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.
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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.