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.