Why I’m buying this renewable energy stock for income and growth

Use of renewable energy will be a key trend in the years ahead. Here’s a company I’d buy to gain exposure to this growth in my portfolio.

| 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.

Solar panels fields on the green hills

Image source: Getty Images

Oil and gas prices are soaring right now. The situation has been exacerbated by the tragic war in Ukraine either. These key commodity markets became even more volatile after economic sanctions were imposed on Russia. This is because the country is a key exporter of oil and gas, so there will likely be an even bigger supply shortage in the months ahead. The situation has shone an even bigger-than-usual spotlight on our dependence on fossil fuels. But with this in mind, I also think it’s going to boost the use of renewable energy going forward.

Here’s a stock that I’d buy today that should benefit from this trend.   

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

A renewable energy infrastructure trust

The company is The Renewables Infrastructure Group (LSE: TRIG), or TRIG for short. It’s a £3bn investment trust, which means it’s part of the UK’s mid-cap FTSE 250 index.

There’s a good track record of total returns here. In fact, TRIG has been able to generate annualised total shareholder returns of 9.5% between the trust’s initial public offering (IPO) in 2013 and 31 December 2021. TRIG focuses on income-based returns, and this year the dividend yield is expected to be an impressive 5.1%.

What’s more, the dividend is paid quarterly. This can really help with my cash flow planning.

It’s not all about the dividend though. The net asset value (NAV) of the portfolio grew by 3.5%, it said in the full-year results through 2021. These results were strong, despite what the company said was “the lowest wind resource in the company’s history.

This does highlight a key risk for renewable energy companies: if the wind doesn’t blow, or the sun doesn’t shine, then earnings may reduce.

It’s why portfolio diversification is key. Let’s take a look at TRIG’s.

What’s in the portfolio?

As it stands, TRIG’s portfolio consists of 83 investments, including 50 wind farms and 32 solar assets. There’s also one battery storage asset. So there’s a slight concentration towards wind-based renewable energy, which is something to keep in mind. In saying this, TRIG did buy a further four solar assets in Spain this year.

I also like the fact that it operates across six countries. As such, there won’t be a reliance on any one government or weather system.

Why I’m buying this renewable energy company

Current world events have shown just how much investment is needed in renewable energy. TRIG is well placed to capitalise on this wider sector growth. The high dividend yield of 5.1% is also attractive for my portfolio.

Renewable energy infrastructure trusts can be uncorrelated to equity markets, which is useful. For example, TRIG’s share price is up almost 1% this year while the FTSE 250 is down 10%.

However, one final consideration is that the stock is trading at a premium to its NAV. So it’s not exactly cheap. It’ll have to carry on trading well and growing to warrant the premium share price.

But taking everything into account, I’d buy this company to gain exposure to the growing renewable energy sector in my portfolio.

Our 5 Top Shares for the New “Green Industrial Revolution"

It was released in November 2020, and make no mistake:

It’s happening.

The UK Government’s 10-point plan for a new “Green Industrial Revolution.”

PriceWaterhouse Coopers believes this trend will cost £400billion…

…That’s just here in Britain over the next 10 years.

Worldwide, the Green Industrial Revolution could be worth TRILLIONS.

It’s why I’m urging all investors to read this special presentation carefully, and learn how you can uncover the 5 companies that we believe are poised to profit from this gargantuan trend ahead!

Access this special "Green Industrial Revolution" presentation now

Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

More on Investing Articles

Tabletop model of a bear sat on desk in front of monitors showing stock charts
Investing Articles

3 reasons why the stock market is falling today

Jon Smith explains several factors that are contributing to the stock market falling today, and his thoughts on them.

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

2 stocks that are great long-term picks

As recession fears weigh on share prices, our author has found two stocks with strong long-term prospects. He’s looking at…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

2 lesser-known penny stocks to buy now and hold for 10 years!

I’m currently looking at penny stocks that could help my portfolio grow over the next 10 years. Despite recent volatility,…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

Here’s 1 of the best stocks to buy for passive income

Jabran Khan delves deeper into one of the best stocks to buy for passive income, which is a FTSE 100…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

IAG shares are down 15% amid travel chaos! Is now the time to buy?

IAG shares have collapsed over the past month. Shareholders had hoped for a strong Q2. But maybe this represents a…

Read more »

Shot of a young Black woman doing some paperwork in a modern office
Investing Articles

UK shares: 1 dividend stock I own to combat inflation

This Fool is looking for quality UK shares to combat inflation through consistent and stable returns as well as growth…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Here’s how I’m investing as stock market volatility soars!

2022 has seen an explosion in stock market volatility. But with the right approach I think ongoing choppiness could turbocharge…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

2 top FTSE 100 shares to buy before a new bull market

On my search for FTSE 100 shares to buy before the recovery, I have found two growth options that could…

Read more »