Will these clean energy companies become the oil majors of the 21st century?

Can your portfolio do good and well at the same time with these three renewable energy firms?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

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.

Wind power

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.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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.

More on Investing Articles

A pastel colored growing graph with rising rocket.
Investing Articles

2 FTSE stocks that demonstrate the best (and worst) of the AIM market

Our writer looks at the performance of two very different FTSE stocks that highlights the pros and cons of investing…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

With a P/E ratio of 8 and selling for pennies, is this FTSE 250 share a bargain?

Christopher Ruane digs into a cheap-looking FTSE 250 share that sells an iconic product and considers whether it's really a…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Could the stock market crash in 2025?

Our writer considers some possible drivers for a stock market crash. Rather than try to time it, he's wondering how…

Read more »

Investing Articles

Why do so few people build a passive income?

For those putting a little money away, far more choose savings accounts over aiming to make a passive income from…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Could putting £20,000 into FTSE 100 stocks get me monthly passive income of £2,756?

The FTSE 100 is full of dividend shares offering generous returns. Our writer considers how much income he could generate…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing For Beginners

At fresh 52-week lows, is this the best value stock in the FTSE 250?

Jon Smith considers a value stock that's currently at low levels due to recent news, but he feels it shouldn't…

Read more »

Investing Articles

The Burberry share price rises on takeover rumours. But I still don’t want to buy

Speculation about a possible takeover sent the Burberry share price higher. However, our writer’s steering clear of the luxury fashion…

Read more »

Businesswoman calculating finances in an office
Investing Articles

With the rise in Barclays’ share price, £2k invested 5 years ago is worth this much

City analysts predict robust earnings increases ahead for Barclays, so can the upwards momentum of the share price continue?

Read more »