Investors should buy these magnificent dividend stocks

Dr James Fox details his top dividend stocks with sustainable yields to invest in as he seeks to develop his portfolio’s passive income generation.

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I tend to focus on dividend stocks. For every growth-focused holding, I own around five or six stocks that pay shareholders a dividend.

There are several reasons for this. Stocks paying a dividend tend to be more established companies, and that suggests there’s less risk involved than investing in growth stocks. Of course, every investment contains an element of risk. Even if I’m investing in blue-chip stocks.

But dividend shares also allow me to benefit from a compound returns strategy. This is the process of earning interest on my interest by re-investing my dividends year after year.

So which dividend stocks am I buying? Let’s take a closer look.

Green energy

Greencoat UK Wind (LSE:UKW) is a closed-ended investment company based in the UK. It focuses its investments on UK wind farms.

The trust’s farms generate up to 1,289.8 megawatts of clean electricity, which is sold to suppliers to power people’s homes — 1.5m of them to be precise. 

The dividend yield current sits at 5%. That’s above the index average and it will rise around 13%, in line with inflation, this year. After 10 successive RPI increases, I’d say this is a fairly reliable dividend.

I’ve recently added this stock to my portfolio but I am aware of the risks of investing in a stock that focuses on one technology in one region. This leaves it vulnerable to regulatory and taxation changes, as well as weather issues such as a dearth of wind.

However, wind energy is a highly profitable business right now. And technological advancements will only make it more efficient. As such, I’m looking to buy more when I have the funds available.

Silver metal

I don’t often invest in US stocks, well not at the moment. That’s because the pound is weak and I’m anticipating it appreciating in the long run. However, Sociedad Química y Minera de Chile SA (NYSE:SQM) is an exception — I’ve recently bought this stock.

SQM is a lithium producer. But its core advantage lies in its ability to produce lithium, iodine, and specialty fertilisers for lower costs than its competitors. With lithium prices rising in 2022, the firm posted a net income of $1.4bn and total revenue of $3.7bn. Margins are large for a mining company.

Prices of the silvery metal — lithium — have fallen in recent months amid concerns of oversupply. However, lithium is integral for the green revolution and, for now at least, is demanded in huge quantities by electric vehicle makers.

The company has invested considerably in capacity expansions, despite the expiration of the lease on the Salar de Atacama in 2030. This mine generates all of SQM’s lithium profits. That could be a concern, although I’d expect to see the company prioritise an extension of the lease.

The stock has demonstrated some volatility in recent months as the market interprets varying commentaries. However, the broader movement in upwards and the 8.5% dividend yield in very attractive.

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 Sociedad Química Y Minera De Chile. 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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