When searching for the best stocks to buy now for income, I like to concentrate on companies with the potential to expand their dividend in the years ahead. I am ignoring those with the highest yields on the market. Instead, I am looking for sustainable payouts with room for growth. 

With that in mind, here are three companies I would buy for my portfolio for income today. 

Best stocks to buy for income and growth

Premier Miton (LSE: PMI) has carved out a niche in the asset management market. As investors have flocked to the group’s products, its revenues and profits have grown rapidly. Profits have more than doubled over the past five years. 

Unfortunately, there is no guarantee this growth will last. The asset management market is incredibly competitive. Premier has to fight for market share, and there is no assurances it will be able to maintain an edge over the competition. 

Still, the company has managed to maintain that edge over the past five years. During this time, the firm has steadily increased its dividend to investors, suggesting that the payout could increase further if earnings continue to expand. At the time of writing, the stock supports a dividend yield of 6.7%. 

Expanding market

Greencoat Renewables (LSE: GRP) invests in renewable energy assets across Ireland. It is one way to invest in the rapidly growing green energy sector, managed by an experienced operator.

Greencoat operates several funds in the renewable energy market, which gives it an edge over competitors and may provide the company access to the best deals. 

Getting the right deals is the biggest challenge the corporation faces. As competition in the sector heats up, more money is chasing fewer deals. This could impact returns from these assets and lead to buyers overpaying. 

I will be keeping an eye on this challenge as we advance. In the meantime, the stock supports a dividend yield of 5.2%. There is significant potential for the business to expand its renewable asset portfolio over the next few years. 

Portfolio expansion

Student accommodation provider Unite (LSE: UTG) has been investing heavily in increasing the size of its property portfolio over the past couple of years. As demand for purpose-built student accommodation has grown, the company has been able to capitalise on this booming market.

It is difficult to tell how the market will evolve as interest rates rise. Unite has £1.1bn of debt, and the cost of servicing these borrowings will increase with higher rates. This is probably the biggest challenge the group faces today. 

Nevertheless, with the student population in the UK booming, there is plenty of potential for the company to continue expanding in the years ahead. This could translate into a higher dividend payout for investors.

City analysts have pencilled in a dividend per share of 32p for the 2022 financial year, giving a yield of 3.1% on the current share price.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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I am always on the lookout for penny stocks to buy now for my portfolio. I think there are plenty of opportunities in the market as the world begins to move on from the pandemic. 

As such, here are three top penny stocks I would buy now, considering their growth potential and current valuations. 

Top penny stocks

One of my favourite sectors to hunt for bargains at the moment is real estate. Commercial property prices were hit hard by the pandemic, but they have been recovering steadily. In many cases, the share prices of companies with exposure to the sector have been slow to catch up. I think this presents an opportunity.

Real Estate Investors (LSE: RLE) owns a commercial property portfolio in the north of England. The stock is currently trading at a price-to-book (P/B) value of just 0.7, and it also supports a dividend yield of 8.6%. 

Even though these metrics look attractive, I need to consider the risks the company is facing. These include higher interest rates and potential economic contraction due to the cost of living crisis. 

Despite these headwinds, I think the company looks incredibly attractive and undervalued, considering the recovery in the commercial property market. 

Growth opportunity

The short-term lending market has faced a lot of criticism in recent years, and for good reason. Unscrupulous lenders have been ripping off borrowers. And as regulators have clamped down, many have collapsed. 

Morses Club (LSE: MCL) is one of the few survivors. I think the corporation now has an opportunity to capture market share where other businesses have been forced out of the market. That said, the prospect of additional regulations is probably the most considerable risk facing the group today. 

Nevertheless, I think its low valuation more than makes up for this risk. The stock is trading at a forward 2023 price-to-earnings (P/E) multiple of 5. This makes the firm one of the cheapest penny stocks on the market.

Analysts also believe the company has the potential to yield 12% next year as it returns to growth. Considering these metrics, I believe the opportunity here far outweighs the risks of investing. 

One of the best income stocks to buy now

Duke Royalty (LSE: DUKE) has an interesting business model. The company provides financing to its clients and receives interest in the form of royalties. It reinvests some of this money and returns a percentage to investors. 

Unfortunately, the firm has had to lean heavily on shareholders to drive growth in recent years. It has dramatically increased the number of shares outstanding as it uses investors’ cash to expand the business. Further equity issuance could hit returns in the future. 

