My top renewable energy share to buy today

This renewable energy company has all the drivers in place to achieve substantial returns for its investors over the next decade.

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My favourite renewable energy share on the market at the moment is Greencoat UK Wind (LSE: UKW).

This company has a unique offering on the London market. It operates a portfolio of wind-generating assets across the UK and has been bulking out its portfolio in recent years.

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Portfolio growth 

Last year, the company’s net asset value increased more than 38% to £3.1bn as it continues to grow. It also generated cash of £257m, easily covering its dividend payout of £134m for the year as a whole.

The corporation embarked on an aggressive portfolio expansion programme during the year. It increased its net generating capacity across wind farm assets by 1.4GW. Overall, total assets generated 2.9GWh of sustainable electricity last year.

The corporation uses a combination of debt and equity to finance its growth ambitions.

There are two reasons why this business is my top renewable energy share to buy today. First of all, the stock’s dividend is linked to inflation. Every year, the payout grows in line with the retail price index, which hit 7.5% in December. This is particularly important in the current inflationary environment.

On top of this factor, it is clear that the demand for wind power in the UK and across Europe is only increasing. Money is flooding into the sector, which should provide plenty of resources for the group to use to expand its portfolio in the years ahead.

With a strong balance sheet and net cash generative assets, the company will be able to capitalise on this trend.

Renewable energy risks 

However, there are some potential risks to growth that I can see emerging in the near term. The general headlong rush into renewable energy could push up the price for key resources. This could make it harder for the enterprise to expand in an efficient way.

Rising costs could also hit cash generation, which may restrict the company’s ability to increase its dividend to shareholders in line with its stated policy. Indeed, a dividend payout should never be taken for granted. There is always going to be the risk that a corporation may have to cut the distribution if earnings suddenly fall off a cliff.

Even after taking these factors into account, I think the firm has tremendous potential over the next couple of years.

It does not seem to have any issue raising money for investors to fund more projects. What’s more, there is a healthy pipeline of projects in the works across the UK, presenting an attractive pipeline of opportunities for the company to become involved with. This growth potential and the stock’s 4.5% dividend yield are the two reasons I would buy the shares for my portfolio today.

Unlike many other renewable energy shares, this company is already generating healthy amounts of cash flow and has a great track record of creating value for investors.

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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.

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 considered, so you should consider taking independent financial advice.

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