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This year was, in many ways, a landmark for renewable energy stocks. The industry has been growing steadily for the past decade. However, I think the conversation has shifted up a gear over the past 12 months. 

Consumers and governments are becoming more conscious about the impact of energy generation on the environment. Money is flooding into the renewable energy industry as a result. 

Investors are spoilt for choice when it comes to picking renewable energy stocks. I think a couple of businesses have far better outlooks than most others in the sector. These are the companies I would buy for my portfolio today. 

Renewable energy stocks to buy

One company has stronger renewable credentials than almost any other, in my opinion, and that is SSE. 

A couple of weeks ago, this business laid out plans to accelerate its green energy investments. Unfortunately for income investors, management is going to cut the dividend to fund the spending, but I think that is going to be the right choice in the long term. Utility providers like SSE cannot afford to ignore the renewable energy trend.

That said, there will be a risk that by putting all of its eggs into one basket, the company could miss out on other trends. This is something I will be keeping an eye on as we advance. 

But SSE will form the core of my renewable energy portfolio. And around this stock, I would buy more speculative investments, which have a focus on a particular sector or industry. 

Speculative investment

One such organisation is AFC Energy. This firm is developing technology to help companies produce green hydrogen — hydrogen created with green renewable energy. 

It is still in its early stages of growth, but I think this business has tremendous potential. Hydrogen could be one of the fuels of the future if companies can get around the challenge of producing it cleanly and cheaply. 

Still, I should make it clear that this is a high-risk investment. AFC is still losing money, and it could be years before the corporation is generating a sustainable revenue stream. 

Income from renewables

I would also acquire Renewables Infrastructure Group for my portfolio. This company aims to generate a steady stream of income and capital growth for its investors by developing a portfolio of wind and solar farms across the UK and Europe. This makes the firm less speculative and others in the sector, as it owns a diversified portfolio of assets, many of which are already generating income. It also currently supports a desirable dividend yield of 5.2%. 

These are the reasons I would buy the stock, although I will be keeping a close eye on the company’s acquisitions. If it decides to expand its portfolio rapidly by acquiring subpar assets, this could prove to be a significant drag on returns. 

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.

Passive income can be appealing. Investing in dividend shares is one of the favourite passive income ideas of a number of people, including myself. But while investing in dividend shares has appeal, it can also involve risks.

I think being aware of some of the risks can help me avoid them and hopefully increase my potential income. Here are three common mistakes I’d seek to avoid.

Mistake 1: over-emphasising historical dividend data

How can one tell what the dividend yield of a given share may be?

The most common method is to look at the most recent dividend, as a percentage of the current share price. That makes sense as it’s the most up-to-date information available. But it’s backward-looking. If I am considering buying a share I am interested in what it might pay me in future, not what it paid out in the past.

I do think historical dividend data can help me in some ways. It helps to show how a company feels about the importance of dividends, for one thing. For example, last year when the outlook was uncertain, Legal & General maintained its dividend while rivals such as Aviva suspended theirs. That can be helpful in managing my own expectations about a company’s willingness to axe its dividend.

The dividend history can also give me some insight on what the dividend will be like if it is maintained at a similar level to before.

But while such information can be informative, it doesn’t give me clear guidance on what the company’s future dividends will be. For that I need to make some judgments of my own based on the available information. For example, I can look at a company’s accounts and see how much free cash flow it has been generating. I can then consider whether I expect it to be able to maintain its free cash flow generation at that level in years to come. To do that I’d consider a variety of questions. Is customer demand likely to grow or shrink? Does the company have pricing power to enable it to maintain its profit margins? Will it need to increase its capital expenditure in coming years, perhaps because it needs to modernise its factories or invest heavily in some new technology?

So while I do pay attention to historical dividend data, I don’t think it’s the most important thing to look at when deciding whether to add a share to my portfolio for its passive income potential. Instead, the key aspect of my analysis is what the dividend might look like in future.

Mistake 2: buying an attractive dividend at an unattractive price

Which of these two dividends sounds more attractive? £2.08 a year or £1.54 a year?