Still, I think Duke Royalty has potential as an income and growth investment. That is why I would add the company to my portfolio of penny stocks. At the time of writing, the stock supports a dividend yield of 5.8%, which could hit 7.2% next year, according to City analysts. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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A common complaint I hear about the idea of using dividend shares to generate passive income is that it needs a lot of money to start with. But I do not think this is really the case. I reckon it is possible to build up an investment pot over time and use it to start generating passive income along the way.

Here is how I would set out to do that, using £400 a month.

Why dividend shares?

First let me explain why I think dividend shares make attractive passive income ideas. They really are passive. So I can buy the shares, then simply sit back and wait for any dividends that the company decides to pay to me. I do not need to do any work myself.

On top of that, I am benefiting from being able to choose between thousands of companies, including some of the most successful businesses in the world. I can look at a company like Apple or Tesco and decide that I want to share in their success (and income) by buying their shares for my portfolio. Even though I do not have to do anything myself, I can benefit from the hard work and vision of people who work diligently and successfully.

Getting into the habit

To start, I would set up some sort of share-dealing account or Stocks and Shares ISA. Once I had enough funds, I could use this to start buying dividend shares. I would set it up first, so that it was ready to use as soon as I wanted to start buying.

Then I would make arrangements to transfer £400 into the account regularly. I think discipline is an important part of passive income generation. Getting into a regular habit, I would hopefully notice the impact of the monthly payment less. I would also be more likely to focus on keeping it going, even if other demands on my finances came along.

Shares as passive income ideas

Now I would be ready to start hunting for dividend shares to buy. I would want to reduce my risk by diversifying across a number of different companies and industries. So I might not buy any shares for a couple of months at least, at which point I would have saved £800 – enough to diversify.

But I could use this time to focus on defining my investment objectives and deciding what shares might best suit my risk profile. Shares with high dividends often carry high risk. Miner Ferrexpo, for example, relies on a single mining area in the Ukraine, while tobacco maker Imperial Brands is heavily exposed to cigarette sales that are declining in most markets.

So, instead of just looking at the dividend a company pays, I really need to start understanding its business. Does it have a durable source of competitive advantage it can convert into cash flow? Can it pay that out as dividends, or does it need to use it for other purposes such as paying off debt? Once I find the right dividend shares for me, I could start building my passive income streams.

Christopher Ruane owns shares in Imperial Brands. The Motley Fool UK has recommended Apple, Imperial Brands, and Tesco. 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.

At the ripe old age of 91, Warren Buffett has witnessed more than one market crisis in his long life. Despite this, he has managed to become one of the world’s wealthiest individuals, owing to his calm analysis and ability to find top-notch stocks. That, I believe, qualifies him as someone worth listening to in times like these.

Focus on the business

Warren Buffett is a firm believer in the necessity of sound business principles. Observing a stock’s rise and fall is, for the most part, frustrating, draining, and unproductive. Many inexperienced investors make the mistake of purchasing when prices rise and selling when they fall. However, a whole host of factors influence share prices in the short term. Not only is it hard to forecast these fluctuations, but they typically reveal little about a company’s health.

If, on the other hand, an investor learns how much debt a firm has, how much cash it has on hand, and whether it makes a consistent profit, they will be in a much better position to determine whether the company is healthy or not.

That doesn’t necessarily mean that Buffett would invest right away. He still believes in paying a fair price for a stock.

How Buffett gets a fair price

It can be thrilling to watch markets trending upwards. Often it can seem like the good times will never end and that we need to invest as much as possible. But the good times rarely last and many inexperienced investors will find themselves watching in terror as the market and their investments, fall in value. Warren Buffett believes this period presents an opportunity.

“Be fearful when others are greedy, and be greedy when others are fearful.”

Simply put, Buffett believes that when markets are down that’s when we should be making stock purchases. When markets are surging, this advice is inverted.

Going against the grain is never easy, especially when stock values are down. So, one of the ways I attempt to get around this is to be greedy in instalments. In other words, rather than seeking to buy at the absolute bottom to maximise my returns, I make several acquisitions of solid UK equities.

This makes things much more bearable from a psychological standpoint. It also prevents me from becoming paralysed by indecision and missing out on a terrific chance.

