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What are the best UK shares to buy now to make a passive income in 2021?

Peter Stephens
·3-min read
A person holding onto a fan of twenty pound notes
A person holding onto a fan of twenty pound notes

Making a passive income has become increasingly challenging over the past year. Falling interest rates mean that cash and bonds are unlikely to provide a sufficiently high return to merit investment. Meanwhile, many stocks have reduced or postponed dividends in response to a challenging operating outlook.

Despite this, some FTSE 350 shares offer an attractive income outlook for the current year and in the coming years. With that in mind, here are a handful of companies that could be among the best UK shares to buy now to generate a worthwhile income return.

Making an attractive passive income in 2021

Defensive stocks could be among the best UK shares to buy today for a passive income in 2021. Their business models could provide a resilient income outlook even though the prospects for the UK economy are challenging. This may mean that there is a lower chance of dividend reductions, and a higher chance of dividend growth this year.

As such, stocks such as British American Tobacco and SSE could prove to be attractive income opportunities. They yield in excess of 5%, and have business models that may be relatively unaffected by lockdown measures and a slowing economic outlook. British American Tobacco is shifting its business model towards next-generation products such as e-cigarettes, while SSE is moving its asset base towards low carbon generation.

These changes may help to maintain the relevance of both companies in a rapidly-changing economic environment. This may aid their passive income potential over the long run through producing higher dividend growth and a more solid income performance.

Dividend growth opportunities beyond 2021

Dividend growth stocks may also be among the best UK shares to buy now to make a passive income. They may have lower income returns at the present time, but their industry positions and strategies may lead to higher dividend growth rates that prompt improving investor sentiment.

As such, stocks including AstraZeneca and Segro could be of interest to FTSE 100 income investors. They yield 2.8% and 2.4% respectively at the present time. However, they may be able to grow shareholder payouts at a fast pace. AstraZeneca has an enviable position in emerging markets, as well as having a solid pipeline of new drugs that could catalyse its performance alongside acquisition activity. Segro’s warehouses look set to enjoy high demand as the retail industry shifts online. This may enable it to pay a higher dividend to produce a more appealing passive income in the coming years.

Diversification in 2021

Clearly, the outlook for many UK shares is uncertain and this may mean that diversifying is even more important than usual for passive income investors. It could reduce risk at what is a challenging time for many industries and lead to a more impressive income return in the coming years.

The post What are the best UK shares to buy now to make a passive income in 2021? appeared first on The Motley Fool UK.

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Peter Stephens owns shares of AstraZeneca, British American Tobacco, and SSE. 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.

Motley Fool UK 2021