However, over the past two months, oil and gas prices have been falling. In fact, their declines were largely unreported until earlier this week when European gas prices dropped below €100 per megawatt hour for the first time since 14 June. Meanwhile, prices in the UK dropped to 180p per therm on Monday, down 72% from their peak.

Gas prices are still ahead of where they were before Russia’s invasion of Ukraine, but the decline since the summer has been significant — further downward pressure on resources is expected in 2023. Oil prices are broadly in line with where they were for much for 2021.

Sectors set to gain

Falling oil and gas prices tend to benefit sectors like paints, retail, petrochemicals, textiles, aviation, tyres, and cement. In many cases, the impact can be very direct. Higher gas prices push up utilities costs for retailer and restaurants, among others, putting negative pressure on margins.

But there are also indirect ways in which higher energy prices can push up costs across multiple industries. Taking the restaurant industry again, higher gas prices mean higher fertiliser costs, which pushes up crop prices and eventually meat prices. Restaurants are either forced to swallow the costs or pass them on to customers, risking damaging demand.

Aviation pick

Jet fuel prices are down from their highs in the summer, albeit above previous years. But the general downward movement on fuel prices are positive. And this is occurring at a time when demand for travel is robust.

IAG (LSE:IAG) is one stock that I’m looking to buy more of. Earlier this month, the Iberia and British Airways owner said it now expects to report a third-quarter operating profit of around €1.2bn after stronger-than-expected trading.

“Forward bookings remain at expected levels for the time of year, with no indication of weakness“, the firm announced.

Amid a cost-of-living crisis, I believe the firm’s capacity to pass increasing costs onto customers is impressive. The firm has a fuel hedging strategy — 70% for the first quarter of 2022 and 60% for fiscal year 2022 — but that still leave 40% to be passed on.

Supermarket pick

Food stores are some of the biggest energy users in the country. With aisles packed full of energy-burning fridges and freezers, supermarkets are forced to internalise fuel costs or pass them on to customers.

Sainsbury’s (LSE:SBRY) is a stock I’m looking to buy. It’s actually the only supermarket with a store run entirely off-grid. But that’s besides the point, lower energy prices should be a big benefit for Sainsbury’s and its near 1,500 stores.

The group has also been successful in moving business online. Internet sales at Sainsbury’s were up 94% versus pre-pandemic levels during the 16 weeks to 25 June. And this is an important move in light of trends pushing retail online.

There are still headwinds for the sector as Britons reduce their household spending. But down 35% over the year, the current entry point, around 190p, looks attractive to me.

Here’s a low-cost Footsie share I’d sell and one I plan to hold onto.

Sainsbury’s

J Sainsbury (LSE: SBRY) would, in days gone by, have been a hot safe-haven stock with investors. The scale of the inflationary crisis, however, has prompted shareholders to offload their holdings.

I’d be tempted to sell any Sainsbury’s shares that I held, too

With consumer price inflation hitting 40-year highs, even demand for food and essentials is slumping. A Which? survey shows that 85% of people are now spending less on groceries. A worrying proportion are also skipping meals altogether to save cash.

Increasing costs are also putting pressure on supermarkets. Sainsbury’s raised staff wages for the second time in 2022 last month. The company’s profits are also being battered by rising energy and product costs as the Ukraine war drags on.

I like the FTSE 100 firm’s rapidly expanding online operation. The potential returns here are huge as the e-commerce sector grows.

Internet sales at Sainsbury’s were up 94% versus pre-pandemic levels during the 16 weeks to 25 June.

But those current issues I mention — along with the long-term problem of steadily-increasing competition — make it a risk too far in my opinion. That’s even though J Sainsbury shares trade on a forward price-to-earnings (P/E) ratio of nine times and a carry a 6.6% dividend yield.

Persimmon

Persimmon’s (LSE: PSN) ultra-low share price during the summar was too good for me to ignore. Even now it continues to offer excellent all-round value. The housebuilder trades on a forward P/E ratio of 4.9 times and carries a splendid 18% dividend yield.

I wouldn’t buy the housebuilder today, although I plan to hold onto my shares. The prospect of soaring interest rates and a subsequent fall in homes demand has tempered my bullishness.

Mortgage costs are soaring because of heightened economic and political uncertainty. Rates hit fresh 14-year highs late last week. And more hefty hikes are predicted, driven also by runaway inflation.

However, I’m holding my Persimmon shares as the long-term outlook for housebuilders remains robust. Weak housebuilding rates mean that Britain’s stock of new homes continues to be low. I believe that when economic conditions improve this supply and demand imbalance will widen sharply again, thrusting home prices higher again.

I also like Persimmon in particular because, unlike most other housebuilders, it manufactures some of its key materials. These include bricks, tiles, timber frames, and wall panels. It even installs ultrafast broadband through its FibreNest division.

This helps reduce risk to the company’s profits. It cuts costs and gives the company better control over the supply chain. This in turn reduces the chances of production targets being missed due to third-party problems.

Is the stock set to continue paying out big dividends in the years ahead? Let’s take a look at the Sainsbury’s dividend forecast for this financial year and next.

Sainsbury’s dividend forecasts

Before I reveal the dividend estimates for the next two financial years, it’s worth mentioning that the company’s fiscal year ends on 5 March. So the year ending 5 March 2023 is FY2023 while the next year is FY2024.

As for the forecasts, at present, analysts expect Sainsbury’s to pay out 12.2p per share for FY2023 and 12.3p per share for FY2024. So the payouts are not expected to be as high as last financial year.

They are still quite substantial though. At the current share price of 170p, these estimates equate to yields of around 7.2%. No doubt that kind of yield is attractive in the current environment.

Dividends may be lower

One thing I want to point out however, is that earlier this year, Sainsbury’s said that it was committing to a dividend payout ratio of around 60%. In other words, dividends are likely to be around 60% of earnings.

This is important to keep in mind. Because if profits are lower than expected, due to discounting or higher costs, for example, the dividend may not be high as expected.

Right now, analysts expect the company to generate earnings per share of around 20.8p this financial year. However, given the high level of inflation at present (Sainsbury’s just raised pay levels for some workers), it is possible that earnings could come in lower than this.

Are Sainsbury’s shares worth buying?

So would I buy Sainsbury’s shares for my own portfolio in light of the potential dividends on offer? The answer to that is actually no.

When I invest in dividend stocks, I go for companies that have consistently raised their dividends. This style of investing is known as ‘dividend growth investing’.

The reason I focus on these kinds of companies is that they tend to provide attractive total returns (capital gains plus dividends) over the long term. Generally speaking, as they increase their dividend payouts, their share prices rise too.

Looking at Sainsbury’s, it doesn’t have a long-term dividend growth track record. In recent years, its payouts have been a little up and down.

Another issue for me is the company’s lack of competitive advantage. Ultimately, there’s really nothing to stop competitors such as Tesco, Aldi, and Lidl stealing market share from Sainsbury’s. Going forward, it may need to cut prices to hold on to its customers, and that’s not a great business strategy.

So this isn’t a dividend stock I’d personally buy. To my mind, there are better stocks out there for my portfolio.

Persimmon

The investment outlook for housebuilders like Persimmon (LSE: PSN) has undoubtedly darkened this week.

The recent run on the pound means the Bank of England will likely take emergency action to support the ailing currency. Markets are now expecting interest rates to peak at around 6% next year in a worrying omen for the housing market.

I’d argue, though, that Persimmon’s fresh share price slump now reflects this landscape. Its forward price-to-earnings (P/E) ratio has dipped to a meagre 5 times.

It hasn’t all been bad news for the housebuilders recently. In last week’s ‘mini budget’ the Chancellor announced plans to raise the levels at which Stamp Duty becomes payable. Similar moves have been a huge boost to property sales in recent years.

At the same time government support for first-time buyers remains in place. The Deposit Unlock scheme allows buyers to secure a property by putting down just 5%. What’s more, an ultra-competitive mortgage market has continued to drive sales of new homes.

