSE 100 bargains on my shopping list today.

BAE Systems

I’d buy BAE Systems (LSE: BA) to capitalise on rising defence spending over the next decade.

Russia’s invasion of Ukraine, and Chinese military drills around Taiwan, have upset the geopolitical balance this year. As a consequence, traditional allies in the West are taking steps to upgrade their militaries.

UK defence spending alone is set to double to £100bn by 2030, it’s been announced. In this landscape, BAE Systems should see demand for technologies like its jets, ships, and drones rise strongly. I’m expecting it to thrive despite the threat of supply chain problems in the near term.

At 845p per share, it has a P/E ratio of 16.1 times. This isn’t that cheap on paper. But I think it represents fantastic value given the manufacturer’s rapidly-improving sales outlook. JP Morgan has just slapped a £10 price tag on its shares.

JD Sports Fashion

Sports and athleisure retailer JD Sports Fashion (LSE: JD) on the other hand trades on a rock-bottom P/E ratio of 8 times. This is comfortably within the accepted bargain benchmark of 10 times or less.

Its low valuation reflects the twin pressures of sinking consumer spending power and rising costs. But it fails to reflect the sportswear giant’s bright long-term outlook in my view. I expect JD’s share price to recover strongly from current levels.

The activewear segment is still tipped for spectacular growth (analysts predict a global market worth $385bn by 2032, up 83% from current levels). And JD Sports has the brand power to make the most of this opportunity.

It also has an excellent e-commerce platform, giving it the means to exploit the digital shopping boom.

National Grid

I’m also thinking of buying National Grid (LSE: NG) shares to provide me with lifelong passive income.

Today the power transmission business trades on a forward P/E ratio of just 13.9 times. It’s a reading I believe fails to fully value the firm’s excellent defensive qualities. The essential service it provides ensures reliable earnings regardless of economic conditions. National Grid also has a monopoly on what it does.

As I say, I also think it’s one of the best stocks to buy because of its excellent dividend potential. Today it offers huge dividend yields of 5.9% for this year and 6.2% for next year.

And despite the huge costs of maintaining the power grid I expect it to continue paying good dividend yields over the long term.

Diageo

Thanks to its bumper portfolio of 200+ brands that people continue buying whatever the economic climate, Diageo (LSE: DGE) is one of my favourite FTSE 100 stocks.

But another one of Diageo’s attributes is that it’s a truly global business. It’s this geographical diversification that should mean the company is able to remain resilient in the face of a plunging pound.

Trouble is, Diageo shares never trade at bargain basement prices. Right now, for example, they change hands on a price-to-earnings (P/E) ratio of 22. That said, this is actually below the five-year average valuation of 25.

The company is also a reliable source of dividends. Sure, a 2.2% yield might look very average compared to some in the FTSE 100. However, Diageo has been remarkably consistent in hiking its payouts every year.

Personally, I’d rather have a smaller but more stable level of passive income than one reliant on firms that may never pay up. If I had the cash, I’d jump in.

National Grid

What it does may be essential, but National Grid (LSE: NG) shares have been losing height over recent months. As I type, the stock is down 12% this year.

I wonder if some investors may begin reaching for the ‘buy’ button again. After all, a good proportion of the power provider’s assets are actually located across the pond. It owns and operates electricity distribution networks in upstate New York and Massachusetts and gas distribution networks across the Northeastern US.

All this dollar exposure should mean that this highly defensive company can maintain its status as a dividend aristocrat going forward.

Holders are now looking at a yield of 5.7%. That’s pretty attractive to me considering that the best savings account only offers 2.5%. A P/E of 14 is also lower than it was earlier in the year.

If my own portfolio weren’t more tilted towards growth stocks, I’d hoover up some of these shares.

Pearson

Pearson (LSE: PSON) is yet another top-tier member worth commenting on. It provides tests and scoring services to governments, educational establishments and businesses with a particularly large presence in the US.

Of the three FTSE 100 stocks mentioned here, Pearson has been easily the best performer in 2022. The shares are up 44% as I type. Is there more to come?

Again, the fact that it has significant operations in a dollar-denominated market (where earnings are then converted into pounds) probably won’t do any harm. The growth in digital learning, turbocharged by the pandemic, looks set to continue as well.

However, I shouldn’t overlook the possibility that recent share price gains are due to a failed takeover deal earlier in the year. The company may potentially still be a target but the question is, how much hope of another bid is now priced in?

I’d say a fair bit. Pearson’s shares trade at 18 times forecast earnings. The five-year average is 13 times.

