Will these clean energy companies become the oil majors of the 21st century?
Investors should always be on the lookout for the next big secular trend and few will likely be as important in the coming decades as the world’s growing embrace of clean energy sources. New startups and lumbering giants alike are jumping on the bandwagon, but could the UK be home to some of the most promising companies in the field?
If any domestic firm is to become a global player in clean energy the smart money would be on industrial giant Johnson Matthey (LSE: JMAT). The company may not be a household name but with over £3bn in annual sales and a market-leading position in emissions control devices for diesel engines it has the know-how and balance sheet to profit from our changing energy needs.
The company’s most intriguing bet is on the future dominance of high capacity batteries made to power electric vehicles or efficiently store solar energy for households. To see the potential importance of batteries for renewable energy you need look no further than Tesla’s $5bn investment in its own battery production facility in the US.
Johnson Matthey won’t be dominating the market any time soon as its new business division, which includes batteries, only brought in £157m in sales last year. However, this was a 73% increase on the previous year and with substantial investments being made in this high opportunity venture alongside traditional emissions control, the company is one to watch in the coming years.
Greencoat UK Wind (LSE: UKW) is the more classic example of a renewable energy company through its ownership of 19 wind farms across the UK. Thanks to government regulations that stipulate utilities must source a certain amount of their energy from renewable sources, Greencoat has a relatively reliable source of income, which allows it to return a hefty chunk of its earnings to shareholders.
These dividend payouts currently yield a whopping 5.5% and with relatively low debt and a growing portfolio of farms under ownership look quite safe. That said, the company isn’t aiming for global dominance and is focused solely on the UK, which naturally constrains its growth prospects. However, for more risk-averse investors who want more direct ownership of tangible assets and steady income potential, there are worse options than Greencoat.
Utility Good Energy (LSE: GOOD) is trying to profit from consumers’ increasing awareness of climate change by sourcing its energy from renewable sources and then feeding it back into the national grid. So far the plan is working well and customer numbers bumped up 36% year-on-year over the past six months.
More meters led to a 40% rise in revenue and full 72% jump in EBITDA over the same period. Unlike more staid traditional utilities, those increased earnings aren’t being passed on to shareholders just yet. Interim dividends stayed level and are expected to yield a miserly 1.5% this year.
Rather, Good Energy is investing large sums in expanding its own power generation capabilities. Power generated from the company’s assets increased 19% year-on-year through June and numerous large solar and wind projects are currently in development. Good Energy is by no means an ordinary utility with higher debt and growth prospects than larger rivals, but for socially conscious investors the company’s business plan may prove an interesting one.
The high costs of building wind or solar farms mean dividend hungry investors may be better off checking out the Motley Fool's Top Income Share. This under-the-radar dividend star has increased shareholder returns over 400% in the past four years alone.
And, with, earnings still covering payouts three times over there's plenty of room for 4%-plus yields to continue growing in the years to come.
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Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Investors should always be on the lookout for the next big secular trend and few will likely be as important in the coming decades as the world?s growing embrace of clean energy sources. New startups and lumbering giants alike are jumping on the bandwagon, but could the UK be home to some of the most promising companies in the field?
If any domestic firm is to become a global player in clean energy the smart money would be on industrial giant Johnson Matthey (LSE: JMAT). The company may not be a household name but with over £3bn in annual sales…