2 magnificent income stocks investors should buy and hold for at least a decade!

Dr James Fox details two of his top income stocks. Both of these companies operate in the green energy space.

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Income stocks form the bulk of my portfolio. After all, investing for growth can be risky — many new companies fail. As such, I have around five or six dividend-paying companies in my portfolio for every one growth stock.

But today I’m looking at two income stocks, in a highly exciting industry, that offer attractive yields and modest growth. Both of which I’ve recently bought.

So let’s take a closer look at the two stocks.

Greencoat UK Wind

Greencoat UK Wind (LSE:UKW) is a closed-ended investment company. The trust’s management aim to provide investors with an annual dividend that increases in line with retail price index inflation while preserving the capital value of its investment. 

To start with, I’d think that 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 lift its dividend to 7.72p from 7.18p in 2022, with it targeting a dividend of 8.76p in 2023, in line with RPI.

Greencoat UK Wind, as the name suggests, invests in British wind farms. These farms, of which there are 46, generate clean electricity, which is sold to energy suppliers to power people’s homes. 

With investments and ownership in assets across England, Scotland, Wales and Northern Ireland, Greencoat has an aggregate net capacity of 1,289.8 megawatts. That’s enough energy to power over 1.5 million homes.

The stock is currently trading at a 2.3% discount versus its net asset value and has a price-to-earnings ratio of seven — around half the FTSE 100 average. The dividend yield currently stands 4.8%, but the forward yield is more appealing, around 5.4%. Coverage is a very strong 3.2 times, after net cash generation came in at £560m.

Greencoat put £340m into new ventures in 2022. This is particularly exciting as UK wind is a highly attractive market right now. In fact, onshore wind is a cheap form of energy generation in the country.

Investors will be concerned about the Electricity Generator Levy —  a tax on the extraordinary returns of electricity generators. But, broadly, I think the environment is still attractive. I’m also hoping to see an end to the moratorium on UK onshore wind. This should allow Greencoat to invest in higher margin wind power.

NextEnergy Solar Fund

NextEnergy Solar Fund (LSE:NESF) is a  is an investment fund that focuses on solar energy infrastructure assets. These assets generate around 865MW of energy, as of the end of 2022.

The fund offers investors an attractive 6.5% dividend yield. In fact, as a real estate investment trust, NextEnergy must distribute 90% of taxable profits to shareholders. 

In some respects that’s great, especially with energy prices pushing upwards. However, it does suggest that the trust has to use debt to finance growth. I’m not always a fan of this, but I’m comforted by the attractive nature of the industry.

And contrary to popular opinion, solar panels are very effective, even in cloudy conditions. In fact, rain can even enhance the performance of the panels, clearing away dust.

More generally, the fundamentals here are strong, with a P/E of nine. Hopefully, new government policy will further incentivise investment in the sector.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

James Fox has positions in Greencoat Uk Wind Plc and NextEnergy Solar Fund. The Motley Fool UK has recommended Greencoat Uk Wind Plc. 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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