I have picked five of my best stocks to buy now to make a passive income for 2021 and beyond.
How I choose my best stocks to buy now
Dividend stocks are popular among investors who want to make a passive income. With the UK interest rate so low, picking up a savings account with a decent rate is tough just now. Dividend stocks on the other hand, can earn a yields of 3% and much higher. I always remind myself, though, that whenever the reward is higher, the risk involved is also higher.
The first step I take is to remember investing (especially to make a passive income) is for the long term. The future is not something anyone can predict. With that in mind, I analyse the history of any firm I am researching to review dividend payouts, cash flow, and trading performance. The past isn’t always a reliable gauge in regards to the future performance but a positive history is a good start. I am trying to ensure that dividend payments are going to continue for years ahead if I invest my hard-earned money.
For the best stocks to buy now, I personally look for a well-performing, cash-producing business in a defensive sector. Defensive sectors tend to be less likely to feel broader economic shocks and continue to perform as if the market was somewhat normal.
Passive income opportunities
My first two picks, part of my best stocks to buy now list, are both fast-moving consumer goods firms (FMCG). These are smoking companies British American Tobacco and Imperial Brands. Despite the fact that the tobacco sector is out of favour with investors, BOTH of these firms offer yields over 7%, which is mightily impressive and tempting.
Moving towards a sector providing more favourable products, my next pick is overlord of FMCG, Unilever. It is usually an expensive stock so any market disruptions can offer opportunities to pick up shares cheaper than usual. Unilever’s dividend yield is close to 3.5%, which is very enticing in the current low interest rate economy.
The final two of my five picks of my best shares to buy now derive from the same sector. I believe soft drinks supplier Britvic and alcoholic beverage company Diageo are good opportunities to make a passive income. Britvic has an enticing yield of over 3.5% as well a history of good performance. Diageo offers a lower yield of close to 2.5% but I have picked it as it has a great dividend growth track record. For the past 20 years it has increased its dividend year on year which is as good as a record can get. I believe it is a great candidate to make a passive income for 2021 and beyond.
Risk and reward
As with any form of investing there are risks involved. Dividends can be cancelled, suspended, and payouts cut at any time. In addition to this, if a share price falls, investors may receive back less than they invested. Despite the risk involved, I believe the five stocks I have picked are some of the best shares to buy now to make a passive income for 2021 and beyond.
Jabran Khan has no position in any 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.