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Income stocks make up the bulk of my portfolio. After all, investing for growth can be risky: Many start-ups fail. As such, I have about five or six dividend-paying companies in my portfolio for every growth stock.
But today I’m looking at two income stocks, in a very exciting industry, offering attractive returns and modest growth. Both of which I have recently purchased.
So let’s take a closer look at the two actions.
Greencoat UK Wind
Greencoat UK Wind (LSE:UKW) is a closed-end investment company. The objective of the trust administration is to provide investors with an annual dividend that increases in line with the inflation of the retail price index, while preserving the principal value of their investment.
For starters, I think increasing the dividend in line with inflation would be challenging in the current environment. But the renewable infrastructure fund confirmed on Thursday that it would raise its dividend to 7.72 pence from 7.18 pence in 2022, and is aiming for a dividend of 8.76 pence in 2023, in line with the RPI.
Greencoat UK Wind, as its name suggests, invests in UK wind farms. These farms, of which there are 46, generate clean electricity, which is sold to energy providers to power people’s homes.
With investments in and ownership of assets in England, Scotland, Wales and Northern Ireland, Greencoat has an aggregate net capacity of 1,289.8 megawatts. That’s enough energy to power more than 1.5 million homes.
The stock is currently trading at a 2.3% discount to its net asset value and has a price-earnings ratio of seven, around half the FTSE 100 average. The dividend yield currently stands at 4.8%, but the forward yield is more attractive at around 5.4%. The hedge is very strong at 3.2x, after net cash generation reached £560m.
Greencoat invested £340m in start-ups in 2022. This is particularly exciting as UK wind power is a very attractive market at the moment. In fact, onshore wind power is a cheap form of power generation in the country.
Investors will be concerned about the electricity generator tax, a tax on windfall income from electricity generators. But generally speaking, I think the environment is still attractive. I also hope to see an end to the moratorium on onshore wind power in the UK. This should allow Greencoat to invest in higher margin wind power.
NextEnergy Solar Fund
NextEnergy Solar Fund (LSE:NESF) is an investment fund that focuses on solar energy infrastructure assets. These assets generate around 865MW of power, by the end of 2022.
The fund offers investors an attractive dividend yield of 6.5%. In fact, as a real estate investment trust, NextEnergy must distribute 90% of taxable profits to shareholders.
In some ways, that’s great, especially with energy prices going up. However, it does suggest that the trust has to use debt to finance growth. I’m not always a fan of this, but I take solace in the attractive nature of the industry.
And contrary to popular opinion, solar panels are very effective, even in cloudy conditions. In fact, the rain can even improve the performance of the panels, removing dust.
More generally, the fundamentals here are strong, with a P/E of nine. Hopefully, the new government policy will further incentivize investment in the sector.
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