My best 2 dividend shares under £2

Looking for the best dividend shares? Zaven Boyrazian explores two companies with yields he believes will continue to grow over the long term.

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In my experience, time in the market is a far better strategy than timing the market. And that’s especially true when it comes to looking for the best dividend shares. With that in mind, here are two companies I’m following with handsome yields. I own one but would buy more and am considering the other.

A wind to cash converter

It’s no secret that the western world is undergoing a technological shift to try and eliminate carbon emissions. Here in the UK, the government has unveiled its Green Industrial Revolution. Under this plan, every home in the country will be powered by wind farms by 2030. As a result, investment in renewable energy technologies like wind farms has been ramping up. This is excellent news for Greencoat UK Wind (LSE:UKW).

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Greencoat is a real estate investment trust that offers investors the opportunity to invest directly in wind farms across the country. The business generates clean electricity, sells it to the National Grid for use, and then returns 90% of the profits to shareholders in the form of a 5.5% dividend yield at today’s price of £1.30 per share. That’s quite a substantial payout, I feel, and hence it’s on my list for the best dividend shares today. But there are some risks to consider.

The regulatory price caps on electricity ensure it remains affordable. But they also eliminate all of Greencoat’s pricing power. The business does support high operating profit margins of around 80%, which provides a nice buffer should tighter price caps be introduced. However, any reduction in profitability could jeopardise the size of shareholder dividends. Nevertheless, the reward is worth the risk in my eyes, so I would still consider it for my income portfolio.

The best dividend shares have their risks

Mining the best dividends using shares

Transitioning the world to renewables is going to be quite a resource-intensive process. After all, these technologies require a lot of precious metals like cobalt and copper. So, I’m not surprised to see the demand and subsequently price for these commodities skyrocket. This surge in value is excellent news for Anglo Pacific Group (LSE:APF).

The company doesn’t do any mining directly. Instead, it provides funding for other mining giants, like Rio Tinto, to develop new sites in exchange for a percentage of the minerals dug up. In the past, the firm has been heavily dependent on coal. But over the last five years, the management team has been diversifying. And just recently, it acquired a new cobalt mine that is already in its commercial production phase.

But like all businesses, it has several risks to contend with. The most prominent of which is once again lack of pricing power. Because the price of these metals is set by the market, a sudden drop in demand can lead to a catastrophic impact on the revenue stream. However, over the long term, I believe Anglo Pacific is more than capable of maintaining and even expanding its dividend. And at today’s share price of £1.40, it’s currently yielding 6.4%. That’s why it’s one of my best dividend shares to buy, why I added it to my portfolio last year and may buy more.

But these aren't the only stocks I've got my eye on as the world shifts to renewables...

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Zaven Boyrazian owns shares of Anglo Pacific. The Motley Fool UK has recommended Anglo Pacific and Greencoat UK Wind. 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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