I believe investing in dividend stocks is a great way to boost my income. As such, if I had a lump sum of £1,000 to invest right now, I would acquire a basket of income stocks to generate a passive income from these investments.
The market’s best dividend stocks
A large percentage of companies listed on the London stock market offer dividend yields. However, some of these payouts appear more secure than others.
And it is these payouts that I would concentrate on when investing my £1,000. I would rather own stocks with dividends that look secure than chase the market’s highest yields, only to see them cut at a later date.
One company that immediately stands out to me as being a dividend champion is Legal and General.
At the time of writing, the stock offers a dividend yield of 6.3%. The payout is covered 1.3 times by earnings per share, which suggests the company has headroom to increase the payout or maintain it if profits start to decline.
The only time in recent years when the company has had to reduce its distribution was in the financial crisis. So, the dividend isn’t infallible, and another crisis could force management’s hand. Nonetheless, based on its current fundamentals, I’d buy the stock.
I’d also buy Coca-Cola HBC. While this stock only supports a dividend yield of 2.1% at the time of writing, I’m encouraged by its position as the largest Coca-Cola bottler in Europe. I think this gives it a defensive nature as Coke is one of the world’s most valuable brands.
Still, this does not guarantee a steady income indefinitely. If sales start to decline or the company loses a significant contract, profits could slide, and its dividend may come under pressure. Even after taking these risks into account, I’d buy the firm for my portfolio of dividend stocks.
The final corporation I’d buy is 3I Infrastructure. This firm owns a portfolio of infrastructure assets. These tend to be great income investments as they usually have long lifespans, which can last decades.
Therefore, the assets have the potential to produce an inflation-linked income stream for decades. At the time of writing, the stock offers investors a dividend yield of 3.3%.
The main challenges the business might face are higher interest costs on its debt, which could weigh on profit margins. It’s also at risk of losing operating contracts if it does not meet contract conditions.
However, as dividend stocks go, 3I has some fantastic qualities, in my opinion.
The bottom line
By acquiring the three dividend stocks above, I believe I could generate a steady income on an investment of £1,000.
What’s more, it seems as if the income from all three companies is backed up by healthy cash flows from robust operating businesses.
These qualities suggest Legal, Coca-Cola HBC, and 3I are some of the best income stocks on the market I can buy for my portfolio right now.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the 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.