Today is St Patrick’s Day. On the anniversary of the death of the patron saint of Ireland, I thought I’d review the prospects for the stocks of three companies based in the country. All could potentially help me generate a second income.
Green
Greencoat Renewables (LSE:GRP) initially invested only in wind generating assets in Ireland. Now it has a portfolio of renewable energy projects across Europe. These power the equivalent of over 500,000 homes.
The fund’s objective is to provide a dividend that “increases progressively” at the same time as increasing the value of its investment portfolio. The stock is currently yielding 5.7%. Importantly, 59% of the fund’s cash flow is underpinned by inflation-indexed contracts until 2032.
With the world moving towards net zero, the fund is clearly in the right sector. But the wind doesn’t always blow. And the assets in which it invests will need to be replaced at some point. However, I think the fund is well run. And its manager takes a conservative approach to its operations.
Not green
DCC (LSE:DCC) is a Dublin-based company with interests in the energy, healthcare, and technology sectors. In 2022, most of its revenue (69%) and operating profit (73%) was derived from the retail of oil and gas.
Not surprisingly, the company is seeking to move away from its dependency on fossil fuels. This will be expensive. In 2022, DCC spent £668m (more than its operating profit) on buying other companies. By far the biggest acquisition was Almo, an American consumer electronics and lifestyle business.
Despite the pressure to diversify, the company has an impressive track record of increasing its dividend each year. In cash terms, its payout was 43% higher in 2022 than in 2018. Its shares are currently yielding around 4.5%. This is marginally above the FTSE 100 average.
Construction
Cairn Homes (LSE:CRN) is Ireland’s largest housebuilder. Last year, it sold 1,526 properties — an increase of 36% on 2021. Additional volumes, an improvement in the operating margin (from 19.8% to 21.7%), and a 6.5% rise in the average selling price, all contributed to a 76% improvement in operating profit, to €103m.
In respect of its 2022 financial year, the company declared a dividend equivalent to 5.34p a share. This means the stock is presently yielding a healthy 5.9%.
The problems affecting UK builders are well documented. But across the Irish Sea, the economic downturn hasn’t been as severe. In 2023, the economy is expected to be the fastest growing in the European Union. To combat Ireland’s housing crisis, its government is offering incentives to boost the number of new homes being built.
One area of concern I have is the level of the company’s debt. Borrowings increased from €150m at the end of 2021, to €171m a year later. For comparison, the largest UK housebuilders have very little debt, if any.
My view
I’d be happy to include all three stocks in my portfolio. However, my favourite would be Greencoat Renewables.
The company is operating in a growth sector. It’s therefore the most likely to generate a decent second income, without eroding the value of any investment. Because of this, I’m going to put the company on my watch list. I’ll then take another look when I next have some spare cash.
