Dividend stocks are a popular way to generate passive income. I’ve been looking for dividend stocks to buy now for my portfolio. Here are four I’d consider.
Financial services provider
One of my picks is M&G. The financial services brand is well-known, with over £360bn of assets under management and administration.
One of the reasons I think fund managers can make good income picks is that few customers switch their accounts regularly. So once funds are under management, they can often help a provider like M&G generate revenues and profits for years or even decades. That can help fund dividends.
M&G raised its dividend this year. Even after share price appreciation of 54% in the past year, the company still yields over 7%. That puts it on my list of dividend stocks to buy now. One risk is that increased competition from new entrants to the investment market could hurt profits.
Famous umbrella
Another iconic brand name among my dividend stocks to buy now is Legal & General. It offers insurance as well as a broader range of financial services.
With a long history and famous umbrella logo, I think the company can attract and retain customers at a lower cost than some competitors. That gives it a competitive advantage that can translate into profits. Yielding over 6%, the company has been a consistent dividend payer. It continued to pay dividends during the pandemic when many peers stopped them.
One risk with all insurers is their ability to forecast risk levels accurately. That can be difficult to do, but if a company likes Legal & General underestimates risk, it can significantly impact profits.
High-yield dividend stocks to buy now
With an eye on yield, I would also buy tobacco giant Imperial Brands.
The company behind brands like John Player Special and Rizla cut its dividend last year. It has now returned to a progressive dividend policy. It yields over 8%, one of the highest dividend payout levels in the FTSE 100 index.
Tobacco is a highly cash generative business. Net cash flow in the first half at Imperial was £2.5bn, although that includes proceeds from selling its premium cigar business, which won’t recur. Nonetheless, the company’s proven ability to generate cash improves my confidence that Imperial can sustain the current dividend level even while smoking declines in some key markets. A fall in cigarette volumes is a key risk, though, as it could hurt profits.
Income pick
Income & Growth Trust invests in a broad range of early stage and growing businesses. I like its proven ability to select strong businesses before they are very big. That allows IGV shareholders to benefit from their potential. Often, retail shareholders couldn’t invest directly in such small, unlisted businesses.
As the “income” in its name suggests, IGV seeks to pay dividends. That’s why it is one of my dividend stocks to buy now. The company’s dividend moves around, as the portfolio performance and asset sale timing varies. Last year it paid out 14p in dividends, versus 6p the prior year. But with the current IGV share price of 81p, even 6p would be a yield of more than 7%.
If the portfolio companies underperform, there is a risk that there will be less money IGV can use to fund dividends.
