While the stock market is steadily recovering from last year’s correction, high dividend yields are still everywhere.
The recent interest rate hikes have been particularly impactful in capital-intensive industries. As such, the real estate sector doesn’t have much favour right now. A similar story exists within the renewable energy market, especially now that electricity prices have started to drop and a new UK tax levy has been introduced.
However, some of the best UK shares to buy are often in places where most investors aren’t looking. And that makes unpopular sectors like these a perfect hunting ground for lucrative income opportunities.
With that in mind, I’ve found two businesses that look particularly promising – not just for 2023, but for the next decade to come.
Turning sunlight into money
While renewable energy infrastructure leaves much to be desired, its steady expansion over the last decade has reduced the UK’s reliance on fossil fuels. In 2022, solar panels generated roughly 1.4 gigawatts of electricity. That’s only around 4.6% of the total energy generation, but it’s up massively from the 0.14 gigawatts achieved in 2012.
In the span of a decade, British solar energy has increased 10-fold. Should this trend repeat itself between now and 2033, Foresight Solar Fund (LSE:FSFL) could be an exceptional source of income.
Today, the stock offers a dividend yield of 7.5%. And with contracted revenue providing a coverage ratio of 1.5 times for the next three years, shareholder payouts look rock solid, in my opinion.
The UK isn’t known for being the land of sunshine. So management has begun diversifying its asset portfolio across Spain and Australia, as well as introducing industrial energy storage facilities. With minimal operating expenses leading to impressive underlying pre-tax profit margins of 76%, the income stock looks like an excellent candidate for an income portfolio, in my opinion.
A yield set to surge?
The e-commerce industry is filled with fast-expanding enterprises, giving growth investors plenty of choices. But there’s more than one way to invest in this theme. And what’s often overlooked is the infrastructure required to support online sales, namely warehousing.
Warehouse REIT (LSE:WHR) is a relatively young enterprise. But, so far, management has proven it has an eye for prime real estate.
The group acquires, renovates, and leases well-positioned logistics centres nationwide before leasing them primarily to online retailers. And while e-commerce sales, in general, are currently constricted due to the cost-of-living crisis, demand for the group’s warehouses is still on the rise.
Offering a similar dividend yield of 7.5% backed by underlying profit margins of 68%, this is yet another FTSE 250 income stock that looks promising. That’s why it’s already in my portfolio.
Taking a step back
While both Foresight Solar and Warehouse REIT offer chunky dividend yields, both share a common weakness. Buying and installing renewable energy infrastructure isn’t cheap, nor is acquiring and renovating commercial real estate.
With interest rates unlikely to fall to near-zero any time soon, raising capital to fund future growth will be far more expensive. Not to mention that other businesses are operating in these industries with far more resources at hand.
Nevertheless, despite these risks, both companies look like terrific investments for my portfolio today. That’s why I’m considering snapping up some shares once I have more capital.
