Owning income stocks is one of the best ways to generate passive income. That’s why dividend-paying stocks are well represented within my portfolio.
I consider right now to be a great opportunity to buy income stocks. That’s because share prices have slumped in recent weeks, especially in the financial sector. And when share prices fall, dividend yields go up.
So, let’s take a look at two income stocks I think investors should look into buying after the correction.
HSBC
HSBC (LSE:HSBA) shares have fallen 10% over the past month. The blue-chip institution bought the UK arm of Silicon Valley Bank after the tech financier ran into trouble. While some hoped the government-facilitated deal would provide security for financial markets, that didn’t happen. Banking stocks kept falling.
However, unlike SVB and Credit Suisse, which also ceased to exist as an independent organisation last week, HSBC is a well-regulated, largely scandal-free bank, with a diverse range of assets and depositors. The risks that applied to SVB and Credit Suisse are much less of an issue for HSBC.
The stock now offers investors a 4.75% dividend yield and it trades with a price-to-earnings (P/E) of nine — that’s more than some UK-focused banks like Barclays (4.4x) but far less than the index average (12). It’s worth noting that this higher P/E — higher than UK-focused banks — is normally attributed to its leaning towards high-growth markets in Asia.
I am aware of unrealised bond losses, but the impact on a bank like HSBC, with a global reach and diverse bond holdings, is likely to be minimal. SVB had a highly concentrated deposit base and very large unrealised losses on treasuries and mortgage bonds, much of which were acquired when interest rates were very low.
I’m already a shareholder in HSBC, but at a knockdown price, and with minimal concern about the bank getting into trouble in the near term, I’m buying more.
Greencoat UK Wind
Greencoat UK Wind (LSE:UKW) might be new to some investors, but it’s a multi-billion pound fund investing in British wind farms. The stock hasn’t fallen much at all in recent weeks, but it trades at a considerable 6% discount versus its net asset value.
More generally, I find this a highly interesting stock in a very exciting part of the market. Wind power is among the most efficient methods of energy generation, especially in the UK. And a long-awaited end to a moratorium on onshore wind would provide companies like Greencoat with a huge boost. Unsurprisingly, onshore wind is more cost-efficient.
Moreover, Greencoat increases its dividend in line with inflation. The renewable infrastructure fund recently confirmed 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. This is the 10th successive increase in line with RPI.
There are concerns about the Electricity Generator Levy — a tax on the extraordinary returns of electricity generators. But Greencoat’s management has said that, in their forward calculations, they’ve always discounted forecast power prices significantly given their volatility and also given the risk of government intervention.
Greencoat looks like a highly attractive investment, and that’s why I’m buying more.
