Renewable energy is a hot sector at the moment. It’s quite a broad category, but mostly focuses on companies involved in wind or solar energy. Electric vehicle stocks also fall into this area. Aside from the potential share price growth in the future, some also offer dividend payments. So as an income investor, here are two renewable energy dividend stocks that have caught my eye and would like to buy.
An ESG-friendly dividend stock
The first company I’m considering is the Renewables Infrastructure Group (LSE:TRIG). The share price has increased by just 0.46% over the past year. However, the business is less focused on share price growth and more on paying out returns to shareholders. This is evident by looking at the dividend yield, currently at 5.13%.Â
The fund was launched back in 2013, when renewable energy wasn’t anywhere as near as popular as it is today. It invests in infrastructure projects, mostly onshore and offshore wind farms and solar parks in the UK and Europe. Any surplus cash flow is paid out as dividends.Â
As of the update provided last October, TRIG has over 80 projects that it’s invested in currently. This is one of the reasons I like stock. Rather than having all its eggs in one basket, the breadth of projects allows the company to be diversified against any negative news from one specific project.
However, I should be aware that the share price is currently at a 14% premium to the net asset value. The net asset value simply refers to the tangible value of the overall business. The fact that the share price gives a market value higher than this means I’m paying slightly over the odds.
Dividends increasing with inflation
The second renewable energy dividend stock is Greencoat UK Wind (LSE:UKW). The dividend yield is slightly below TRIG, currently at 4.97%. And the share price is up a modest 2.3% over the past year.
As the name suggests, Greencoat specialises in investing in wind farms in the UK. It has over 40 investments at present, ranging from Stroupster in Scotland down to Little Cheyne Court in Kent.
As for the dividends, there’s good news for investors like me who are conscious of high inflation. Greencoat said that “the board has increased and intends to continue to increase the dividend in line with retail price index (RPI) inflation.” This should help me in the future to counterbalance inflation due to dividend growth.
I do need to be aware that the share price is also trading at a premium to the net asset value. Based on the last quarterly valuation, the share price is at a 7.24% premium. In the same manner as TRIG, this is a risk to me investing in this renewable energy dividend stock as I’m potentially paying more than the company is worth. This is one point that legendary investor Warren Buffett cautions against.