Boohoo has gone from strength to strength over the past few years, with profits in the six months to 31 August rising 51% to £68.1m. With Arcadia falling into administration, there may also be opportunities for it to make bargain takeovers in the near future.
But while the short-term future of the online clothing company looks bright, I’m less convinced for the long term. This is because of the ethical problems associated with the company, which may lead to lost consumers and a share price decline. From an investing point of view, I’d therefore prefer to invest in ethical stocks, which I believe can provide steady growth over the next few years. These are my top two picks.
An ethical stock with a great dividend
The first stock that particularly grabs my attention is NextEnergy Solar Fund (LSE: NESF). This FTSE 250 share specialises in the solar energy sector and is focused on building a diversified portfolio of solar assets in the UK and Italy.
I like it for a number of reasons. Firstly, in the UK, the renewable energy sector has seen rapid growth over the past few years. This has mainly been due to the need to decarbonise and address climate change. In fact, in 2019, over a third of the UK’s electricity was generated by renewable energy sources. This should continue to increase over the next few years as well, with governments aiming to be carbon-neutral by 2050.
As well as its status as an ethical stock, NextEnergy Solar Fund has also seen profits grow recently. In fact, in the six-month period to 30 September 2020, profit before tax was £23.6m. This was an increase of 12% from the year before.
Growth in profits has also been met by growth in the dividend. In fact, this year the group is targeting a dividend of 7.05p per share, up from 6.87p last year. This represents a dividend yield of over 6%. The fund also has a dividend cover of 1.2x. Although I normally like a higher dividend cover, it still means that profits can easily cover the dividend. Such a strong and large dividend is a further reason why I’d buy this stock today.
Another renewable energy stock
The Renewables Infrastructure Group (LSE: TRIG) is another ethical stock that I would consider. Like NextEnergy Solar Fund, TRIG is fundamental to a zero-carbon future, yet it uses wind power instead of solar energy. I particularly like this stock due to its constant expansion over the past few years.
This has been demonstrated by the recent acquisition of the East Anglia One offshore wind farm, mainly financed through an equity placing. Although I’m not a massive fan of the stock dilution, acquisitions such as these should still lead to increased profits in the future.
A dividend of over 5% is also extremely tempting, especially because the last few years have seen consistent dividend growth. With renewable energy being the future, I therefore believe that this stock could be an excellent addition to any diversified portfolio.
Stuart Blair owns shares in The Renewables Infrastructure Group. The Motley Fool UK has recommended boohoo group. 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.