With mainstream assets such as cash and bonds offering poor returns, UK dividend shares may be a relatively attractive means of making a passive income.
Clearly, they come with higher risk than other income-producing assets. However, by filtering out companies with weak dividend prospects and challenging financial positions, it may be possible to find the best UK dividend stocks for the long run.
Starting with high passive income prospects
An obvious place to start when seeking the best UK dividend shares to make a passive income is their dividend yields. For example, companies that have a low dividend yield, whether because of a share price rise or a low dividend payout, could be discarded in the pursuit of a generous income return.
However, there is more to making a resilient income than simply purchasing high-yielding UK shares. After all, some companies may have dividends that are unaffordable given current economic circumstances. Therefore, it may be prudent to analyse the affordability of dividends in terms of how many times they are covered by profit.
Furthermore, assessing the track record of a company’s dividends may provide guidance as to how robust they have previously been in changeable economic conditions. Companies that have maintained, or even increased, their shareholder payouts in past economic declines may represent a more stable means of producing a passive income.
UK dividend shares with growth potential
Even though inflation is relatively low at the present time, it could rise in the coming years. As such, obtaining a passive income that can grow at a brisk pace could become increasingly appealing.
Dividend shares that offer a growing shareholder payout could be especially attractive. Although it is difficult to accurately gauge a company’s potential to raise shareholder payouts, considering its management’s stance on dividends, its earnings prospects, and the headroom it has when making present day dividend payouts could help to build a picture of the likelihood of an increase in payouts.
Companies that offer a generous passive income that is likely to grow in the coming years could be among the best UK dividend shares to buy today. They may have greater potential to provide a stable and resilient passive income in the coming years.
Defining the best UK dividend shares to buy today
Of course, every investor will have a different view on what are the best UK dividend shares to buy today to make a passive income. Furthermore, there is never any guarantee that any company will pay dividends in future just because it has done in the past.
However, by focusing on a diverse range of companies that offer a mix of high yields that are financially secure and offer the potential to grow in future, it may be possible to obtain a relatively attractive passive income over the long run. Â