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When it comes to trying to find good shares in the UK for income, I mainly hunt outside FTSE 100. Of FTSE 250or with smaller market-cap companies, I tend to find more juicy options with higher yields. On my watch list right now are several stocks that could be considered good investments.
Theme options
A topic that has fallen out of favor in the last few years is renewable energy. At first, persistently high interest rates didn’t help. Typically, projects such as wind and solar farms are large-scale and require debt financing. The value of a project is usually based on expected cash flows decades in advance. As a result, when people worry that interest rates will remain high, high interest costs make businesses less attractive.
However, continued interest rate cuts this year mean I don’t think this will be a problem. In addition, the demand for renewable energy infrastructure will increase. Data centers and AI are driving a huge increase in energy demand. These factors lead me to conclude that related stocks can again generate significant interest in the coming year.
A bonus for income investors is that some of these stocks are meant to pay dividends. For example, companies like Greencoat UK Wind (10.63%), Renewable Infrastructure Group (11.02%) and Bluefield Solar’s revenue (11.61%) all fall into this category. Current dividend yields are shown in parentheses.
Depressed stock prices have worked to raise dividend yields. Although this is a risk to be aware of, if my future vision proves correct, now would be a good time to consider investing.
An option to improve yield
A different stock that I like at the moment Volta currency (LSE:VTA). A business aims to make a profit by buying structured financial assets. In simple terms, it buys debt and equity-backed loans, as well as similar style products. As a result, it makes money from the interest on the loan, which is usually at a higher rate due to the unusual nature of the loan.
This is one of the reasons why the dividend yield is currently up 9.31%. Over the past year, the share price has increased by 5%. Looking ahead, I am optimistic that the management team can continue to select good investment opportunities. The risk of default is there, however, according to the latest annual report.
It said: “We are pleased to report that credit losses and defaults continue to be very low – perhaps more than many would expect given the current turmoil in the country”. It identified the manager’s skill in the selection process as helping to reduce this risk.
Another concern is that Volta is involved in complex financial instruments. Even for the smartest investor, there is a risk that something will blow up and go badly, causing a sharp drop in share price.
However, with a dividend cover ratio of 1.4, I don’t think the dividend is under any immediate threat. So, aside from the other options, I think it would be a high-yield option to consider.
