2 ESG-friendly dividend stocks in which I’d invest £1,000

With investors like him looking for income and sustainability, Jonathan Smith runs through two ESG-friendly dividend stocks that tick both boxes.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

ESG is a term used to refer to the environmental, social and governance elements of a company. An ESG-friendly firm is one that takes note of the responsibility it has on these three points. In recent times, ESG investing has become very popular, as investors try to buy more sustainable stocks for the long run. As an income investor, can I ESG and income together and find ESG-friendly dividend stocks? I think I could.

ESG-friendly stocks via renewable energy

If I had £1,000 to invest, I’d allocate half to SSE (LSE: SSE). The energy company might be well known as a household gas and electric supplier, but it’s also pushing hard with regards to renewable energy. 

For example, it has the largest offshore wind development pipeline in the UK and Ireland at 6GW. To put this into perspective, one gigawatt (GW) of power is equivalent to around 3m solar panels. By 2030, SSE also has committed to reducing carbon intensity levels by 60%.

These initiatives make the company a clear ESG-friendly stock. But what about it being a dividend-friendly stock for passive income? Currently the share offers a dividend yield of 5.36%. This is well above the FTSE 100 average yield around 3%.

Looking forward, I think the dividend can be sustained at this level. In the annual results, net assets actually grew to £6.6bn from £4.9bn. This was supported due to its disposal programme, which generated cash proceeds of £1.5bn.

One risk here is that the energy sector is very competitive and tightly regulated. If the push for ESG priorities ends up being very expensive versus traditional goals, SSE could easily lose out on market share if prices rise to compensate for higher costs.

A dividend cut, but still good value

For the other £500, I’d consider buying shares in GlaxoSmithKline (LSE:GSK). What makes the pharmaceuticals giant an ESG-friendly dividend stock? 

On the ESG front, it takes the top spot in the Access To Medicine 2021 index. It scored 4.23, the top reading based on governance of product access, research and development and other factors. This is in relation to making medicine more accessible to those who can’t afford it, or to third-world countries.

I’d also classify it as a robust dividend stock, even with the proposed dividend cut. The yield will fall from current levels of 80p per share down to 55p in 2022. Yet this is due to GSK splitting up into two companies. My colleague Roland Head explained the new situation very well, which can be read here.

The bottom line is that the split should create a more streamlined consumer unit, which is better for longer-term growth. This should also aid future dividend payouts.

Although I see the split as an opportunity, it’s also a risk. Such a split can be messy, leading to higher costs in the short run until everything gets smoothed out. It also looks like the new GSK company that existing shareholders will be transferred to will carry quite heavy levels of debt. This is a concern for me as an income investor.

Overall, I think that both GSK and SSE are ESG-friendly dividend stocks. As a result, I’d split my £1,000 evenly and look to buy both.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

jonathansmith1 has no position in any company mentioned. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »