Many investors are anxious ahead of the UK general election that will be held on December 12. The structure of Brexit still hangs in the balance and so there continues to be considerable economic uncertainty as we look ahead to the next decade. An investor with £5,000 to invest has a lot to consider in this environment.
In these circumstances, I like to target equities in sectors that are mostly safe from political blow-back and are also set up for attractive growth in the long term. I love the renewable energy sector as an investment target for the 2020s.
Why green energy?
According to a recent report from the International Energy Agency (IEA), global renewable energy capacity is set to rise by 50% within five years. This increase will be driven by solar photovoltaic (PV) installations in homes, buildings and industry. The IEA forecasts that total renewable-based power capacity will rise by 1.2 terawatts (TW) by 2024 from 2.5 TW in 2018. Solar PV is expected to account for roughly 60% of this growth and onshore wind approximately 25%.
The share of renewables in power generation is expected to rise to 30% in 2024 from 26% today. Costs have been an oft-cited obstacle in the push for renewable power, but this dynamic has shifted. Solar PV generation costs have fallen in recent years, and those costs are forecast to decline a further 15% to 35% by 2024. In fact, distributed solar PV is already more cost effective than retail electricity prices in most countries.
This promising trajectory is one of the reasons I’m betting on renewable energy equities as we look ahead to the next decade. Today I want to look at one renewable energy stock that investors can purchase before the New Year.
Renewables Infrastructure Group
The first stock I want to zero-in on is Renewables Infrastructure Group (LSE: TRIG). It invests in operational renewable energy generation projects across the UK and Northern Europe, predominately in onshore and offshore wind and solar photovoltaics segments. Its shares have climbed 13.7% year-on-year as of close on November 26.
It currently boasts the most diversified portfolio of renewable infrastructure assets in the London-listed sector. As at June 30, its portfolio was valued at £1,621m, which was up 28% from its valuation at December 31 2018. The company has said that it aims to concentrate more on European investment in the quarters to come. Europe has vaulted ahead of the UK in its renewable energy investment push, which is why companies like this one are looking to the European mainland for more growth.
Income investors should be happy with its 5.1% dividend yield. Net cash flow covered its cash dividend by 1.4 times in the first half of the fiscal year, or 1.9 times before the impact of repaying project-level debt. The stock boasts a price-to-earnings ratio of 8 as of close on November 26, putting its shares in solid value territory before December.
Ambrose 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.