The renewable energy industry is booming. The falling cost of renewable technologies, as well as concerns about the impact pollution is having on the global ecosystem, are leading countries and investors around the world to spend tens of billions of dollars to develop new renewable energy technologies and power stations.
But there are only a handful of ways investors can play this trend right now, and one of those is the Greencoat Renewables (LSE: GRP).
Wind dividends
This business owns and operates wind farms across Ireland. In total, Greencoat has full ownership of nine wind farms and stakes in a further four.
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Today it announced that it is expanding this portfolio with the acquisition of Gortahile wind farm in County Laois, Ireland. This 20-megawatt wind farm was commissioned in August 2010 and has a guaranteed minimum price floor on the electricity it generates.
Finding assets that have a minimum price floor has been a critical component of Greencoat’s strategy. This minimises the risk for the company and its investors.
In the first six months of the year, the firm generated €27.1m in net cash, to be returned to investors and reinvested back into growth.
Based on current City forecasts, shares in the renewable energy business are set to support a dividend yield of 5.2% this year. They trade at a forward P/E of 11.4, which isn’t too demanding for a company with a virtually guaranteed minimum income stream and market-beating dividend yield.
UK focus
Another play on renewable energy in the UK is Greencoat Wind (LSE: UKW). This is the UK-focused version of Greencoat Renewables. The business owns a range of wind farms across the UK with a total net asset value of £2.4bn at the end of its most recently reported financial period.
Management has been steadily growing the portfolio ever since Greencoat’s IPO in 2013. Through a combination of borrowing and the issue of new shares, the company’s book value has increased by more than 440% since its listing.
As the number of assets owned by Greencoat has grown, so has the company’s income from these assets. In 2013, the group reported a net profit of just £18.2m. City analysts are forecasting total income of £107m for the firm this year.
Greencoat went public intending to produce a steady income for its investors growing at a rate equal or above the rate of inflation over the long term. So far, it has accomplished this objective. The dividend has risen at an average annual rate of around 2% since 2014. At the time of writing, the stock supports a dividend yield of just under 5% and the payout is covered 1.3 times by earnings per share, so it looks as if it is fairly safe for the time being.
On top of this, because Greencoat has historically used placings to raise cash rather than borrowing, debt is relatively low at just 31% of assets on a net basis.
So overall, if you are looking for an income investment that is not threatened by climate change, and is helping to make the world a better place, then I recommend taking a closer look at these two renewable energy stocks.
