UK investors have been turning to dividend shares offering high yields in the past couple of months. That makes sense, as they can be great to buy for the long term. And we’re approaching the end of the ISA year, when many of us are putting away as much as we can before 5 April.
We don’t need to actually invest our ISA cash before the deadline. We only need to get it transferred into our accounts. But while share prices are down — and dividend yields are up — it can be good sense to make the most of today’s more attractive valuations.
Top investment trust
Greencoat UK Wind (LSE: UKW) has been catching the eye of investors. In fact, at interactive investor it was the most popular investment trust bought in February. And I reckon it’s likely to be up there in March too.
With a massive 11% forecast dividend yield, the attraction seems clear. A bigger yield is one positive outcome from a falling share price. And Greencoat shares have been sliding over the past few years, as global attention has shifted sharply to oil and gas again.
Talking of oil and gas, Brent crude has topped $110 per barrel. And doesn’t that remind us of the many benefits we can potentially reap from renewable energy sources like wind power? Individual countries have no special control of it, and there are no supply lines that can be choked off in times of geopolitical crisis.
Why investment trusts?
I really like investment trusts as they can give individual investors the opportunity to put some cash into assets that would otherwise be unattainable. In this case, that’s a large portfolio of onshore and offshore wind farms across the UK. North Sea oil might run out, but I can’t see these gusty isles becalmed any time soon.
An investment trust can also be a good vehicle for keeping dividend payments steady. Unlike some other collective investments, they can hold back cash in strong years to help even out payments in weaker times.
Saying that, nobody seems to be expecting any dips. Instead, forecasts indicate continuing dividend rises over the next three years. And at results time in February, the company reminded us it had achieved its twelfth consecutive year of dividend increases. And management intends to grow it in line with CPI inflation. There was enough cash for a £109m share buyback too.
Any dangers?
No investment comes without risk. There’s no such thing as a guaranteed dividend, for one thing. Greencoat also carries net debt of around £1.7bn — and servicing that costs money.
Soaring oil prices might highlight the benefits of wind power. But they also push up inflation, and that could lead to higher interest rate costs for debt-funded companies like Greencoat.
But on balance, I’m optimistic that Greencoat’s cash generation can keep its dividends growing in line with inflation. I think it’s an attractive long-term option to consider for an ISA.
