Here are three top dividend stocks for investors to buy for next year. I think they could deliver solid passive income in 2023 and well into the next decade.
(Un)stormy weather
Investing in renewable energy stocks can be troublesome business in the short term. Power generation from these sorts of companies is highly unpredictable. This can have a negative impact on short-term earnings and therefore shareholder returns.
Electricity generation can be poor when the wind doesn’t blow or the sun fails to shine. To illustrate the point, just 3% of the UK’s power was provided by wind turbines on Sunday afternoon, according to National Grid.
Recent adverse weather conditions could well be reflected in SSE’s (LSE:SSE) next financial update. It’s been forced to scale back profits forecasts in the past due to calmer-than-normal weather.
A growing market
Having said that, I still believe SSE shares are a top investment opportunity right now. Over the long term I expect the company to deliver excellent profits growth as demand for wind energy steadily rises.
Population growth means demand for electricity looks set to keep growing strongly. Yet use of oil and gas will have to fall as countries reduce their carbon footprints. This consequent shortfall will need to be picked up by renewable and alternative power sources like wind, solar and nuclear.
Analysts at Mordor Intelligence believe the offshore wind energy market alone will balloon as a result. They have tipped compound annual growth of above 13.5% in the five years to 2027.
Too cheap to miss?
This provides a huge window of opportunity for businesses like SSE. And it’s why the company has accelerated its renewable energy plans. It now expects to produce at least 50 TWh of green power by 2030, five times more than it currently generates.
Today SSE shares trade on a forward price-to-earnings growth (PEG) ratio of 0.4. This is below the benchmark of 1 that suggests a stock is undervalued.
On top of this, the energy giant also carries a handsome 5.5% dividend yield.
Other renewable energy giants
I consequently think SSE could be one of the FTSE 100’s best-priced dividend stocks to buy. And it’s one of several top-class renewable energy stock the London Stock Exchange can offer investors.
I myself have invested in The Renewables Infrastructure Group. This business owns and operates wind and solar farms (and battery storage assets) in the UK as well as Continental Europe. The advantage of this is that profits aren’t dependent on favourable weather conditions in one or two places.
I like Greencoat Renewables for the same reason. Its assets are located in Ireland, France, Spain, Sweden and elsewhere. Its forward dividend yield (like that of The Renewables Infrastructure Group) sits at around 5.5%.
The verdict
A broader geographic wingspan doesn’t eliminate the risk that adverse weather poses to profits. Like SSE, these companies also carry lots of debt, which is expensive to service. And especially so in this environment of rising interest rates.
But on balance I think all three of these stocks are great buys for investors. I expect them to deliver exceptional long-term passive income.
