ESG (Environmental, Social and Governance) investing not only focuses on financial returns but also the company’s impact on the environment, its stakeholders and the planet. Dividend stock The Renewables Infrastructure Group (LSE:TRIG) certainly falls into this category. The purpose of TRIG is to generate sustainable returns from a diversified portfolio of renewables infrastructure that contribute towards a net zero carbon future.
The Renewables Infrastructure Group’s £2bn+ renewable energy portfolio is spread across over 79 projects in the UK and Western Europe and their projects include energy generators from onshore and offshore wind, solar PV and battery.
Attractive yield with a strong track record
The Renewables Infrastructure Group listed on the London Stock Exchange in July 2013 and has built up a strong track record over the last eight years. There has been a Net Asset Value (NAV) return since IPO of 7.9% annualised while the dividend has consistently been above 6p per share. With this strong and reliable dividend track record, the yield is sitting above 5.2% today.
TRIG’s geographic diversification helps to mitigate large monthly regional variances in weather and other factors that could reduce profitability for their projects. For example, lower wind speeds in the UK and Ireland in April 2021 were offset by high wind resource in Scandinavia.
Short- and long-term drivers
The 2021 United Nations Climate Change Conference (COP26) is scheduled to be held in Glasgow, Scotland between 31 October and 12 November 2021 under the presidency of the United Kingdom. Decarbonisation agenda remains central to public policy, and the UK government have continued to reiterate their ambition of transforming the economy to net zero carbon by 2050. Offshore wind – a growing segment in The Renewables Infrastructure Group’s portfolio – is a core component of this transformation.
Policy across Europe is moving towards greater electrification, which should translate into higher and more flexible demand. There are also macroeconomic tailwinds as the economies of the UK and Western Europe recover from the Covid-19 economic declines causing an uptick in energy demand. The Renewables Infrastructure Group could also be advantaged from inflation in the UK as energy prices look likely to climb.
Potential headwinds
ESG and renewable energy stocks have been hyped up in recent years in the hope of long-term returns on investment. This sentiment is evident by the fact that The Renewables Infrastructure Group has been trading at a premium of over 11% on average in the past 12 months. This overvaluation is a concern for me.
Additionally, while the assets under TRIG management are diverse, they are also depreciating and are costly to maintain and replace. In the past, The Renewables Infrastructure Group has expanded and funded new projects through share issuance programmes, causing stock dilution.
Fundamentally, this is an income stock and I hold it as a long-term investor, planning to compound the dividends. Due to encouraging public policy developments and increasing demand for renewable wind, solar and battery energy, I remain an optimistic shareholder in The Renewables Infrastructure Group.