3 rewarding income shares to buy now with £3,000

Christopher Ruane considers how he would invest £3,000 today to generate more income. He identifies three shares for him to buy now for his portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Looking to boost my passive income streams, I have been making a list of shares to buy now for my portfolio. If I had £3,000 to invest, I would put £1,000 each into this trio of dividend payers.

Financial services icon

I like the asset management firm M&G (LSE: MNG) and would consider adding it to my holdings. Currently the shares yield a tasty 8.6%.

The business model at M&G is pretty simple. Clients engage it to manage funds for them, by using its investment expertise. A lot of money can be at stake, so reputation matters. That is where the benefit of an established brand like M&G can be valuable. The sums of money involved in the industry are helpful in another way. With large funds invested, even a small percentage commission can translate into substantial earnings for M&G.

But clients paying professional asset managers to invest their funds are looking for results. One risk I see with M&G is any underperformance in its investment results compared to competitors. That could lead clients to switch providers, hurting revenues and profits at M&G.

Tobacco giant

Another of the high yielders on my list of potential new shares for my portfolio is tobacco producer Imperial Brands (LSE: IMB). The yield is currently 7.9%. After a cut in 2020, Imperial has started to increase its dividend again, albeit only by 1% last year. Of course, though, dividends at any company are never guaranteed.

The source of the company’s big dividend is also the source of a big risk. Cigarettes are cheap to make. Customers are willing to pay a premium for Imperial’s, well, brands such as West and Lambert & Butler. That enables strong cash flows, which can help fund dividends. Last year, Imperial’s free cash flow was £1.5bn, more than covering the £1.3bn it paid out it in dividends.

But the company’s reliance on cigarettes is also a risk, as declining smoking rates in many markets could hurt revenues and profits. Imperial is trying to improve its market share, which could help it offset this market decline for a while. Longer term, next-gen products like vaping might fill in the profit hole left by cigarettes. But if they do not, the dividend could become unsustainable.

Energy innovator

The third share I would consider buying for my portfolio due to its income potential is Diversified Energy (LSE: DEC). It has a novel business model of operating tens of thousands of natural gas and oil wells other operators might consider past their prime. Figuring out how to get energy profitably in a well’s twilight years could become big business as developing new fields becomes more controversial.

Diversified Energy is successfully using that model to support a quarterly dividend. Currently the company yields 11.1%. Such a high yield can signal risk. Not only is the business model yet to be proven over the long term, it could also face substantial costs to cap wells that stop producing. That could eat into profits. I like the business model, though, and would happily buy Diversified Energy for my portfolio today.

Foolish final thoughts

Share prices can move up and down. That affects the yield I would get from buying a share, as yield depends on my purchase price. With £3,000 to invest today, I would be happy to buy these three companies for my portfolio.

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.

Christopher Ruane owns shares in Diversified Energy and Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »