In my own portfolio, I have a fairly healthy mix of investments for income and for growth. Naturally there is crossover – I want my dividend shares to have growth potential, and I usually like my growth shares to pay a dividend. Adhering to my own set of criteria for choosing income shares, here are my personal top three choices right now.
BAE Systems (LSE: BA) has been a key component of my portfolio for many years. It has been a solid performer, in a sector that is less prone to rapid fluctuations. That makes it defensive, in both senses of the term.
Its current yield of about 4.5% is by no means the largest out there, but it has been consistent. I also feel that in times of risk, like we are in now, BAE’s prospects seem fairly secure. The UK government, for example, announced its intentions last year to increase defence spending.
Of course no share is without its risks. My main concern across most sectors right now is the potential for a global recession on the back of Covid-19. BAE makes much of its money from exports to other nations. This could be at risk for its profits and share price.
Another share that has been in my portfolio for a while, BP (LSE: BP), has growth as well as income potential, I believe. However the growth side is probably the riskiest aspect. Oil prices have bounced back somewhat from last year’s lows, but any global recession could put a halt to this.
In terms of dividend shares, however, I think BP is a strong play. Despite cutting its dividend last year, and seeing its share price recover a lot of ground, it is still yielding about 5%. It also has a pretty solid record of dividend payments. If its income stream remains stable, I am sure its dividend payout will as well.
With Covid-19 vaccines dominating news headlines for months now, it is no surprise a pharmaceutical firm makes it onto my list. In terms of dividend shares in the sector, GlaxoSmithKline (LSE: GSK) comes out ahead in the majors, offering a yield of about 5.5%.
Though I don’t expect GSK to benefit directly from the vaccines, I suspect the sector, as a whole, should do going forward. It looks almost certain that Covid-19 will be with us for some time. Treatments, vaccines, and government support should help bolster the sector.
Again, no investment is without its risks. As with the others, I think global recession is the biggest one for GSK at the moment. Big Pharma suffers from the purchase of non-branded versions of their drugs in countries like China.
In times of recession, this becomes an even bigger problem, and one that governments may be less inclined to stop. Making medicine more expensive for the poor does not play well politically.
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Karl has shares in BAE Systems and BP. The Motley Fool UK has recommended GlaxoSmithKline. 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.