That’s not to say Buffett only buys when markets are down. He has made very few purchases throughout the pandemic. But Berkshire Hathaway, the company Buffett runs, is currently sitting on over $140bn in cash. This could imply that he believes a big crash is coming and that when it arrives, he intends to go shopping.

Time is on my side

Knowing that I want to stay invested for decades lessens the pain of market downturns.

This mindset also offers me an advantage over expert investors. Unlike them, I’m not compelled to justify my decisions or meet a quarterly goal to maintain my job. To put it another way, their chosen professions force these unquestionably gifted people to do everything Buffett warns against. They are compelled to become impatient.

It is because of this dedication to focusing on the long-term objective that I can withstand a crash or correction.

James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. 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.

Today the Lucky Strikes owner British American Tobacco (LSE: BATS) announced its final results for the past year – including a dividend increase. But the hike was much smaller than I would like. Here is what means for my portfolio.

A FTSE 100 high yielder

Tobacco shares commonly have high dividend yields and British American Tobacco is no exception. Its current dividend yield of 6.6% is well in excess of the average for FTSE 100 companies.

The company’s track record is impressive too. It has raised its dividend annually for over two decades. So today’s increase is simply the latest in a line of rises stretching back to before the start of this century.

A tiny rise

I was pleased to see the company announce another dividend raise today. But what disappointed me was the paltry size of the rise. At just 1%, it looked tokenistic to me. Revenue grew by 6.9% and diluted earnings per share increased 6%. The company obviously has cash it can return to shareholders, as shown by its announcement of a £2bn share buyback programme for the current year.

So plumping for a 1% dividend increase, much lower than is common at the firm, makes me question whether the company is giving its dividend the priority I think it deserves. After all, while the share price has risen 22% in the past 12 months, over five years it has fallen 34%. So dividends have been a key part of the shareholder reward for owning the company.

The tobacco giant did say it is committed to continue growing the dividend. But dividends are never guaranteed and there are risks in tobacco. Long-term decline in cigarette volumes could hurt revenues and profits, for example. I am glad that the company has reiterated its progressive dividend policy, but disappointed at the meagre size of this year’s increase.

The new dividend and yield

At the moment, the British American Tobacco dividend per share is £2.16 per year. That is set to grow to £2.18. With such a small increase, the dividend yield will barely shift. The current yield is 6.6%. Taking the increase into account, the prospective yield is still 6.6%. 

The small rise helps explain why the shares did not move much in early trading today. But while the yield has barely shifted, I still find it attractive. There are not many businesses of this one’s size yielding 6%. Fewer still have been raising their dividends annually for decades. That is not guaranteed to continue, but for now at least it has done. A 6.6% yield could be a welcome source of passive income in my portfolio.

I would buy BATS

Even after the share price increase in the past year, I continue to regard the dividend yield as attractive. The results underlined the company’s ability to find growth in an industry facing demand falls. Although its net debt of £36bn remains high, it is almost 10% lower than a year ago. Growing revenues and lower debt could help support the dividend in future. I would happily buy more British American Tobacco shares for my portfolio today.

Christopher Ruane owns shares in British American Tobacco. The Motley Fool UK has recommended British American Tobacco. 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.

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Fund manager Terry Smith is often called ‘Britain’s Warren Buffett’ and it’s easy to see why. Since he launched his flagship fund, Fundsmith Equity, in late 2010, he’s generated enormous returns for investors.

Recently, Smith added a new stock to his fund. That was technology giant Alphabet (NASDAQ: GOOG), which owns Google and YouTube. I see this as a great move from Smith as I view the Big Tech stock as a bit of a ‘no-brainer’. Here’s a look at why I recently bought Alphabet shares and would buy more for my portfolio today.

Incredible growth

Alphabet’s latest results, posted last week, show that the company is generating huge growth. For the final quarter of 2021, revenue came in at $75.3bn, up 32% year-on-year. Meanwhile, earnings per share amounted to $30.60, up 38% year-on-year. These are incredible numbers for a company of Alphabet’s size ($1.8trn).

Digging into the Q4 results, it’s clear Alphabet has a number of growth drivers. For starters, it’s seeing excellent growth in its Google Search segment, where it makes money from digital advertising. Here, revenue was up 36% year-on-year to $43.3bn.

Secondly, it’s seeing strong growth from YouTube. Here, advertising revenues were up 25% on Q4 2020 to $8.6bn. That’s higher than Netflix’s revenues last quarter.

