Dividend stocks are well represented within my portfolio. In fact, I tend to have around five or six dividend stocks for every growth stock. As such, I’m always on the lookout for top dividend-paying stocks.
However, I also like to invest in line with long-term trends. One such trend is the green energy revolution. Renewables are the future of energy generation, and several renewable sources are among the cheapest ways to generate power in the current environment.
So let’s take a closer look at this sector and stocks I think investors should be snapping up for strong dividends in a highly promising industry.
Sector overview
Green power generation has developed considerably in recent years. In 2021, solar was crowned as the cheapest source of energy — closely followed by onshore and offshore wind.
By contrast to popular understanding, solar panels continue to generate energy even on overcast days. Rain can actually be positive, clearing dust and increasing the efficiency of the panels.
But in the UK specifically, onshore wind is the cheapest, given the gusty nature of our islands. However, we’ve got an effective moratorium on onshore wind and that’s impacted green investment over the past decade.
In fact, the renewables sector has been rather neglected by the UK government this year, and we’re presented with concerns that the nation may be losing out to the EU and US, where the governments offer attractive investment incentives.
I think everyone realises that this needs to change. And I’m actually pretty confident the current, and unusually competent, government will do something about it. As inflation subsides, I’m hoping to see more support for the industry unveiled and an end to the moratorium on onshore wind.
However, I anticipate the Electricity Generator Levy — a tax on the extraordinary returns of electricity generators — will continue to have a marginal impact on revenues for the foreseeable future. That’s my short-term concern.
My stock picks
I’ve become increasingly keen on three renewable trusts with strong yields and I’ve actually bought all of them.
| Trust | Focus | Dividend yield |
| NextEnergy Solar | A solar-focused trust. Majority of assets in the UK | 6.5% |
| The Renewables Infrastructure Group | Diverse portfolio of renewables with assets across Europe, including UK, Ireland, France, Germany, Spain and Sweden | 5.25% |
| Greencoat UK Wind | Focuses on UK wind farms, from shares in large farms to complete ownership of smaller farms | 4.8% |
With 46 wind farms across the country, Greencoat produces enough energy to power 1.5m homes. It’s no small player in the industry, and I like the trust’s commitment to increase its dividend payments in line with inflation. The forward yield is well over 5%.
NextEnergy Solar’s energy generation is largely de-risked through fixed agreements on 83% of production for the next three years. That’s certainly a positive in the current and volatile environment. Equally, with spot and forward energy prices going upwards, high pricing power has resulted in a forward dividend coverage of 1.3-1.5.
Finally, The Renewables Infrastructure Group’s varied portfolio offers protection from an over-concentration in individual assets, technology types, weather systems and regulatory frameworks. It also trades with an attractive price-to-earnings ratio of just six.