If you’ve answered that question already, you may have done so too fast. A dividend amount in isolation doesn’t help me know whether a share might be a lucrative passive income pick for my holdings. Instead, what I need to know is a share’s dividend yield. That is a function of the dividend but also of the price at which I buy the share. So, for example, if I buy a share at £20, an annual dividend of £2.08 would mean that I got a yield of 10.4%. But if the same share moved up to £35, and I bought it at that price, my dividend yield would only be 5.9%.

This matters a lot for passive income. The price at which I buy the shares today will affect the yield I get for as long as I hold them. If I have £1,000 in dividend shares and the average yield is 3%, I would get £30 of passive income in a year. But if I put the same £1,000 into the same shares at a different price, my passive income might look very different. If I bought the shares when they were 50% cheaper, my passive income would be £60. If I purchased them when they were 50% more expensive, my passive income would be £20.

Such swings in price over the course of several years aren’t exceptional. Consider as an example the popular dividend share BP. This year alone it has traded as low as £2.51 but also as high as £5.08, more than double its low. Buying at the lower price, I would now be getting slightly over double the yield I would have received if I bought at the higher price.

So I think it’s a mistake to look just at the absolute size of a dividend when I am hunting for passive income ideas. Instead, I also need to consider the share price at my time of purchase.

Mistake 3: ignoring share price falls

Another mistake I try to avoid when looking at passive income ideas for my portfolio is neglecting the threat of long-term share price decline. Let’s say a share offers me a high yield, but meanwhile its share price declines markedly over the course of years. Am I just receiving with one hand what is being taken away with the other?

The answer to that depends on the exact circumstances. If I continue to hold the shares and the share price decline is just because a company has fallen out of favour with investors, it might not matter for me. I could still receive my passive income — and the share price may have recovered by the time I come to sell the shares years down the line.

But it is a different situation if the share price decline reflects a worsening business. That could mean that I am unable to recoup my original investment if I decide to sell the shares in future. On top of that, the worsening business could mean dividends are cut at some stage. Even with an attractive initial yield, if the share price falls far enough, I may still lose money over time.

So when choosing passive income shares for my portfolio, I try to assess whether the share price looks overvalued. If it does, I would be wary of buying the shares no matter how high the yield might be.

Christopher Ruane 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.

I am always looking for new dividend shares to add to my portfolio. And considering the current interest rate environment, I have been searching for high-yield stocks to boost income.

Here are three dividend shares that I would buy today, all of which support dividend yields of 6%, or more. 

Office income

The first company I already own in my portfolio but would be happy to buy more of is the Regional REIT (LSE: RGL). With a dividend yield of 7%, at the time of writing, the stock offers an attractive level of income from a portfolio of properties around the UK.

The group focuses on acquiring properties outside the M25, predominantly offices with a diverse and financially stable customer list. The strategy has proven its worth over the past 24 months.

As other landlords have struggled to collect rent from tenants, Regional has managed to sail through the pandemic relatively unscathed. Of course, this does not mean the group is invincible. Rent collection levels may decline if the country enters a period of prolonged economic uncertainty. 

Still, I think the potential rewards of owning the shares far outweigh the risks. 

Renewable energy dividend shares

Bluefield Solar Income (LSE: BSIF) focuses on acquiring and managing UK-based renewable energy and storage projects.

This is a growing industry, and Bluefield is using its clout in the investment industry to expand into different sections of the market. It recently completed its maiden wind portfolio acquisition as well as two ready-to-build battery storage projects. 

Diversifying across the renewables sector makes a lot of sense. It should also help support the company’s dividend to investors. At the time of writing, the stock supports a dividend yield of 6%. The net asset value for the business is 117p compared to the current stock price of 120p.

Usually, I would avoid buying funds at a premium to net asset value but, on this occasion, I would be happy to pay a premium to purchase exposure to this fast-growing sector. 

Risks the firm may encounter as it advances include competition for assets, which could cause it to overpay. Rising interest rates may also raise the cost of its borrowing. 

Market consolidator 

The final company that could be an excellent fit for my portfolio of dividend shares is Chesnara (LSE: CSN). This business buys and manages books of pension policies from other fund managers and corporations. It is always looking for new deals to expand its footprint and bring economies of scale to the operation. 

When the company has acquired a business, it can use its size to push down costs and free up capital. Excess cash is then returned to investors. By using this approach, the firm can fund a hefty dividend to investors. At the time of writing, the stock yields just under 7%. 

