Looking to boost my passive income streams, I have been making a list of shares to buy now for my portfolio. If I had £3,000 to invest, I would put £1,000 each into this trio of dividend payers.
Financial services icon
I like the asset management firm M&G (LSE: MNG) and would consider adding it to my holdings. Currently the shares yield a tasty 8.6%.
The business model at M&G is pretty simple. Clients engage it to manage funds for them, by using its investment expertise. A lot of money can be at stake, so reputation matters. That is where the benefit of an established brand like M&G can be valuable. The sums of money involved in the industry are helpful in another way. With large funds invested, even a small percentage commission can translate into substantial earnings for M&G.
But clients paying professional asset managers to invest their funds are looking for results. One risk I see with M&G is any underperformance in its investment results compared to competitors. That could lead clients to switch providers, hurting revenues and profits at M&G.
Tobacco giant
Another of the high yielders on my list of potential new shares for my portfolio is tobacco producer Imperial Brands (LSE: IMB). The yield is currently 7.9%. After a cut in 2020, Imperial has started to increase its dividend again, albeit only by 1% last year. Of course, though, dividends at any company are never guaranteed.
The source of the company’s big dividend is also the source of a big risk. Cigarettes are cheap to make. Customers are willing to pay a premium for Imperial’s, well, brands such as West and Lambert & Butler. That enables strong cash flows, which can help fund dividends. Last year, Imperial’s free cash flow was £1.5bn, more than covering the £1.3bn it paid out it in dividends.
But the company’s reliance on cigarettes is also a risk, as declining smoking rates in many markets could hurt revenues and profits. Imperial is trying to improve its market share, which could help it offset this market decline for a while. Longer term, next-gen products like vaping might fill in the profit hole left by cigarettes. But if they do not, the dividend could become unsustainable.
Energy innovator
The third share I would consider buying for my portfolio due to its income potential is Diversified Energy (LSE: DEC). It has a novel business model of operating tens of thousands of natural gas and oil wells other operators might consider past their prime. Figuring out how to get energy profitably in a well’s twilight years could become big business as developing new fields becomes more controversial.
Diversified Energy is successfully using that model to support a quarterly dividend. Currently the company yields 11.1%. Such a high yield can signal risk. Not only is the business model yet to be proven over the long term, it could also face substantial costs to cap wells that stop producing. That could eat into profits. I like the business model, though, and would happily buy Diversified Energy for my portfolio today.
Foolish final thoughts
Share prices can move up and down. That affects the yield I would get from buying a share, as yield depends on my purchase price. With £3,000 to invest today, I would be happy to buy these three companies for my portfolio.
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Christopher Ruane owns shares in Diversified Energy and Imperial Brands. The Motley Fool UK has recommended 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.
