I like the passive income potential of investing in dividend shares. Here are five companies from my list of shares to buy now for my portfolio with dividends I find appealing.
Large financial services providers
Two of the names are in the financial services industry. The first is insurer Direct Line which currently has a dividend yield of 8.9%, meaning that if I invest £1,000 in it today, I would hopefully receive annual dividends of £89 in future.
The company is a well-recognised name in the insurance field, with over 14m policies in force. It benefits from a portfolio of brands including its own one with the red telephone logo.
Between its underwriting expertise and powerful brand, I think the company has a formula for future profitability. One risk is the threat to profits posed by moves to make insurance pricing less complex. But that could actually spur underwriters to focus on things like customer service, so might end up boosting the company’s customer loyalty.
Another name on my list of shares to buy now for my portfolio is asset manager M&G. Its yield is lower than Direct Line, at 8.5%, but that is still well above the average among FTSE 100 companies. The company benefits from a strong brand and long reputation in the City.
Assets under management and administration edged up last year to £370bn. With such a large amount of assets under its control, M&G should be able to turn a handy profit even with just small commissions.
Performance matters though, and one risk is any downturn in investment performance leading clients to move funds elsewhere. That could damage profits.
Tobacco multinationals
I would also invest in both of the UK-based tobacco multinationals, British American Tobacco and Imperial Brands.
The tobacco industry has attractive economic characteristics. It makes products cheaply. But their unfortunately addictive nature and premium branding can help sell them at an attractive profit margin. A global supply chain creates economies of scale, helping large multinational operators like Imperial and British American.
The global reach also diversifies their business. For example, one risk to both is the decline in cigarette use in many developed markets. But slower declines in developing markets than elsewhere mean that their cigarette businesses could survive for many years yet. Both firms are also developing non-cigarette businesses using formats like vaping.
Imperial yields 8.3% and British American 6.5%. I own both in my portfolio and would consider adding more.
Shares to buy now for dividends
Finally I would add Income and Growth Venture Capital Trust for its 10% yield. The trust invests in small and growing companies, so when they do well it earns money it can pay out as dividends. That depends on choosing companies that end up doing well – there is a risk that the investment managers make bad choices, hurting profits.
But their track record suggests they have a good ability to find attractive investment candidates. The dividend tends to move around from year to year. But with its double digit yield at the moment, I would consider the trust among dividend shares to buy now for my portfolio.