The Bank of England has warned the UK economy could fall into recession this year as inflation is pushed to above 10%. With prices rising rapidly, I’m looking at the best income shares to buy right now.
Income shares tend to provide a greater yield than many of the growth shares I own. But I’d also expect them to grow at a slower pace too. Right now though, in the current climate, I’d quite like to own dividend-paying assets.
Top income shares
That’s why I’d consider buying British American Tobacco (LSE:BATS). Currently on a 6.2% dividend yield, these FTSE 100 shares offer above-average income.
It’s certainly not the highest available, but there are other factors to consider too. For instance, I’d look to its reliability in distributing dividends to shareholders.
BATS is an established and reliable income share, in my opinion. It has been dishing out dividends for 24 years. That’s an impressive track record.
But dividends are typically paid from earnings, so how’s that looking? Well, it seems to have an impressive track record for earnings too. Over the last 10 years, it delivered annual earnings growth of 9%. That has enabled it to raise its dividend by 6% per year on average. That’s just what I like to see from my favourite income shares.
Looking ahead
It’s confident that it will continue to grow the dividend. It has plans to accelerate growth in its New Category brands, which should facilitate the move from combustibles to non-combustible products. One thing to bear in mind though. There are certainly risks in developing new products and brands. There’s also much competition in this emerging space. Â
That said, in addition to its 6.2% dividend yield, I’d also expect its shares to rise in a recession. Its defensive properties are just what I’d look for and I’d happily buy these income shares today.
Quality income and growth
My next top income share is FTSE 250-listed IG Group (LSE:IGG). Founded in 1974, this online broker has evolved to become a leading operator in this competitive industry. Through its platforms, it offers the ability to buy and sell thousands of financial instruments. That include shares, currencies, commodities and more.
IG currently offers an enticing 6% dividend yield. Importantly, I’d say the dividend is sustainable too as it’s more than covered by its earnings.
But I’d buy this financial technology business for more than just its dividend. IG Group is a profitable business with a strong balance sheet. It holds ample cash and generates a double-digit return on capital – a good measure of business quality in my opinion.
Profiting from volatility
It should also benefit from current stock market volatility. More volatility tends to lead to more trading, and that’s good news for a broker.
One thing to look out for is regulatory risk. This industry is prone to changes in regulation. Any restrictions in trading leverage could negatively impact the group’s profits.
That said, its shares have fallen by 12% over the past year. I think it’s an excellent opportunity to buy these high-quality income shares today.