The Motley Fool

What are the best dividend shares to buy now for a passive income?

Taking the time to identify the best dividend shares to buy now could be a useful exercise for all passive income investors.

After all, the world economy faces a challenging period that could cause disruption when it comes to shareholder payouts.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

As such, finding high-yielding shares with affordable dividends that can grow in the coming years could be a sound move. It may lead to an attractive income return in the long run.

Financially-sound companies can make the best dividend shares

The financial strength of a business is likely to have an impact on whether it is among the best dividend shares to buy today. The challenging operating conditions of 2020 could spill over into 2021. As a result, many companies may face threats from weak consumer confidence, rising unemployment and lower levels of business investment that have a negative impact on their financial prospects.

Therefore, buying dividend shares with sound financial positions seems to be a logical approach – especially in the current economic climate. Companies with low net debt levels, or even net cash positions, and significant headroom when making interest payments on debt could offer greater resilience when paying dividends. Similarly, companies that are well within their banking covenants may be less likely to need to cut dividend payouts in order to satisfy their lenders.

Although assessing the financial positions of companies can help an investor to find the best dividend shares, it is by no means a watertight method. However, it can significantly reduce the risk of a disappointing passive income through increasing the reliability of dividend payouts in the coming years.

Dividend growth potential over the long run

As well as financial stability, the best dividend shares are likely to offer long-term passive income growth. The scale of monetary policy stimulus enacted over the past 12 months means that higher global inflation could result over the coming years. This may have a negative impact on the spending power of investors who are unable to generate attractive growth in passive income from their portfolio.

As such, buying companies that have an attractive earnings growth profile could be a sound move. Higher earnings may mean they can afford to pay a rising dividend that beats inflation. Similarly, businesses that pay out a low proportion of net profit as a dividend may find it easier to raise shareholder payouts in the coming years.

Identifying companies with high earnings growth and low dividend payout ratios may mean obtaining a lower dividend yield today. Such companies could be in high demand due to their impressive future outlooks. However, if they deliver strong dividend growth, they could prove to be the best dividend shares available today for long-term investors. They may also produce attractive capital returns, as an improving financial performance generally merits a higher share price.

A Top Share with Enormous Growth Potential

Savvy investors like you won’t want to miss out on this timely opportunity…

Here’s your chance to discover exactly what has got our Motley Fool UK analyst all fired up about this ‘pure-play’ online business (yes, despite the pandemic!).

Not only does this company enjoy a dominant market-leading position…

But its capital-light, highly scalable business model has previously helped it deliver consistently high sales, astounding near-70% margins, and rising shareholder returns … in fact, in 2019 it returned a whopping £150m+ to shareholders in dividends and buybacks!

And here’s the really exciting part…

While COVID-19 may have thrown the company a curveball, management have acted swiftly to ensure this business is as well placed as it can be to ride out the current period of uncertainty… in fact, our analyst believes it should come roaring back to life, just as soon as normal economic activity resumes.

That’s why we think now could be the perfect time for you to start building your own stake in this exceptional business – especially given the shares look to be trading on a fairly undemanding valuation for the year to March 2021.

Click here to claim your copy of this special report now — and we’ll tell you the name of this Top Growth Share… free of charge!

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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.