Persimmon’s recent share price plunge has also driven its dividend yield for 2022 to a jaw-dropping 18%. Because of this I’m considering adding to my holdings of the stock in October.

J Sainsbury

Supermarket J Sainsbury (LSE: SBRY), meanwhile, offers a chunky 6.4% dividend yield for this financial year (to March 2023).

I like the steps the company’s taking to embrace online grocery growth. Heavy investment in recent years means Sainsbury’s can now fulfil 850,000 orders every week. This is a segment with huge upside as food shoppers steadily switch from store visits to internet clicks.

Analysts at Statista think online will account for 13.2% of all edible supermarket chain spending by 2026, up from 11.8% last year.

However, this isn’t enough to tempt me to buy Sainsbury’s shares today. The country’s food retailers are enduring a double whammy of soaring cost inflation and sinking consumer spending power. This is putting already-weak profit margins under increasing pressure (J Sainsbury’s own underlying operating margin sat at just 3.4% in the last financial year).

Established operators like this have a choice. They can slash prices at the expense of margins. Or they can watch their customers flock to budget chains. Aldi chief Giles Hurley just told BBC News that the chain has added 1.5m customers in 12 weeks amid the worsening cost-of-living crisis.

City analysts think earnings at Sainsbury’s will fall 16% year on year in financial 2023. But I think they could come in well below forecast as headwinds intensify. And I think profits could stay under pressure over the long term as competition steps increases online and in the physical world.

I’m happy to avoid this FTSE 100 stock, despite its huge dividend yield and low P/E ratio of 9.3 times.

Share price climbing

At the time of writing, the Tesco (LSE: TSCO) share price is 261.5p, and this is down 11% since the start of 2022, but has been mostly trending upwards since the 2022 AGM in mid-June.

Every little helps

As leader of the so-called ‘Big Four’ grocers, it’s not too much of a surprise to see long-term profitability in the underlying financials.

The food seller has posted net profits of over £1bn in each of the last five years except for Covid-hit 2020 (where profits were still £0.97bn!). Over the same period, revenues have been reliable and predictable, sitting between £57bn and £64bn.

When looking at profit margins, the figures are slightly less impressive when compared to some FTSE 100 peers. Net profit margin for 2022 was 2.41%, although this is in line with that of rival supermarket Sainsbury’s net margin of 2.26% for its financial year 2022.

Profitability pays

Tesco’s dividend yield is currently sitting at 4.03%, marginally above the FTSE 100 average.

But the key to generating regular returns over the long run is consistency. And when it comes to dividends, I think it’s fair to say Tesco has been consistent. It’s paid out interim and final dividends every year for the past five years. This was after a period with no dividend payments between 2015 and 2016, but its policy currently seems to be to reward shareholders, and that is good news for my portfolio and passive income.

Future outlook

With the UK cost-of-living crisis in full swing, Tesco is already seeing an impact on consumer spending. In June, it backed up data from the Office of National Statistics suggesting that consumer spending habits are changing, with customers seemingly spending less in supermarkets because of inflation.

But I think Tesco is almost uniquely placed in the retail space to continue delivering profits and dividends to shareholders.

Tesco is well known to have significant purchasing power in core food and beverages markets, where suppliers know that not stocking their products with the UK’s biggest supermarket may have significant consequences for the viability of their business. This puts Tesco in a strong position to be able to manage costs and to maintain margins through any economic environment.

In addition, Tesco has a heavily diversified portfolio, both in terms of products being sold, and in terms of geographical markets it’s operating in. So whilst it’s fair to say the impact of the UK cost-of-living crisis will hit Tesco, the fact that it’s operating in other regions where inflationary factors are different to the UK — and that it stocks many inelastic products that consumers need to buy regardless of price — makes it seem unlikely that sales drop substantially.

Overall, I think Tesco represents a compelling opportunity for generating passive income in my portfolio. Its consistent financial performance and dividend payout is something that I really think I could rely upon over the next few years, so I’m strongly considering taking a position.

But with the UK facing a catastrophic cost-of-living crisis not even grocery businesses can be considered lifeboats. And particularly those who don’t operate at the value end of the market like Sainsbury’s.

