Yielding 7%, here’s a dividend stock investors should consider buying now!

Sumayya Mansoor explains why this dividend stock looks like an enticing option with its above-average yield and defensive traits.

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One dividend stock that I believe could be a great buy is Greencoat Renewables (LSE: GRP). Here’s why savvy investors should consider snapping up some shares.

Renewable energy on the rise

Greencoat is a public limited company with the aim of providing investors exposure to operational renewable energy infrastructure assets. These include onshore and offshore assets such as wind and solar farms.

There’s been a lot of attention around the use of fossil fuels in the world and the need to start transitioning towards cleaner, greener alternatives. Wind and solar assets are two of the leading alternatives. In fact, many governments are now actively committing to ensuring energy produced from such assets is increasing in the coming years. This is good news for businesses like Greencoat.

Defensive traits and enticing fundamentals

When reviewing any dividend stock, I’m keen to understand a firm’s offering. Is it essential or a luxury? This can help me decipher whether or not earnings could be stable as these earnings underpin dividend payments. In the case of Greencoat, it possesses excellent defensive traits, in my opinion. After all, everyone from homes to businesses and in between requires energy to go about their daily lives.

Greencoat shares look decent value for money to me right now too on a price-to-earnings ratio of 10.

Moving on to passive income, Greencoat looks like it could be a rewarding dividend stock at present with a dividend yield of just over 7%. Although it resides on the FTSE AIM index, this yield is higher than the FTSE 100 and FTSE 250 averages of 3.8% and 1.9%.

Analysts reckon that Greencoat’s yield is set to increase in the next two fiscal years as demand for cleaner energy ramps up and the business meets this demand. However, I’m conscious that dividends are never guaranteed.

Finally, Greencoat has seen its production increase steadily recently. A half-year update released last month showed this. This is good news as the more energy it can produce, the more it can sell and reward investors too.

Conversely, there are a couple of risks I’ll keep an eye on for Greencoat. Firstly, wind and solar energy assets aren’t cheap or easy to maintain. The risk here is that increased expenditure can dent profits and payout.

Another issue for Greencoat is its propensity for acquisitions to boost its offering. When acquisitions work, they’re great. However, when they don’t, they can be costly to dispose of. This can impact investor sentiment, as well as a balance sheet and investor returns.

A dividend stock I’d buy

There’s lots to like about Greencoat, in my opinion. This includes its defensive nature, passive income opportunity, current valuation, and growth prospects. Furthermore, it possesses an excellent geographical footprint that should help boost investor returns.

I’ve decided that the next time I have some spare cash to invest, I’ll be adding some Greencoat shares to my holdings as a dividend stock and growth option.

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 assessed. Consider taking independent financial advice.

Sumayya Mansoor 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.

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