The organisation focuses on buying and developing wind farms across the UK. It was one of the first publicly-traded companies to offer exposure to this sector to investors. Its first-mover advantage has enabled the company to scale up rapidly over the past five years.
Book value, defined as total assets minus total liabilities, rose from £530m in 2015 to nearly £2.5bn at the end of the first half of 2021. That is a compound annual growth rate of 33%.
One of the best renewable energy stocks
Book value growth tells us a lot about the company’s asset growth, but it does not tell the whole story. Greencoat has grown through debt issuance, acquisitions, wind farm development, and issuing shares.
Due to the high demand for renewable energy stocks, the company has been able to issue a substantial amount of new shares over the past five years to raise money from investors to fund growth.
Unfortunately, with each new share issued, each existing investor’s claim on the business falls. For example, while book value has risen 400% since 2015, book value per share (the book value divided by the number of shares in issue) has only increased by 20%.
This has had an impact on the company’s dividend as well. Even though Greencoat’s net profit has risen 500% since 2015, the dividend per share has barely budged. The payout totalled 6.25p in 2015. This year, analysts have pencilled in a distribution of 7.2 p per share.
Still, I think this is an excellent way for me to build exposure to the renewable energy industry.
Greencoat’s growth strategy has been incredibly successful over the past few years. And it has enabled the company to achieve its goal of producing a substantial income stream for investors from green energy. At the time of writing, the stock supports a dividend yield of 5.3%.
Plenty of growth opportunities
It looks to me as if there are still plenty of growth opportunities for the group. Over the next few decades, the UK will spend tens of billions of pounds developing new wind projects. As long as the company can continue to raise financing, this suggests there is a substantial pipeline of investment opportunities for Greencoat to take advantage of.
As the company becomes more prominent, it will be able to take on bigger projects, which have better economies of scale. Ultimately this should enable the group to grow faster and continue to maintain its dividend commitments to investors.
So overall, I think Greencoat is one of the best renewable energy stocks to buy today, despite the drawbacks of its business model. That is why I would be happy to buy the stock (and its 5.3% dividend yield) for my portfolio for the next decade.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Greencoat UK Wind. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.