Unfortunately, as pension management is a highly regulated business, this level of income is far from guaranteed. The company could be forced to reduce its dividend if regulators believe it is paying out more than it can afford. 

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Chesnara. 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.

Looking at data from the website dividenddata on 19 December, I counted 12 FTSE 100 dividend yields that are in excess of 6%. Miners, as well as tobacco, make up a decent proportion of this, neither of which I want in my portfolio in any meaningful way.

Among the highest yielding FTSE 100 companies, the one I most like the look of is Persimmon (LSE: PSN). I’m laying my cards out on the table here, so I’ll tell you that I’ve rebought Persimmon for my Stocks & Shares ISA. I like the company.

A top FTSE 100 dividend yield

While the Persimmon’s record is far from unblemished (there has been, for example, the well publicised corporate pay and build quality issues), it has tended to make a good investment. The share price was 1,765p five years ago. At the time of writing, the share price was 2,746p. That’s an increase of 56%.

Besides this growth, there’s the dividend yield, which stands at around 8.6% at the time of writing. That’s way above the average for the FTSE 100 and makes it one of the highest yielding shares on the UK market.

Reasons to add Persimmon

From my perspective, there are three key reasons to invest in Persimmon, besides the historic share price growth and current whopping dividend yield.

Persimmon is known for sector-leading margins. This will help insulate the company against inflation better than competitors with lower margins.

In its November update, Persimmon revealed it had added 16,200 new plots of land to its burgeoning land bank. This means it’ll have plenty of ground on which to build for years to come. It’s also a reflection that management is confident enough to spend money and sees future demand for new housing.

From my point of view, I think the group is run with shareholders in mind. Evidence of this comes from the cash and balance sheet strength of the housebuilding group, which is also testament to the business model. Persimmon had a cash balance of around £895m at 31 October 2021. That’s a huge pot from which to buy more land, build houses, and pay investors a growing dividend.

Could the share price fall?

Housebuilders are potentially risky businesses. The Persimmon share price could fall, especially if investors fret about rising interest rates and the implications that has for mortgage demand. The share price is tied to the UK economy as Persimmon is a UK business, so it’s less geographically diverse than most FTSE 100 businesses.

A top sizzlingly share? 

While there is, of course, the potential for the Persimmon share price to fall, I think the builder’s dividend yield is very impressive and has the capacity to sizzle even higher over the coming years. For me, Persimmon’s yield, growth potential, and prudent management all combine to make it a top investment that I’ll likely keep adding to through 2022.

Andy Ross owns shares in Persimmon. 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.

Here are four mega-cheap FTSE 100 shares I’d happily buy next year. Each carries a dividend yield that’s ahead of the 3.5% Footsie average.

Building big returns

Britain’s housebuilders had a strong 2021 as Stamp Duty holidays helped massage homebuyer interest. The tax has returned to normal rates more recently and this poses a threat to the likes of Barratt Developments in the new year.

But I’m confident that these UK shares will perform robustly again in 2022 as cheap borrowing will still be available to homeowners, keeping demand for newbuild properties bubbling nicely.

I own Barratt shares and I am thinking of buying more today. At current prices, it trades on a forward price-to-earnings (P/E) ratio of just 9.6 times. It also sports a meaty 5.7% dividend yield for 2022 too.

Another FTSE 100 bargain

I also believe ITV shares could be too cheap for me to miss right now. Sure, the recent recovery in the advertising market could stall if a toxic blend of Covid-19 and soaring inflation smacks the economy. But as things stand, things look pretty peachy for broadcasters that rely on fatty ad revenues like this. The Advertising Association reckons ad spending will rise at its fastest-ever rate this quarter and by 7.7% year-on-year in 2022.

Today, ITV trades on a P/E ratio of 7.2 times for next year. The broadcaster carries a 5.4% dividend yield as well.

Set for take-off

Defence contractor BAE Systems also offers attractive value for money in my eyes. On top of trading on a forward P/E ratio of 10.8 times, its dividend yield comes in at 4.9% for 2022. I think it’s a perfect buy for these economically-uncertain times as government spending (largely speaking) on weapons tends to remain robust, even when cash becomes tight. Nations need to be in a constant state of readiness to protect themselves, after all.

