When buying a dividend stock for the long term, I am interested in the company’s potential. Companies with high potential are more likely to earn me a passive income for a long time than those that operate in slowing or static markets.
Green energy stock with healthy dividend yield
To that extent, I like the FTSE 250 stock Greencoat UK Wind (LSE: UKW). There is little debate that green energy is the future. And Greencoat UK Wind is right in the heart of this energy evolution. It is a fund with investments in 38 wind farms across the country. It also has a healthy dividend yield of 5.3% and pays dividends dependably every year.
Its dividend cover, which is the net cash generated as a proportion of the dividend payout, is slightly lower than desired at 1.3 times, for 2020. Healthy cover should be at least 1.5 times. I would be concerned about this, but the company offers a good explanation. In its latest annual report, Greencoat attributes this largely to lower power prices during the pandemic. It also says that its outlook “is very encouraging”.
I think the outlook is also good for its share price. The stock has taken a hammering, with an 8% loss in value as of today compared to the same day last year. This is in stark contrast to the pre-pandemic trend of a rising share price. But I reckon things can improve for it now that the economy is back.
Gold is a long-term hedge
Another FTSE 250 stock I like is gold miner Centamin (LSE: CEY). I know this sounds contrarian right now, when the business cycle is picking up once again, but it is not.
I think gold and gold-related investments are good to hold over the long term because our investments are always subject to cycles. So when the next downturn comes along, I want some safe bets in my portfolio. Since its share price has halved to 110p from its highs last year, now is a good time, in my view, to buy Centamin. If I wait a bit longer, it may even become a penny stock!
I find it attractive from an income perspective. It has a dividend yield of 5.7%. And it has paid dividends continuously over the past few years. This is encouraging because it shows that the company is not just dependent on a gold price upswing to be able to pay dividends. Indeed, a look at its financials indicates that it has been profitable over time. But last year, as expected, was particularly good.
I would not buy Centamin expecting any significant capital gains for now, or until the next slowdown, though there are those who think otherwise. But I would like to hold the stock for passive income and as a hedge during bad times.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Greencoat UK Wind. 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.