Greencoat UK Wind shares at a glance
Greencoat UK Wind is an investment trust that solely acquires and operates UK wind farms. I like the fact that the business is simple to understand.
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The company has 38 operating wind farms across the country. It has also invested in a UK wind farm that’s under development. This adds an element of construction risk.
Within the operating portfolio (by value), 70% is invested in onshore wind farms and 30% in offshore. I like that most of the assets are only up to 10 years old. This means that Greencoat UK Wind doesn’t have to worry about replacing old equipment for some time yet.
The investment trust earns revenue by selling wind energy to utility providers. I also like that these sales are usually based on contracts, which can last for decades. This means the stock can benefit from some degree of visibility over its long-term cash flows.
The UK’s goal for renewable energy
Last year, the Government announced its plans to make Britain the world leader in green energy. For me, the environment for UK renewable energy remains supportive, which should be positive for Greencoat shares in the long-term.
Following the 10-point plan laid out by the Prime Minister in November 2020, the UK is increasing its support for renewable energy. This includes boosting its efforts to buy offshore wind farms. I like that in the same month, Greencoat UK Wind announced that it had agreed to acquire a 49% stake in the Humber Gateway offshore wind farm.
The attractive dividend
Greencoat UK Wind shares offer a dividend yield of over 5%. And it aims to provide investors an annual dividend that increases in line with UK inflation.
This means in addition to some capital growth, if I invest, I could also expect a growing level of income. This is one of the reasons why I’d buy Greencoat UK Wind shares in my diversified portfolio.
What are the risks?
As with all investments, there are risks with the stock. This level of income generation is not guaranteed. There are several factors that could impact profits and hence the dividend. A reduction in government support, higher costs, low wind energy prices and competition could all impact Greencoat UK Wind.
The shares trade at a 15% premium to its Net Asset Value (NAV). This means that the investment trust isn’t cheap. But I’m not surprised given how investors have been income hungry, like me, during the coronavirus pandemic.
In September 2020, Greencoat UK Wind announced that it intends to raise capital through a share issuance programme. This will be conducted in various tranches over the next 12 months.
I should mention that the new shares will dilute the holdings of existing Greencoat UK Wind shareholders. But the the money raised will be used to pay down debt and to expand the wind farm portfolio. This in turn will diversify the overall portfolio and could make the investment trust a leading player in the UK wind energy market. As a long-term investor, this sound promising and is another reason why I’ll be buying Greencoat UK Wind shares in my portfolio.