Third, it’s seeing prolific growth in its cloud computing division. Here, revenue was up 45% year-on-year for the quarter to $5.5bn.

Overall, the company’s growth is very impressive, in my view.

Poised to benefit from the tech revolution

Looking ahead, I think there’s plenty of growth to come from Alphabet. In the near term, the company could get a boost from travel-related advertising as the travel industry picks up after Covid-19.

Meanwhile, in the long run, Alphabet could be a major player in the artificial intelligence (AI) space. Last year, its DeepMind division launched a new venture that uses AI for drug discovery. It could also be a major player in the self-driving car space through its autonomous vehicle division Waymo. 

Putting this all together, the future looks very exciting for Alphabet and its investors. 

Attractive valuation

It’s not just the growth potential that I like here though. I also see a lot of appeal in the stock’s valuation. At present, Alphabet trades on a price-to-earnings (P/E) ratio of about 24. That strikes me as a very reasonable valuation given the company’s dominance in search, and its incredible level of growth.

Of course, there are risks to consider here. One is regulatory intervention. Given Alphabet’s dominance, I wouldn’t be surprised if regulators tried to break the company up. This could impact its share price in the near term.

Another is competition from other tech companies. In its cloud computing division, it’s facing intense rivalry from the likes of Amazon and Microsoft.

Overall however, I see a lot of appeal in Alphabet shares. And I see the fact that Terry Smith has bought the stock as very encouraging.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Edward Sheldon owns Alphabet (C shares), Amazon, and Microsoft and has a position in Fundsmith. The Motley Fool UK has recommended Alphabet (A shares), Amazon, and Microsoft. 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.

With a good few decades of investing ahead of me, I’m always on the lookout for great growth stocks to buy. Even better if their share prices are going through a period of temporary weakness.

With this in mind, here are three quality companies now trading near 52-week lows.

Fevertree Drinks

Late in January, one-time market darling Fevertree Drinks (LSE: FEVR) announced that cost headwinds would be more significant than expected, meaning that margins at the mixer specialist are likely to “remain broadly flat in 2022“.

This announcement succeeded in taking away most of the gains made in the second half of 2021. Fevertree’s share price now stands close to its 52-week low. So is now the time to buy the stock?

Well, a valuation of almost 49 times forecast earnings suggests not. Anything this high implies/demands a company should deliver perfectly on its strategy. That’s not easy considering the ‘interesting’ economic outlook right now.

Then again, this is not a stock that’s ever likely to trade at a bargain price. Prior to the pandemic, returns on capital — a key metric for star fund manager Terry Smith — were seriously good. Fevertree’s finances also look solid with hardly any debt on the balance sheet. There’s lots of ‘white space’ left for the company to grow into and it already possesses a great brand. 

I think there’s a good chance of this company recovering strongly, in time. For now however, it stays on my watchlist.

Softcat

IT solutions provider Softcat (LSE: SCT) is next up. The FTSE 250 member’s share price is also getting close to its 52-week low (1,419p, set last April). Considering its stellar track record, this selling pressure grabs my attention.

Like Fevertree, Softcat has a history of generating seriously good returns on the money it invests in the business. It’s clearly benefited hugely from the increased demand for support from clients over the pandemic too. 

That’s not to say Softcat is without risk. Margins, while decent for its industry, are average relative to the rest of the market. The stock also trades on a P/E of 33. That’s pricey, considering that earnings aren’t expected to grow much at all this year. 

Given that the stock could fall further if the rotation into value stocks continues in 2022, Softcat only makes it to my watchlist, for now. 

Games Workshop

A final growth share that’s let off steam has been the fantasy figurine-maker Games Workshop (LSE: GAW). The shares are now down over 20% year-to-date and only slightly above the 52-week low. Product release delays and increasing costs are partly to blame.

Of the three mentioned here, this is the stock I’d be most likely to buy today. While fixating on valuation is never a good idea, a forward P/E of 22 looks very reasonable, considering its dominance of this niche market. Again, its finances are robust compared to many other companies.

Yes, there’s a risk the share price could dip lower if margins continue to be squeezed. As such, it may pay for me to buy in tranches if I end up pulling the trigger.

There was a time when Games Workshop was knocking on the door of the FTSE 100. Assuming it is able to successfully push its Warhammer franchise over the next few years via games and films, I’m confident this could still happen. 

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Fevertree Drinks, Games Workshop, and Softcat. 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.