When it comes to passive income there’s one high-yield UK renewable energy fund that stands out to me.
Offering a 7.2% dividend yield, Greencoat UK Wind (LSE: UKW) invests in wind farms, bioenergy, solar and renewable heat infrastructure in the UK.
The FTSE 250 fund owns £4.91bn of renewable energy assets.
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I own 4,707 shares in the business and it has been one of my best-performing investments to date.
I see the move towards renewable energy and decarbonisation as a trend lasting at least the rest of my life.
High performance power
The fund’s latest buys include Scottish 42 MW wind farm Dalquhandy. This addition grows the portfolio to 46 wind farms and over 1,652MW of energy generating power.
The best thing is that BT already has a 10-year contract to buy 80% of the energy from Dalquahandy. So this looks like a very good business deal to me.
And in the three years since I bought shares, Greencoat UK Wind’s performance has been stellar. Profits are up just-about-tenfold, from £104m to £954m.
Now, if we head towards a global recession, there could be a slew of attractive assets trading at large discounts that Greencoat could snap up.
So the fact the fund has a healthy £354m cash balance gives me confidence going forward.
Income or reinvest?
Because I don’t plan to retire for another few years yet, I’ve been reinvesting my dividend payments from this stock. This increases the number of shares I hold over time.
When I started earning passive income from this investment, I was getting around £60 in dividends.
Now, in each financial quarter — every three months — I receive around £100.
And what if I use these free dividends to buy more shares? With no extra effort I’ll be earning regular passive income on a larger pot each time.
Why buy now?
We can’t control when other investors sell stocks. They may do so just to pay a tax bill, their child’s school fees, or any one of many other reasons.
This means funds like Greencoat UK Wind can see share price drops for no obvious reason.
Currently the shares are trading at around 140p, which is a tidy 15% discount to the net asset value (NAV) of its holdings.
One word of caution though. Funds don’t always improve to match their NAV price. If investors have a persistently poor outlook, the share price can move further below its NAV.
Earnings per share
Yet what I like most about Greencoat UK Wind should be obvious: its high profitability, high-yield dividends, and stellar management team.
Manager Stephen Lilley has improved the fund’s earnings per share by more than 100% each year since 2020.
Higher earnings per share indicate good value and higher profits relative to other investment choices.
Renewable futures
Everything I’ve seen from Greencoat so far gives me a stronger outlook on its future.
Management has bought up key assets in the UK as well as growing revenue and profit dramatically.
So for now — and probably for the next 25 to 30 years — It’s going to occupy a passive income slot in my portfolio.