In fact, global defence spending is tipped to grow again next year as worries over threats from nations and terrorist groups grow. Analysts at Statista think worldwide arms spending will breach $2bn in 2022 to come in at $2.02bn. That compares with a predicted $1.96bn for this year and $1.9bn in 2020.

But there is no guarantee BAE Systems will seal further contracts to exploit this theme and this could hit the share price hard. But at current prices, I’m still tempted to buy the business.

Riding the e-commerce boom

Packaging manufacturers like DS Smith could take a big hit in 2022 if paper prices continue to rocket. It’s my belief though that the potential rewards as e-commerce balloons offsets this risk.

This FTSE 100 firm makes the boxes that Amazon and other online retailers use to get their products to customers. It also makes a variety of other packaging materials and is increasing its use of sustainable materials. This should give profits an extra kick as companies seek to reduce their carbon footprints.

Today, DS Smith trades on a price-to-earnings growth (PEG) ratio of 0.5 for financial 2022. It carries a meaty 3.8% dividend yield as well, making it a great buy, in my opinion.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild owns Barratt Developments and DS Smith. The Motley Fool UK has recommended Amazon, DS Smith, and ITV. 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.

Next year is only a week away, so I am already planning my Stocks and Shares ISA investments for 2022. 

Indeed, I want to start planning my ISA investments as soon as possible. Research shows that investors who make the most of their allowance as soon as possible after the 5 April deadline tend to earn better returns. Generally speaking, the longer money is invested for, the higher the returns. 

That is why I am seeking out stocks that could be the best additions to my portfolio next year. I am focusing on both growth and income stocks to make the most of the tax advantages offered by a Stocks and Shares ISA. 

Any income or capital gains earned on investments held within one of these wrappers is not liable for tax.

Income stocks to buy

In terms of income stocks, I would buy Admiral and GlaxoSmithKline for my portfolio in 2022. 

I think both of these companies are well-positioned to profit in any economic environment that prevails over the next 12 to 24 months and beyond. Glaxo is one of the country’s largest pharmaceutical corporations, and Admiral is one of the country’s largest car insurance businesses. 

Both of these markets are relatively defensive. Car insurance is a legal requirement, suggesting there will always be a market for this product. Meanwhile, there will always be a demand for drugs and health care services. 

At the time of writing, these stocks support dividend yields of between 5% and 7%, respectively. Some risks the companies may face going forward include regulatory headwinds in the case of Admiral and competition for GlaxoSmithKline. Either of these challenges could impact growth and overall profits, reducing the cash available for distribution to investors via dividends. 

Stocks and Shares ISA growth investments

When it comes to growth investments, I will buy technology companies. 

In my opinion, two of the best technology businesses on the market are Rightmove and AutoTrader. 

I like these companies because they both own some of the most high-profile websites in the UK. Rightmove has become virtually synonymous with the property market, while AutoTrader is usually the first port of call for consumers looking for new and used vehicles. 

These are substantial competitive advantages. I think they will underpin these companies’ growth plans for the foreseeable future. And as the world becomes more and more connected, their influence in their respective markets is likely to continue to increase. 

That being said, the tech sector is incredibly competitive. These corporations are leaders in their fields today, but they do have challengers. There is no guarantee they will be able to maintain their positions in the market indefinitely. 

Nevertheless, I think these companies have all the hallmarks of the sort of growth investments I am looking to buy for my Stocks and Shares ISA in 2022. 

Rupert Hargreaves owns shares of Admiral Group. The Motley Fool UK has recommended Admiral Group, Auto Trader, GlaxoSmithKline, and Rightmove. 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.

As an investor, one often hears about companies tipped for greatness. Exactly what they do may be a bit mysterious or difficult to understand, but with fast growth and profitability such companies can be tempting. Legendary investor Warren Buffett is pretty clear on what he would do in such a situation. 

What Warren Buffett looks for in companies

In his 2007 shareholders’ letter, Buffett laid out clearly the criteria he and his partner used when considering companies to buy. He said they “look for companies that have a) a business we understand; b) favourable long-term economics; c) able and trustworthy management; and d) a sensible price tag”.

There is a lot of investing wisdom packed into a few words there. But what’s most interesting for me is the fact that Buffett’s first criterion is that he understands the business.