Indeed, the FTSE 100 firm saw like-for-like sales (excluding fuel) drop 4% in the 16 weeks to 25 June.

Share price slips

Sainsbury’s has its merits from an investment perspective. In particular I like the huge investment it’s making in online grocery, an e-commerce sector with plenty of growth potential over the next decade.

But, in my opinion, the mounting pressures on already-thin margins make Sainsbury’s an unattractive stock to buy. Alongside falling consumer spending power, the retailer also has to bat away the growing threat of competitors Aldi, Lidl and Amazon. This means the business has to keep slashing prices at the expense of profits.

City analysts think Sainsbury’s will pay dividends of 12p per share this year and 13p next year. These forecasts create healthy dividend yields of 5.5% and 6%.

However, anticipated dividends are covered just 1.3 times by expected earnings through this period. This is well below the widely-accepted benchmark of 2 times. With trading conditions rapidly worsening I think there’s a good chance dividend forecasts could miss.

8%+ dividends!

I’d be much happier to buy Aviva (LSE: AV) shares for the long term. But more on this later. First let’s take a look at Aviva’s dividend outlook for the next couple of years.

City analysts think the FTSE 100 firm’s dividends will rise to 32p per share in 2022 and then to 33p next year. This means dividend yields clock in at a mighty 8.1% and 8.4% respectively.

On the downside however, dividend cover is also quite weak at Aviva. This sits at just 1.2 times for 2022. And it edges only fractionally higher, to 1.5 times, for next year.

A better FTSE 100 buy

But despite the threat of disappointing dividends I still believe Aviva’s a top buy.

The business has had one of the strongest brands in the insurance business for centuries. Having a brand that consumers trust is particularly important when it comes to things like money and financial services. It’s why Aviva commands around 25% of the UK’s life insurance market.

Following recent restructuring to improve its focus on core markets, Aviva looks in good shape to deliver strong shareholder returns for the next decade at least. Its decision to divest most of its assets outside the UK, Ireland and Canada has given it a big pot of cash to return to investors too, or to invest for growth.

I also like the FTSE business because of the exceptional progress it’s taking to digitalise its operations. As well as bringing down costs this has the potential to turbocharge revenues by boosting its cross-selling opportunities.

Despite the intense competitive pressures it also faces I’d happily add Aviva to my shares portfolio.

Valuations have become much more attractive this year as negative economic forecasts weigh on share prices. Dividend yields, which are relative to the share price, have also grown.

So here are three dividend shares I’m looking to buy, or buy more of, before the market recovers.

J Sainsbury

J Sainsbury (LSE:SBRY) stock is down 25% over the past 12 months. The supermarket group is certainly feeling the impact of a cost-of-living crisis that is squeezing household spending.

Management recently said that first-quarter underlying sales fell 4% as consumers started to cut back on discretionary spending.

Grocery sales were down 2.4% compared with last year, while sales at its Argos division fell 10.5% in the quarter. However, sales are being compared with a booming quarter in 2021, when the pandemic pushed grocery sales higher. Revenue jumped in the last full reporting year, nearly reaching £30bn.

Profit is due to come in between £630m and £690m. This is lower than the 2021-22 profits of £730m, but an understandable fall, given the unique conditions.

Sainsbury’s is also spending £500m over the next 24 months to keep costs low. I like this plan as it may prevent the retailer from losing out to budget supermarkets.

This makes me confident about the long-run prospects. And, currently, the 6.1% dividend yield is very attractive. Last year, coverage was a healthy 1.94.

Vistry

The macroeconomic environment doesn’t look good for housebuilders in the coming months. Households are saving less money due to the cost-of-living crisis and interest rates are rising.

However, right now, the housing sector is booming and Vistry (LSE:VTY) is doing particularly well. For 2022, the firm expects profits ranging £396.3m-£415m. Vistry posted adjusted pre-tax profits of £346m last year, which itself was way above pre-pandemic levels.

The company has a strong order book and even says supply constraints are easing.

Vistry is currently offering a 7.3% dividend yield and its share price has fallen 33% over 12 months.

