I am always searching for income stocks to add to my portfolio. I am looking for companies with solid dividend credentials, large profit margins, and robust balance sheets.
Here are three income stocks that I believe now exhibit all of these qualities.
The top income stocks
In my search, I am not necessarily looking for the highest yields on the market, but those offering high-quality dividends. Cranswick (LSE: CWK) is a good example. At the time of writing, the company offers a dividend yield of 2%.
However, this is covered 2.8 times by earnings per share, giving the organisation plenty of headroom to increase the distribution further in the year ahead. It also has a strong balance sheet and lots of cash to invest in growth, which may only help improve profitability and, as a result, dividend growth.
Sadly, this growth cannot be taken for granted. Challenges the company may face include rising prices and supply chain disruption.
Despite these potential headwinds, I would be happy to buy the food producer for my portfolio of income stocks right now.
Green energy income
At the upper end of the yield scale is Renewables Infrastructure (LSE: TRIG). This company invests in a portfolio of renewable energy assets in the UK and Europe.
It has developed a diverse portfolio of assets over the past couple of years, taking additional investment from shareholders rather than borrowing money. This means the corporation has a solid balance sheet. As the company’s portfolio of renewable assets has grown, it has been able to increase its dividend steadily.
At the time of writing, the stock supports a dividend yield of 5.2%. This looks incredibly attractive in the current interest rate environment.
While the outlook for the renewable energy industry is only becoming brighter by the day, the group may have to navigate a couple of challenges over the next few years. Competition for renewable energy assets is only increasing, putting pressure on asset values. If asset values rise too much, the corporation may struggle to earn a sustainable return on its investment. This could have a knock-on effect on the dividend.
Even after taking this potential challenge into account, this company remains one of the top income stocks I would buy today.
Growth and income
The final company on my list is Impax Asset Management (LSE: IPX). This financial services firm has carved itself a niche in the asset management market. It focuses on offering strategies that focus heavily on ESG criteria. This approach is resonating with investors. As assets have flowed towards the business, profit has increased tenfold over the past six years.
This trend may not continue as the rest of the financial services industry catches on to the opportunity. Staying ahead of rivals is probably the most significant challenge Impax faces right now.
Still, I am encouraged by the company’s competitive advantages and growth potential. As profits have expanded, the firm’s dividend has also increased tenfold since 2016. At the time of writing, the stock supports a dividend yield of 2.9%.
This yield and growth potential is the reason why I rate Impax as one of my top three income stocks.
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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
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