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With the ISA’s Stocks and Shares deadline in early April fast approaching, many are revisiting their portfolios. For others, they may have cash to spare and have never used the full £20k for the current year. For others, it gets stocks listed for purchase when the new ISA year starts. Here are some stocks I have on my watch list from a profit perspective.
Stable focus
Three out of four come from the area of renewable energy. These are Environmental infrastructure for foresight (10.95%), Renewable Infrastructure Group (11.12%), and Foresight Solar Fund (12.74%). Dividend yields are shown in parentheses. The first two saw single-digit share price declines last year, while Foresight Solar fell 22%. This reflects a theme over the past year: a lack of interest in renewables, especially solar.
However, the dividend per share for all companies has increased over the past five years. This shows me that the problem is not the underlying performance of the business, but rather the sentiment towards the sector. With a lower share price, the dividend yield increases.
For long-term ISA holdings, I think now would be a good time to consider buying. Demand for electricity is growing, with growth in AI data centers and related AI projects. Renewables will likely be the primary means of meeting this demand. In addition, recent political tensions in the Middle East highlight the sensitivity of using oil and gas. I believe this can encourage people to break away from these traditional energy sources.
Another risk for these companies is the increase in interest rates. For projects that require a lot of money, there are loans taken out to help fund them. If higher energy prices catch up to inflation, it could force UK interest rates higher this year, raising debt servicing costs.
Changing fields
Another UK stock to focus on is TwentyFour Income Fund (LSE: TFIF). An investment manager specializes in buying and selling asset-backed securities. This includes products such as mortgages and corporate loan packages. It earns interest on mortgages and other types of structured debt. Considering that they are more risky than other types of loans, the interest charged is very high. As a result, it is able to pay off a large portion of this return with dividends. This is reflected in the current yield of 10.33%, while the share price is down a modest 3% over the past year.
The dividend coverage ratio is currently 1.1, which means that current earnings easily cover the dividend per share. This is one of the reasons why I think the yield is sustainable going forward. Of course, the biggest risk is if the company defaults on the loan. This will be bad for the stock and is an unavoidable risk. However the fund went public in 2013, so it has a long enough track record to make me feel comfortable.
Overall, I think all four income stocks can be considered for the end of the ISA year, or the ones that start the new ISA year in April.