Orders could slow towards the end of the year, but in the long run, I think housebuilders will prosper. After all, there’s a dearth of homes in the UK.

Barclays

I think there’s plenty of value in UK banking stocks right now. I’m not the only one, Credit Suisse recently said the same.

Barclays (LSE:BARC) is one of my favourites and is the cheapest of the British banking giants. It’s down 12% over the past 12 months, but in reality it’s been unpopular for a while.

It’s cheap, with a price-to-earnings ratio of just four, and its dividend yield is also four.

Banks typically perform poorly during recessions, so the second half of the year will present some challenges. However, interest rates are up, meaning higher margins. Barclays will even receive more interest on the money it leaves with the Bank of England. Credit Suisse recently said it expects Barclays to beat expectations in forthcoming earnings data.

I’m also backing Barclays to perform over the long run. It’s a solid business, operating in a fundamentally strong economy.

Sainsbury

The J Sainsbury (LSE:SBRY) share price has been volatile in recent times. In the last year, it’s down 23.5%, while over the past three months it’s fallen 12%. At the time of writing, the shares are trading at 216p.

The FTSE 100 supermarket firm has an attractive dividend policy. For the year ended March 2022, it paid a total dividend of 13.1p per share. At the time, this equated to a dividend yield of 5.3%. As a potential investor, the prospect of this income stream is attractive. Nevertheless, I’m also aware that dividend policies may be subject to change.

Lately, the business has been responding to the cost-of-living crisis by investing £500m to lower the prices of essential items. This is also part of a plan to match the prices of budget retailers, like Lidl and Aldi.

This move comes amid a report by Kantar, which forecasts that the average annual grocery bill could increase by nearly £400 in 2022. This is higher than previous estimates.

On the other hand, underlying sales fell by 4% during the first three months of 2022, indicating that customers are starting to feel the pinch of higher bills and inflation.

Despite this, investment bank JP Morgan cites the company’s strong cash flow generation as a reason to remain optimistic.

Vodafone

Vodafone (LSE:VOD) shares have been remarkably resilient in the face of recent market sell-offs. Over the past year, the share price is up 9%, while over the last six months it’s gained 12%. At the time of writing, the shares are trading at 128p.

For the year ended March 2022, the FTSE 100 telecommunications firm paid a dividend of ¢9 per share. At that time, this equated to a dividend yield of 6.1%. 

For the 2022 fiscal year, revenue increased by 4% to €45.6bn. Much of this is down to its innovative, and cost-effective, 5G rollout. 

Of course, I know that what happened in the past doesn’t guarantee anything similar in the future. And the business faces threats from inflation, both in costs and the pressure rising prices puts on customers. Furthermore, the company is operating in a highly competitive environment, which is making it difficult for Vodafone to improve its profit margins.  

Yet overall, I think that investing in both of these firms could provide me with a steady income stream from dividends. While they both face threats, the 5%+ yields are too attractive to resist and I’ll be adding both companies to my portfolio soon.

I have zeroed in on two shares for my portfolio. These are businesses that I think show growth potential and can generate cash even in tough economic conditions.

Grocer with sky-high dividends

At current levels, I think the Sainsbury (LSE:SBRY) share price is one of the best bargain options in the FTSE 100 right now. AT 209p, it is trading at a price-to-earnings ratio of 7.2 times and a lofty 6.2% yield.

Yes, the company has been in the news this week after last quarter’s sales dipped 4%. But this was in line with board expectations and the profit estimate for the year remains unchanged at between £630m and £690m. While this is lower than the 2021-22 profits of £730m, the company has a few plans up its sleeve. 

Given the rising raw material costs, the board will inject £500m over the next 24 months to keep product cost inflation at the minimum. I think this move will help the grocer gain footing on Tesco and grow its current 15% market share as inflation runs rampant.

Despite small margins, if profit estimates are met, the company expects to generate retail free cash flow of at least £500m in 2022-23, similar to last year’s £503m. I think the board will keep the payouts flat next year given tough economic conditions. But a healthy 5%+ yield looks likely, which I see as a positive.

