2 top UK green energy investment trusts yielding over 5%

These high-yield investment trusts show investors can combine doing good with doing well.

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Cash-generating physical assets lend themselves well to investment trust inclusion. They offer long-term operating lifecycles, generally come with high barriers to entry or some sort of government support, and provide consistent, highly visible periodic cash payments. And for investors who either want to support renewable energy products, or simply see them as means to profit, the 5.4% yield offered by Greencoat UK Wind (LSE: UKW) and the 5.68% yield of NextEnergy Solar Fund (LSE: NESF) may be mightily attractive. 

Wind in spades 

Greencoat owns a portfolio of domestic wind farms that stretch from Caithness in the north to Kent all the way down south. As of this morning’s full-year results announcement, the group has been public and operating for five years, delivering a total shareholder return of 58.3% in that timescale. While this return is less than that of the FTSE 250 index its a member of, conservative shareholders after a hearty dividend and less volatility are unlikely to be complaining. 

Looking forward, the trust does trade at a 10% premium to its net asset value (NAV), which is already falling and may shrink further in the short term as bond yields rise and income investors flock to these safer assets. However, it’s likely that the group will continue to trade at some sort of premium as the fund’s manager has proven very willing to not only deliver hefty dividends but also grow the portfolio through acquisitions

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Last year, the group raised £340m in a right issue and used this cash, plus £165m drawn down on its debt facilities, to buy £507m worth of wind farms. That added 273.3 net megawatts (MW) of energy generation, bringing the group’s year-end total to 694MW. During the year these assets generated net cash of £80m that more than covered £52.3m paid out in dividends. And as the costs of wind power continue to fall while nearing a time when they no longer require government subsidies, the outlook for Greencoat UK Wind looks quite bright to me. 

Basking shareholders

Although the idea of solar power in the UK is an easy target for cheap jokes, NextEnergy Solar Fund is showing that it’s farms receive more than enough sun to power big dividends for shareholders. At the end of December the group had 63 plants with an installed capacity of 569MW, including eight recently-purchased farms in Italy. 

And just as is happening with UK wind power prices, solar farms are becoming cheaper and cheaper over time, bringing down the acquisition costs for NESF, which only purchases operational farms. And the group’s manager is proving adept at wringing efficiencies out of its plants as they produced 2% more energy than budgeted in the half-year to September. 

This helped generate enough cash to cover the company’s generous dividend 1.14 times over. The fund continues to grow through acquisition, so with cash flow rising over time dividend payouts should quite safely continue to grow in line with inflation. Furthermore, with its shares trading at only a 6.5% premium to their NAV, NESF isn’t ridiculously overpriced for a high-income option in a low-income world. 

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

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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.

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