2 hot dividend stocks I’d buy and hold for 10 years
2 hot dividend stocks I’d buy and hold for 10 years
I’m on the hunt for the best dividend stocks I reckon could help me build real wealth for years to come.
I’ve identified two picks I’m looking to buy as soon as I have some spare cash to invest. These are UK Greencoat Wind (LSE: UKW) and NextEnergy Solar Income Fund (LSE: NESF).
Income investors’ holy grail
You might have already noticed one thing that the two stocks have in common — they’re both invested in the green revolution. As the world looks to move away from traditional fossil fuels, governments are looking for clean alternatives. There are some pretty lofty targets set for decarbonization.
I reckon these two firms are only set to benefit. Hopefully they can continue to reward shareholders who join the ride.
The other common trait that perhaps doesn’t stick out straight away is that they’re both set up as real estate investment trusts (REITs). This means they’re exempt from corporation tax, and receive other perks too. In exchange, they must return 90% of profits to shareholders. This makes these types of stocks popular among income investors, like me.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
The bull case
Greencoat invests in offshore and onshore wind farms. In fact, it already owns the largest portfolio in the UK. It makes money from selling the energy it generates to other energy firms. Greencoat can already count major players such as Centrica as customers. As the demand for electricity is only rising, Greencoat is in a fantastic position to capitalise and reward investors.
As dividend records go, the stock offers a dividend yield of 7.5% at present. Plus, it has an enviable record of hiking payouts for the past nine years in a row. However, I do understand that dividends are never guaranteed. Furthermore, the past is never any sort of guarantee of the future.
Moving on to NextEnergy then, which, as the name suggests, focuses on solar energy assets. The similarities to Greencoat continue, as it is primed to capitalise on rising demand for electricity.
However, NextEnergy has excellent fundamentals too. A forward dividend yield of close to 9% is tempting, and is backed up by an enviable track record of returns. Furthermore the shares look excellent value to money to me on a forward price-to-earnings ratio of 9.
The bear case
Greencoat has two main issues that do concern me. Firstly, it’s highly reliant on energy prices, as they fluctuate up and down. Despite rising demand for electricity, it doesn’t really have any pricing power. More crucially, investing in wind farms is an expensive endeavour. Plus there’s lots of red tape around the type of land these farms can be built on. Growth could be trickier than expected, which could eventually harm the level of return the stock provides.
Guess what? The similarities in the cons department between the two stocks continues! Building solar farms isn’t cheap or easy. The type of investment needed for this could have a material impact on NextEnergy’s investor returns as well.
Should you invest £1,000 in Nextenergy Solar Fund Limited right now?
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Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended Greencoat Uk Wind Plc. 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.