On my list of passive income ideas, shares rank highly. I aim to buy shares and receive dividends from them without work. So the income really is passive. Below I discuss three names from my list of best shares to buy now that I would consider to boost my passive income.
High-yield tobacco shares
A lot of people won’t invest in tobacco stocks because of ethical concerns. But as an investor who is willing to buy tobacco shares, I consider such stocks among the best shares to buy for passive income.
Take British American Tobacco (LSE: BATS) as an example. The owner of iconic brands such as Lucky Strike and Camel currently yields 7.5%. With its quarterly dividends, that could make for an attractive passive income stream.
The company has increased its dividends each year for two decades. But future dividends are never guaranteed for any share. I think the high yield reflects City concerns about a key risk for tobacco shares: declining rates of cigarette usage in many markets. That could hurt future turnover and profits.
I recognise that risk. But I draw some cheer from BAT’s momentum in developing cigarette alternatives. It added 3m non-combustible customers last year. BAT says it is on track to have 50m such customers by 2030.
Meanwhile, the company continues to be a cash generation machine. Last year it generated £2.6bn of cash flow even after paying dividends.
Among the best shares to buy now for passive income, I am considering Morrisons. Taking special dividends into account, the retailer yields 6.3%.
I think the company’s store estate will help it to attract customers for years to come. But it has also been ramping up its online presence, using Ocado technology. The supermarket giant has also been growing its smaller footprint offering. It plans 300 more Morrisons Daily stores in the coming three years. These stores currently trade under a different name. I like the approach of extending the brand reach without incurring high capital expenditure.
But risks include the highly competitive retail environment. For example, discount retailers like B&M have been very successful. That could force Morrisons into discounting, which might damage its profit margins.
Financial services names among my best shares to buy now
With its 8.2% yield, I consider financial services provider M&G among the best shares to buy now to boost my passive income streams.
I see its strong brand as a competitive asset in the financial services market. The company has a policy to target a stable or increasing dividend. Its dividend increase last year of 2.6% might not sound much. But against the backdrop of the pandemic I thought it was welcome sign of confidence from management.
Risks include a downturn in demand for traditional financial service products, for example due to an increase in low cost products from fintechs.
My passive income action plan
To manage my risk, I always try to diversify my holdings. No matter how good a share might seem, I don’t put too many of my eggs in one basket.
I already hold BAT. Both Morrisons and M&G are on my list of best shares to buy now for my portfolio.
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christopherruane owns shares of British American Tobacco. The Motley Fool UK has recommended Morrisons and Ocado Group. 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.