The best shares to buy now for a passive income

A woman works at an IWG location

I think some of the best shares to buy right now are income stocks. Income stocks, in particular FTSE 100 income stocks, can help me generate a passive income on my investment portfolio.

That said, I should note that as dividends are paid out of business profits, they’re never guaranteed. If a company’s profits suddenly plunge, management may have to cut the dividend. That’s precisely what happened last year as the pandemic decimated corporate earnings right around the world. 

Considering this risk, I plan to focus on finding companies that appear to have sustainable dividend payouts. This means I’ll be looking for equities with a high level of dividend cover as well as a strong balance sheet.

Best shares to buy now

One example is the tobacco giant British American Tobacco. With a dividend yield of 8%, at the time of writing, this stock is certainly an income champion. The payout is covered 1.5 times by earnings per share, and its management is focused on keeping debt low.

While I’d buy this company for my passive income portfolio, I realise not all investors may think this is one of the best shares to buy now, due to its exposure to the tobacco industry.

Another stock I’d buy is Telecom Plus. This broadband-to-electricity supplier is one of the country’s largest utility groups. With energy prices set to rise this year and beyond, I believe the company can use its scale to attract new users.

Users receive a discount on their gas and electricity if they sign up for the company’s other services, such as broadband and mobile. This could be particularly helpful in a high-cost environment.

With a dividend yield of 5.6%, at the time of writing, I think this is one of the best shares to buy now for income and growth. Challenges the company may face include additional regulations which could increase costs and reduce profit margins. 

Passive income from water

The utility sector’s one of the best for passive income investments, in my opinion. One of the best shares to buy now in this industry is United Utilities. I’d buy this stock for my portfolio for its 4.1% yield. 

Over the past decade, the firm’s achieved an impressive track-record, inflation-linked dividend growth. Past performance should never be used as a guide to future potential, but United should be able to continue to grow its payout as it’s allowed to raise consumer prices in line with inflation every year. 

That said, one challenge the company may face is regulatory issues. Regulators could reduce the amount of profit the group is allowed to earn. This could force management to cut the payout. Despite this risk, I’d buy the shares for my passive income portfolio today. 

The post The best shares to buy now for a passive income appeared first on The Motley Fool UK.

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Rupert Hargreaves owns shares of British American Tobacco. The Motley Fool UK has recommended British American Tobacco. 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.

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