Why does this matter? After all, if a company performs well financially, couldn’t that on its own make it attractive?

Speculation versus investment

Buffett clearly doesn’t think so. I think his approach makes sense for me as an investor too.

If I put money into a business I don’t understand, it’s basically a form of speculation. Even if the company has respectable management, ubiquitous advertising, a long financial track record, and strong financial results, it’s still speculation. I am putting money into an opportunity based on its momentum, rather than any sort of fundamental understanding.

In my mind, that isn’t what investing is about. Instead, investing is a way for me to put money to work in shares of a company that I think has a bright financial future. Such future prospects can be hard to assess. So to do so, I typically look at a company’s financial reports and try to form a view of how the business performance may be in coming years and decades. But I can’t do that if I don’t understand the business.

For example, consider a company such as Argo Blockchain. Its shares performed spectacularly at points over the last year. But a lot of investors piled into Argo purely on the basis of its share price performance. That’s just speculation. If I didn’t understand key elements of Argo’s business – such as  what competitive advantage it may have in mining and how its planned North American data centres will impact its productivity – then I wouldn’t even consider buying its shares.

Circle of competence

This is part of Buffett’s focus on his “circle of competence”. He doesn’t invest outside the area of his understanding.

The good news is that one’s circle of competence isn’t static. It is possible to learn more over time. In that way I could start to understand businesses which previously baffled me. But that takes time and effort. Until then, I’d choose to stay away from such businesses. Like Buffett, I think staying inside my circle of competence is more likely to improve my investment performance. That means only investing in companies I understand, even though that means letting some potentially lucrative opportunities pass me by.

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.

I think these top stocks could be some of the best FTSE 250 stocks for me to buy next year. Here’s why.

A tasty treat

Takeout sales at Domino’s Pizza Group have soared in recent times, thanks to Covid-19 lockdowns. Online food delivery specialists like this might receive a pandemic boost in 2022 too as infection rates balloon again.

Regardless, I’d buy this UK share anyway as the industry is tipped for excellent long-term growth. Analysts at Valuates Reports think the online food delivery market will be worth $128.5bn by 2027, up from $80.4bn last year.

Domino’s will have to paddle very hard to make profits in this ultra-competitive market. But I believe the business has colossal brand strength that could give it the edge.

Creature comforts

I’m also encouraged to buy Pets at Home Group, thanks to its excellent defensive characteristics. The amount people spend on domestic animals has soared during the coronavirus crisis and subsequent economic downturn. It’s thanks to a jump in pet adoption during the pandemic and the great esteem in which Britons hold their furry companions. Latest financials showed like-for-like sales leap 22.2% during the 28 weeks to 7 October.

A word of warning, however. Sales at Pets at Home could suffer if people give up their newly-adopted companions when the pandemic ends.

Riding the rentals boom

I think snapping up Grainger shares could also be a good idea for me. This FTSE 250 stock is one of the country’s largest residential property landlords, with a shade under 10,000 homes on its books. It’s therefore well-placed to exploit the twin benefits of rising rents and soaring property values in the UK. Zoopla data recently showed private rents increasing at their fastest pace since 2008.

I’d buy Grainger even though the Bank of England is considering loosening affordability rules for first-time buyers. This could significantly hit demand for residential rentals.

Healthcare hero

A blend of soaring Covid-19 cases and rocketing inflation gives UK share investors plenty to consider. I think buying Convatec Group shares could be a great way to protect myself from these pressures. This is because the medical products it supplies are essential items that people can’t do without. Convatec’s wares include colostomy bags, cannulas and wound dressings.

A high-profile failure of any of these products could prove disastrous for future sales. However, all things considered I think this could be a great stock for me to own for a potentially-volatile 2022.

A top FTSE 250 dip buy!

I think recent heavy selling at Hill & Smith Holdings provides me with an excellent dip buying opportunity. This UK share manufactures barriers, signage, gantries and an array of other side-of-road fixtures. It’s therefore well-placed to capitalise on the huge investment government is making in highway upgrades this decade. Most recent financials showed organic sales up 4% between July and October.

I’d buy Hill & Smith even though changes to infrastructure spending further out could hit profits hard.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Dominos Pizza. 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.