Investing in dividend shares is a simple way to generate passive income. And unlike some other popular methods, this is truly passive because it requires minimal effort to maintain once the investment is made.
That said, it’s important to monitor developments at the company to make sure the investment case is still intact. Taking my eye off the ball could be a costly mistake in the long run.
One stock in my income portfolio that’s been struggling recently is Renewables Infrastructure Group (LSE: TRIG). The FTSE 250 member (known as TRIG) is down 21% since the start of 2024.
Indeed, at 90p per share, it’s near an all-time low!
A tricky couple of years
TRIG is a renewable energy investment trust that invests in onshore and offshore wind farms and solar parks in the UK and Europe. Its portfolio of assets generates revenues from the sale of electricity and government-backed green benefits.
Since listing in 2013, the trust has steadily raised its dividend. However, the share price has fallen by around 11% over this time, which is disappointing.
The slump has really come over the past two years, as the trust has been hit by a one-two combination of higher interest rates and lower power prices.
Higher rates raise TRIG’s borrowing costs and make safer investments like government bonds more appealing, reducing demand for the shares. Meanwhile, lower power prices obviously impact its income from selling electricity.
We can’t be sure that interest rates are definitely on a downwards trajectory over the next two years, or that renewable stocks will come back into fashion. The regulatory environment for green energy projects could become less favourable, including around subsidy schemes.
So there are risks to consider here.
A very wide discount
Having said that, the selling looks a bit overdone to me.
The shares are now trading at a whopping 26% discount to net asset value (NAV). In other words, the last-reported book value was 121.6p per share, but each one is currently trading for 90p.
Plus, while a portion of TRIG’s revenue is influenced by market energy prices, 67% of its projected portfolio revenues over the next decade is secured at fixed prices.
The trust has suffered operational setbacks this year, including cable outages at two UK offshore wind farms. Yet management still expects the dividend to be covered by cash flow this year.
Future dividends aren’t assured. But looking out to 2025 and beyond, TRIG expects its dividend cover to return to the long-term average of 1.2 to 1.3 times cash flow.
Finally, the vast majority of debt has a fixed interest rate, while also being paid off gradually over time.
High-yield passive income potential
The trust is forecast to pay a dividend 7.59p per share in 2025, putting the forward yield at a juicy 8.5%.
This means I’d need about 13,176 shares to generate £1,000 a year in passive income. Starting from scratch, that’d cost approximately £11,850.
Right now, my position is smaller than 13,176 shares. But I’m considering investing more money in TRIG while the share price is under £1. It looks like an attractive passive income opportunity to me.