I believe there are better opportunities out there for my portfolio.

This modest reversal may be a surprise given the company’s strong defensive qualities. Usually utilities firms like this are popular safe havens during tough economic times.

That said, investors using Hargreaves Lansdown’s trading platform have used recent weakness as an opportunity to load up on the stock.

National Grid shares were in fact the third most frequently bought with Hargreaves Lansdown last week. The FTSE 100 stock accounted for 3.89% of all buy orders.

So should I also invest in it following recent share price weakness? Or would I be better off buying other UK stocks?

An undemanding P/E ratio

Well, I certainly believe the shares offer great value for money right now. At current prices, around £10.30 per share, it offers both attractive earnings multiples and market-beating dividend yields. I’ll talk more about those dividends shortly.

City analysts think the firm will generate earnings per share (EPS) of 65.6p in this financial year (to March 2023). This leaves the business trading on a forward price-to-earnings (P/E) ratio of 15.7 times.

At this level National Grid doesn’t look necessarily ‘cheap’ on paper. But it trades not far off the FTSE 100 average of 14-and-a-half times. And given those exceptional defensive characteristics I speak of, its earnings prospects look far sturdier than most other Footsie shares. This merits a higher valuation in my book.

Reassuringly dull!

To put it simply, it’s brilliantly boring. Our need for electricity — and therefore for a robust electricity grid — remains stable at all points of the economic cycle.

So National Grid, which keeps the country’s vast network of pylons, wires and substations up and running, has excellent earnings visibility at all points of the economic cycle. The company also has a significant utilities business in the US.

What’s more, I also don’t think the protection National Grid provides against soaring inflation is reflected in its current P/E ratio. Indeed, the company has raised its profits guidance in recent months on the back of surging energy prices.

5.5% dividend yields

There are downsides to buying the shares. As I said earlier, the government remains under intense pressure to slap a windfall tax on the country’s big energy beasts. But this wouldn’t put me off buying the business.

In particular, I think it’s a great way for me to generate passive income. Its predictable profits provides the means and the confidence for it to pay healthy dividends year after year. And National Grid’s recent share price weakness has also pumped up the company’s dividend yields for the next two years.

City analysts think the firm will pay total dividends of 53.8p and 56.5p per share this year and next respectively. This means excellent dividend yields of 5.2% and 5.5%. I’d happily add this income stock to my own portfolio today.

With energy markets in turmoil, I’m wondering if National Grid can maintain this impressive record. To find out more, I’ve been taking a look at the latest dividend forecasts for this stock.

National Grid dividend: latest forecasts

National Grid operates the UK’s gas and electricity transmission networks, so it doesn’t have the same direct exposure to energy prices as utility peers SSE and Centrica.

Although National Grid’s US utility business has more exposure to commodity prices, market conditions are a little different on the other side of the Atlantic.

On balance, I think National Grid should be able to maintain stable earnings and modest dividend growth over the next few years.

City analysts seem to share this view. In the table below, I’ve listed the latest dividend forecasts I can find for National Grid, together with the expected dividend yield, based on a share price of 1,035p:

Forecasts are always subject to change. But I think it’s worth noting that these estimates show National Grid’s dividend growth slowing. The dividend is expected to rise by 6% this year, but only 2% in 2024/25.

Despite this, National Grid’s 5%+ dividend yield is well above the FTSE 100 average of 3.6%. For investors seeking a higher income today, I think National Grid could be a good option.

What are the risks?

No dividend is risk-free. Payouts can always be cut, or even cancelled altogether. Although I think a major cut is unlikely at National Grid, I can see some possible concerns.

One worry for me is that National Grid has not yet recognised the level of investment that will be needed to support the transition to net zero. For example, recent press reports have suggested that new renewable projects such as wind farms may face a 10-year wait to get connected to the grid.

If the switch to electric cars continues to gain momentum, I’d also imagine that electricity distribution networks could also come under strain.

My guess is that to achieve net zero, a lot more investment will be needed than anyone has recognised yet.

National Grid shares: what I’d do

Although the future is uncertain, I’m encouraged by steps National Grid has already taken to move away from gas and increase its focus on clean electricity.

On a long-term view, demand for gas is expected to flatten out and possibly decline. By contrast, electricity growth is expected to accelerate as the energy transition continues. Distributing electricity around the UK seems like a good business to be in, to me.

On balance, I think National Grid shares look fairly priced at the moment and offer a reliable dividend yield. I’d be happy to buy the shares at current levels.