I’ve learnt that dividend stocks come in all shapes and sizes. Although dividends are never guaranteed, two picks that I think investors should consider snapping up from contrasting sectors are Greencoat UK Wind (LSE: UKW) and Dunelm (LSE: DNLM).
Here’s why!
Renewable energy
Greencoat is a leading renewable energy business set up as a real estate investment trust (REIT). This type of set up means it must return 90% of profits to shareholders, making it an attractive prospect for returns, if you ask me.
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The firm owns and operates a number of offshore and onshore wind farms. It then sells the electricity it generates to established energy businesses, and it can count SSE and Centrica as customers at present.
Rising interest rates are hurting net asset values (NAV) and continued economic volatility has dented Greencoat shares. The share price is down 16% over a 12-month period, from 155p at this time last year to current levels of 130p.
Higher rates are a risk I’ll keep an eye on that could hinder Greencoat. This is linked to growth, as many REITs borrow money to buy new assets and borrowing is costlier during times of higher rates. In addition to this, regulation around land for new farms is strict, so this could hurt Greencoat moving forward too.
Moving on to the bull case, I reckon Greencoat has defensive traits. This is because energy is essential for all. Another positive factor in its favour is the drive from many governments to move away from traditional fossil fuels and use more renewable energy. This could boost Greencoat’s performance and returns as well.
Finally, a dividend yield of over 7%, and the potential for this to continue growing is exciting, if you ask me.
Home improvement
A well-known home furnishings retailer, Dunelm operates out of approximately 80 brick-and-mortar shops in large out-of-town sites. It also has an online offering.
Primarily due to economic volatility, the shares have fallen 5% over a 12-month period. At this time last year, they were trading for 1,222p and they currently trade for 1,160p.
With a cost-of-living crisis, many consumers are more concerned about paying higher food costs and energy bills due to inflation. In turn, continued turbulence is the main risk. Furthermore, the e-commerce boom and online-only competitors could hurt Dunelm’s market share and performance.
Conversely, excellent historical performance, which has helped the business and share price grow in recent years, is hard to ignore. Plus, recent performance was also decent, despite the current weakness in the property market and economy in general. However, I’m conscious that past performance is not a guarantee of the future.
As demand for homes is outstripping supply, the longer-term outlook for home furnishings and improvement retailers like Dunelm is positive, if you ask me. Performance and returns could be boosted in the future.
Finally, a dividend yield of over 6% is enticing. Although it is worth noting that Dunelm’s payout record has been hit and miss in recent years, so there is a bit more risk, compared to Greencoat.
Overall, I reckon Dunelm could be one of a number of stocks that could flourish longer term when volatility subsides.
