When it comes to investing for the long term, I reckon many investors will arrive at the conclusion renewable energy is an exciting sector right now. And the shares mentioned in this article could be the best renewable energy shares on the London stock market, I feel.
Finding the best renewable energy shares
Investment companies, funds and trusts are collective vehicles that offer us a broad-brush approach to investing around a theme. Rather than risking our hard-earned cash in the shares of one individual company operating in the renewables sector, we can buy the shares of investment companies.
Those vehicles invest a pool of money into many underlying shares, assets and projects in the renewables sector. I reckon the broad-brush approach is a great way to build a core renewables holding in your portfolio. And my top pick is Renewables Infrastructure (LSE: TRIG).
The firm is a closed-ended investment company and you can buy its shares just like any other shares on the London stock market. With the share price near 134p recently, the company pays a handsome shareholder dividend yielding just under 5%. Meanwhile, the earnings multiple is just below 12 and the price-to-tangible-book value is around 1.24. I’m confident that this is among the lowest valuations available in the sector right now.
The company manages a portfolio of more than 70 wind and solar farms across the UK & Europe. Indeed, the website asserts the firm has “the largest generating capacity of the London-listed renewables investment companies.” And the assets receive revenues from both government support and electricity sales. The directors expect 75% of the revenue to come from UK, French and German government support mechanisms in 2020. Encouragingly, a lot of that support is index-linked, which means revenue has good visibility and stability.
The directors reckon the diversity of the firm’s investments improves the consistency of shareholder returns. The assets are spread between power markets, regulatory frameworks, and local weather patterns. If renewable energy is here to stay, my guess is that TRIG’s shareholder dividend is too.
Other investments in the sector
Bluefield Solar Income Fund is an investment company that focuses on a portfolio of solar energy in the UK. With the share price near 131p, the dividend yield runs close to 6%. But the firm’s trading and financial records are more volatile than Renewable Infrastructure’s, with patchy earnings. That could be because of the reduced geographic diversification of the assets. Nevertheless, Bluefield Solar Income has appeal because the price-to-tangible-book value is lower at just 1.14 or so.
You might also consider Greencoat Renewables, which is an Ireland-based company that invests in renewable energy infrastructure assets. The company is developing its portfolio and growing fast. The dividend yield is running near 5%. The sister company is Greencoat UK Wind, which is a renewable infrastructure fund that invests in operating wind farms in the UK. The yield is also near 5%.
Meanwhile, if you are interested in early-stage investments, Gresham House Energy Storage Fund is building up a diversified portfolio of utility-scale operational energy storage systems. And Aquila European Renewables Income Fund aims to invest in renewable energy infrastructure investments in continental Europe and the Republic of Ireland featuring wind, photovoltaic and hydropower plants.
