The FTSE offers investors a handful of opportunities to increase their exposure to the green agenda. There are large-cap stocks such as BP — the energy giant is increasingly spending more on its green transition.
But I’m looking at a green stock with no exposure to fossil fuels. And that’s Greencoat UK Wind (LSE:UKW). I recently bought this stock, and even after a recent surge, I’d buy more. Let’s explore why.
Dividend yield
Greencoat is a closed-ended investment company, aiming to provide investors with an annual dividend that increases in line with inflation. Naturally, with inflation in double digits, it would seem challenging for the firm to keep up.
However, earlier this week, Greencoat announced a 1.93p dividend for the final quarter, taking the annual dividend to 7.72p — a 4.8% yield at today’s price. This represents a 7.5% increase from last year.
Building for 2023, the group said: “We are also pleased to announce our 10th successive RPI increase in dividend per share to 8.76p, reflecting December’s RPI of 13.4%”. After 10 successive RPI increases, I’d call this a fairly dependable stock.
That’s definitely good to hear, as no investor wants to see their dividend payments become incrementally smaller, in real terms, if the firm fails to increase payments in line with inflation.
Greencoat said it has dividend cover of 3.2 times for 2022, noting the impact of higher energy prices and positive cash generation. Any coverage ratio above two is considered healthy.
Valuation
Greencoat trades with a price-to-earnings ratio of just 7.5, which is clearly positive for a firm operating in an highly-promising industry. It’s also among the highest-paying 25% of dividend stocks.
In its report, published earlier in the week, the trust said that its unaudited net asset value (NAV) as of 31 December was £3,873.2m, or 167.1p per share. Meaning the current share price represents a 5.6% discount versus the NAV.
Reassuringly, Greencoat said the NAV was calculated using energy prices from Q2, and not Q3 when prices spiked. Current prices are similar to those seen in Q2.
Why I’d buy more
There are, naturally, challenges with wind power. Sometimes the wind doesn’t blow, and when it blows really strong, there’s no guarantee that the demand is there to take the energy. Developments in battery technology will help here.
However, I think the future is bright for wind. The tech is becoming increasingly advanced and some of the behemoth structures we’re seeing in China are incredibly efficient.
Looking at the UK, Greencoat should get a boost by a long-awaited end to a moratorium on onshore wind. Onshore wind energy is the most cost-effective renewable energy source around. Friends of the Earth suggest that energy from onshore wind turbines is two times cheaper than offshore wind.
I’d also buy more because the stock has some stable fundamentals. The dividend is well covered, the growth strategy is clear, and shareholders are rewarded in line with inflation.