However, the impact of inflation will hit this sector hard. Large grocers like Sainsbury will lose out to discount retailers, even if current prices are maintained. And this will inevitably eat away at Sainsbury’s revenue. 

But overall, this FTSE 100 firm looks well-set to navigate choppy waters. I am bullish on Sainsbury shares and will consider them for my portfolio in 2022  if signs of a market recovery become stronger. 

Alcohol heavyweight

Diageo (LSE:DGE) is a global alcohol aggregator that owns extremely popular brands like Smirnoff and Johnnie Walker. The FTSE 100 company has adopted an emerging market strategy, focusing on growing regions like India and China.

Down 14.8%, I think the Diageo share price is going through a rare lull given its steady rise over the last five years. And looking at the share price action over the last two decades, the company has been on an incredible upward trajectory. 

And I think this growth could continue given its fast expansion policy. Diageo recently purchased Vivanda, owner of a flavour matching technology. This will allow users to build a flavour profile and choose spirits based on suggestions. I think the company is adopting digital sales and shows a lot of growth potential.

Tough regulations and local competition will grow with expansion. And the company will have to deal with the rising tide of health-conscious youth who are choosing to go alcohol-free in record numbers. 

However, I think the company is well-placed to navigate this given its size, range, and future plans. This FTSE 100 share is not a bargain on paper at 3,525p, but I think the company offers a lot of value and growth. This is why I will wait for a drop in share price before investing.

J Sainsbury

Supermarkets like J Sainsbury (LSE: SBRY) could theoretically stand to gain as living costs soar. In this environment, people can be expected to eat at home more to save cash.

I won’t be buying Sainsbury’s shares during this bear market though. I’m worried about the business losing customers to the value chains in large numbers. In this scenario, profits could tank if revenues slump and it cuts prices to win back shoppers.

Latest Kantar Worldpanel data shows sales at Aldi and Lidl rose 7.9% and 9.5% respectively in the 12 weeks to 12 June. As a result, their market shares continued to rise while J Sainsbury’s slipped (down 0.3% year-on-year).

Therefore, I’m not tempted by its 6% forward dividend yield and price-to-earnings (P/E) ratio of around 10 times. The pressure of rising competition in the near-term and beyond make Sainsbury’s a risk too risky, I feel.

Coca-Cola HBC

On the other hand, I’d happily increase my holdings in Coca-Cola HBC (LSE: CCH). The soft drinks bottler has sunk in value in 2022, reflecting the impact the war is having in its Ukraine and Russia markets.

Yet I’m still considering upping my stake, despite the ongoing problem. This is because its current P/E ratio of around 16 times sits well below its historical average above 20-21 times. Recent price weakness now more than reflects the near-term trouble it faces.

I first bought Coca-Cola HBC shares because of the exceptional brand strength of the drinks it bottles. Labels such as Coke, Fanta and Sprite are staples of shopping baskets and this gives the company excellent long-term earnings visibility.

And I’m backing the business to get back delivering solid earnings growth once the current crisis subsides. It also has exceptional exposure to fast-growing emerging economies. Furthermore, it should also benefit from ongoing product development from The Coca-Cola Company in areas like low calorie beverages and fitness drinks.

Barclays

Barclays’ (LSE: BARC) North American operations helps take the sting out of the bleak UK economic outlook on the firm. It could also lead to robust long-term profits growth.

What’s more, Barclays offers excellent bang for my buck following recent share price falls. It trades on a forward P/E ratio of 5.5 times, while its dividend yield sits at 4.8%. The question is whether this sort of all-round value makes it worth taking a risk on.

It’s my opinion the dangers created by Britain’s flagging economy make Barclays an unattractive dip-buy today. Last week, the Financial Conduct Authority called on banks to provide better support for struggling customers and to “only charge them fees which are fair and that cover the firm’s costs”.

The pressure for banks to act in this way is likely to grow as the cost of living crisis worsens. It could persist for Barclays beyond 2022 too, resulting in a prolonged period of weak revenues and high loan impairments. So I’d rather spend my hard-earned cash on other stocks.