Today, I want to focus on a company that’s one of my top watchlist shares for passive income right now. August’s half-year report from Renewables Infrastructure (LSE: TRIG) delivered a reassuring picture of strong ongoing cash flow.
A decent dividend record
The company invests in renewable energy assets, such as wind and solar farms in the UK and Northern Europe.
That may sound like an in-vogue sector, but I like the business because of its consistent multi-year dividend record. Those payments have been dropping into shareholders’ accounts for years, even through the darkest days of the pandemic.
Coronavirus didn’t affect operations much because energy’s a steady sector, making Renewables Infrastructure what’s often described as one of the defensive businesses. At the other end of the spectrum are cyclical businesses, and they did suffer a lot when Covid struck.
When it comes to collecting passive income from dividends, I’d prefer the businesses behind the shares to have defensive characteristics. So this one fits the bill.
What’s more, the company’s been buying back its own shares. It takes robust incoming cash flow to do that, as it does to pay generous-looking dividends.
As I write (20 October), the share price is just over 99p. Meanwhile, City analysts expect the dividend to increase a bit this year and next. Set against those forecasts, the forward-looking yield is just below 7.8% for 2025. If dividends prove to be sustainable, they could be great for passive income.
Why the share price has dropped
However, the business does have its challenges. For example, in that half-year report, the directors pointed to a reduction in the firm’s net asset value of almost 3.4%. That occurred because of “lower near-term power price forecasts, lower forecast inflation and below budget generation“.
Power generation in the company’s portfolio of assets was affected by third-party owned cable outages at two UK offshore wind farms.
On top of that, one of the drivers of recent poor share-price performance has been lower power prices. Another has been higher interest rates, which tend to drive down the company’s valuation because power projects will likely see bigger costs.
The price-to-tangible asset value is around 0.8 right now, indicating potential good value because a rating of one’s often considered fair.
So is this an opportunity? I think it may be. The company sounds confident in its ability to sustain strong cash flow and consistent shareholder dividends in the years ahead.
A well-managed portfolio
Chairman Richard Morse said the company’s management team has a disciplined approach to allocating capital and manages the portfolio to deliver long-term value to shareholders.
Perhaps the stock’s unlikely to deliver big capital gains via a rising share price. But there’s a good chance of stability and an ongoing stream of robust dividends in the years ahead.
Despite the risks mentioned, I see Renewables Infrastructure as well worth further research and consideration now. It looks like a possible candidate for inclusion in a diversified portfolio of dividend shares aimed at harvesting passive income.
