I think some of the best shares to buy for my portfolio are income stocks. I believe these offer the best of both worlds, the potential for growth through earnings expansion, as well as a steady stream of income to improve returns.
Here are three companies I believe are some of the best income stocks on the market.
Best shares to buy
The first on my list is Close Brothers (LSE: CBG). This financial services group currently offers a dividend yield of 2.5%. However, City analysts expect the yield to rise to 3.7% next year as the company recovers from the coronavirus crisis.
While these are just forecasts at this stage, its latest trading update confirmed the recovery is taking shape. The banking loan book increased 3.2% in the three months to the end of April to £8.2bn and by 7.7% for the 2021 financial year.
Nevertheless, the company’s bad debt ratio remains elevated at £1bn. Another coronavirus lockdown could see this figure increase, which would hurt profit growth and may stall the group’s dividend plans.
Still, I believe this is one of the best shares to buy now and I’d buy the company for my portfolio of income stocks.
Another stock I would buy is the distribution group DCC (LSE: DCC). At present, the company offers a dividend yield of 2.6%, which is expected to increase to 2.8% next year.
This is below the market average. But, over the past five years, the company has increased the dividend steadily every year as earnings have expanded.
Management has pursued a strategy of growth through acquisitions. It’s convinced there are plenty of more acquisition targets available for bolt-on deals.
This is why I believe the company is one of the best shares to buy now. I think its acquisition plan will yield further growth, allowing the business to return more cash to investors.
Of course, the company’s growth isn’t guaranteed. Growing through acquisitions can be a risky strategy. There’s always going to be the possibility a deal could turn sour, lumping DCC with a worthless business.
Online stockbroker Hargreaves Lansdown (LSE: HL) has benefited from a significant increase in investors trading over the past 12 months.
Thanks to this increase in activity from new and existing customers, City analysts reckon the company’s earnings per share could increase by around 40% in its current financial year.
That’s a giant leap, and I think it bodes well for the firm’s dividend prospects. Indeed, City analysts have already pencilled in a prospective dividend yield of 3.2% for the company, up from 2.3% this year.
That said, these are just forecasts at this stage. There’s no guarantee the company will hit these growth targets.
A slowdown in trading activity, or increase in costs, could cause the group to miss City growth targets. These developments could also force management to re-think the firm’s dividend policies. This could be bad news for the company’s shareholder payout.
Nevertheless, I reckon this is one of the best shares to buy, based on its income and growth prospects. That’s why I’d buy Hargreaves Landsdown for my portfolio today.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.