Best stocks to buy now: 2 income shares

Rupert Hargreaves explains why he thinks these are the best stocks to buy now for income to beat inflation and low interest rates.

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I think some of the best stocks to buy now are income shares. There are two reasons why I’ve recently been adding income stocks to my portfolio. 

First of all, record low interest rates are making it harder to earn a return on my money elsewhere. And secondly, shares that offer a dividend yield can provide some protection against inflation. 

As such, here are two income shares I’d buy for my portfolio today. 

Best stocks to buy now for income

The first company on my list is insurance group Direct Line (LSE: DLG). I already own this stock in my portfolio and wouldn’t hesitate to buy more as an income play. 

At the time of writing, shares in the group currently offer a dividend yield of around 8.3%. This is based on the company’s current dividend policy, whereby one-third of the annual dividend has already been paid with two thirds remaining. Analysts are forecasting a total dividend of 24.5p for the year, based on this policy. 

These are just projections at this stage so there’s no guarantee the stock will hit this dividend target. Indeed, as an insurance company, Direct Line is exposed to significant risks, including large losses. This implies the group may suffer a drop in profit due to the flooding we’ve seen across the country in the past few weeks. 

While falling income is a genuine threat to the company’s dividend, I continue to believe this is one of the best stocks to buy now. Therefore, I’d buy Direct Line for my portfolio of income shares today. 

Market growth

As the global economy recovers from the coronavirus pandemic, some sectors are experiencing faster growth than others. The shipping industry is one such sector, which is why I believe one of the best stocks to buy now is Clarkson (LSE: CKN). 

This company provides a range of services to the shipping industry, including research, broking and financial support. According to the City, after two years of losses, the firm will roar back to growth this year.

Analysts have pencilled in a net income of just under £39m for 2021. To give some idea of just how big of a deal this rebound is, the group’s total net profit in the last four years combined was £19m. 

As well as this growth, Clarkson has a cash-rich balance sheet, which puts it in an excellent position to pay significant dividends. Analysts are projecting a dividend for the year of 82.2p per share, giving a yield of 2.5%. However, considering the company’s current growth, I wouldn’t rule out a larger-than-expected payout. 

Still, despite Clarkson’s success this year, I think it’s important to keep in mind the fact that the company operates in a volatile industry. It’s lost money for the past two years because the shipping sector has been depressed. That could happen again. If it does, the dividend could be under serious threat. 

Despite this risk, as one of the best stocks to buy now, in my opinion, I’d buy Clarkson for my portfolio of income shares today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns shares of Direct Line Insurance. The Motley Fool UK has no position in any of the shares mentioned. 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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