Deciding which companies are among the best shares to buy right now to make a passive income is clearly subjective. However, they’re likely to include businesses with dividends that are affordable due to their solid financial position. They’ll also be companies offering impressive dividend growth rates over the coming years.
Furthermore, they’re likely to be priced at attractive levels that provide scope for capital returns, alongside an income, over the long run. With many UK shares currently falling into those categories, it’s possible to make a worthwhile income with £20k today.
The best shares are likely to offer a resilient passive income
Even though many stocks offer high levels of passive income, the best shares to buy now are likely to have reliable income prospects. In other words, their high yields aren’t based on a quick return to profitability in 2021. Nor are they required to borrow to make up a shortfall when paying dividends.
By contrast, they’re likely to have dividend cover of more than one. This means that net profit is higher than dividend payouts. Furthermore, they’re almost certain to have a modest debt-to-equity ratio.
This doesn’t put them in a challenging financial position should sales and/or profitability come under pressure in the short run. Given the threats facing the UK economy at the present time, a resilient passive income may be more desirable than it has been for many years.
Dividend growth opportunities
The best shares to buy for a passive income today may also offer improving dividend prospects. In fact, it may be worth sacrificing a high yield for a company that can grow dividends at a fast pace. Over the long run, their total income returns may be significantly greater versus a high-yielding share with slow dividend growth potential.
Clearly, identifying dividend growth prospects can be challenging. However, businesses with sound strategies, a competitive advantage and a long track record of growth may be more likely to deliver rising shareholder payouts. Over time, they may become more popular among investors in a low interest rate environment. Especially where passive income opportunities are relatively scarce.
Value for money
The best shares of today are also likely to trade at attractive price levels given their financial strength and growth potential. This may not necessarily mean they’re cheap. They may be priced at higher levels than their peers. But they could still offer good value for money based on their higher quality from a business perspective.
Investing £20,000 today in dividend shares may produce an income that doesn’t fully replace an entire wage. However, buying the best shares could lead to impressive returns in the long run. Over time, an investor may be able to enjoy greater financial freedom through a reliable and growing passive income.
