Stock investing can be challenging, especially when it comes to finding the market’s best income shares. Indeed, company dividends are never guaranteed. And chasing yield, or finding the stock’s with the highest dividend yields on the market, can be a risky strategy. A high dividend yield can often be a sign that the market doesn’t believe the payout is sustainable.
With that in mind, here are three of the best income shares I’d buy right now.
Stock investing: the hunt for income
Imperial Brands (LSE: IMB) might not be to everyone’s taste. The company is one of the world’s largest cigarette suppliers, which could put some investors off the business. Ethical considerations aside, the enterprise is highly cash generative. This suggests to me it can afford to return large amounts of cash to investors.
At the time of writing, the stock supports a dividend yield of around 9.4%. That appears incredibly attractive in the current interest rate environment. However, the company is facing challenges. Cigarette sales around the world are falling, and Imperial’s attempt to diversify into so-called reduced-risk products hasn’t yet produced results management would have liked. These issues could put pressure on the dividend in future.
Still, I’d buy the stock based on its current fundamentals.
Income shares on offer
Both of these companies have their own unique qualities. BHP is the world’s largest mining group, and DS is one of the world’s largest suppliers of paper and packaging products. Both organisations can use their size to achieve economies of scale and produce better returns for investors.
That doesn’t mean these companies are without their risks. Both are highly reliant on commodity prices, which can be incredibly volatile. This means profits can jump up and down from year to year, potentially reducing shareholder returns.
Nevertheless, both companies are some of the best income shares on the current market, despite these risks. BHP offers a regular dividend yield of 3.3% while DS is projected to yield 2.2%. These yields may pale in comparison to that of Imperial Brands, but I don’t think it’s right to concentrate on yield alone.
As mentioned above, buying shares with high yields could expose me to unnecessary risks. That’s why I’ve always focused on businesses like BHP and DS Smith.
These firms may not have the highest yields on the market, but their size and competitive advantages should help them achieve steady growth year after year. This growth should support the companies’ dividend payouts to investors and give them headroom to expand the distributions.
That’s why I’d buy these income shares for my portfolio today.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended DS Smith and Imperial Brands. 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.