I’m looking to boost my passive income stream by adding quality dividend stocks to my holdings. I like the look of Greencoat UK Wind (LSE: UKW) and would be willing to buy some shares when I next have some cash to invest. Here’s why.
Wind power
Greencoat is listed as a real estate investment trust (REIT). It owns a number of onshore and offshore wind farms that create clean electricity. It then sells this to big players in the market including SSE, Centrica, and RWE, to mention a few.
So what’s happening with Greencoat shares currently? As I write, they’re trading for 135p. At this time last year, they were trading for 163p, which is a 17% drop over a 12-month period. It is worth remembering many UK shares have fallen in recent months due to macroeconomic pressures. I view this as an opportunity to pick up quality passive income stocks for my holdings before any potential market upturn.
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The investment case
The energy market is changing rapidly in the UK and throughout the world. A move away from traditional fossil fuels and towards cleaner green energy is ramping up. This initiative is heavily backed by governments, eager to cut their carbon footprints. I can only see the demand for wind energy increasing in the years ahead. This could translate into future earnings and increased shareholder returns for Greencoat.
Next, Greencoat shares look good value for money to me right now on a price-to-earnings ratio of just six. In addition to this, from a passive income perspective, the dividend yield stands at 6.5%. However, I am aware that dividends are never guaranteed.
Finally, Greencoat has an excellent record of past performance. Although I do understand past performance is not an indicator of the future, I can see the company has grown revenue and profit for the past four years.
A passive income stock I’d buy
Despite my bullish stance on Greencoat shares, there are a couple of risks to be wary of. Greencoat relies on external financing for growing its footprint and procuring new assets. The issue here is that in the current high interest economy we find ourselves in, servicing debt could be more costly. This could impact profits and investor returns.
Another issue I must be wary of is that there are very strict rules around planning when it comes to wind farms in the UK. This could hinder Greencoat’s growth plans when adding new assets to its portfolio. In turn, this could negatively impact performance and returns.
Overall I like Greencoat shares. I believe they could provide stable and consistent returns for my holdings. My stance stems from rising demand as the move towards clean energy continues to speed up. To conclude, I believe Greencoat is a great passive income stock for my holdings with its level of payout, performance record, and future prospects.
