As I’m getting back into the hunt for 2023 dividend stocks, I want to allocate some of my money to a more niche area.
This is focusing on green dividend stocks, namely firms involved in renewable energy and similar pursuits. I’m not just thinking about the planet though. These companies tick all my boxes when it comes to investment potential.
An idea from across the pond
The first stock is a US company. NextEra Energy Partners (NYSE:NEP) is a publicly-traded subsidiary of NextEra Energy. It was spun-off in 2014 and has performed strongly in its own right. It buys and runs wind and solar plants, as well as natural gas pipelines in North America.
Aside from the green credentials, the business also focuses on projects that provide long-term stable cash flows. After all, it’s still a firm that needs to generate profit. In the Q4 earnings report released last week, it said NextEra “delivered more than 20% year-over-year growth in adjusted EBITDA”.
This helped the business to pay out another quarterly dividend, noting that this has grown by 15% versus the same time last year. Given the similar increase in earnings, this makes sense. At the moment, the dividend yield sits at 4.32%. The share price is up a modest 1.4% over the past year.
I think the opportunity to continue to invest and scale up operations in North America is huge. It’s a market that still has a lot of untapped potential. However, this is also a possible risk. Given the vast amount of potential projects, the business needs to be smart in identifying the best allocation of resources going forward.
Wind provides momentum
The second green idea I like is Greencoat UK Wind (LSE:UKW). This is much closer to home, being listed on the FTSE 250. The share price has rallied 13% over the last year, with the dividend yield at 4.83%.
The gains from the share price reflect the uplift in value from the assets held by the company. These are primarily onshore wind farms in the UK, with some offshore locations dotted around. Even though the rise in price is helpful, it’s the stable dividend income that most attracts me.
On the company documents, it states that an aim is to “provide investors with an annual dividend that increases in line with RPI inflation”.
What impresses me even more than this focus is that it has been able to maintain a good level of dividend cover over the years. It dropped to a low of 1.3x in 2020, but bounced back to 3.2x last year. The ability to cover any future dividends by the latest earnings is a big confidence booster for a potential investor like me.
I’m aware that the projects Greencoat focuses on are expensive and illiquid. This means that should it need to raise cash quickly, it would struggle to do so via the sale of any assets. However, this is a risk inherent in this sector, so I have to accept it and move on.
Both stocks look attractive to me from various angles and I’m wanting to buy both in coming weeks.
