If you are looking for a dividend stock that offers both high yield and growth potential, you might want to consider Greencoat Renewables (LSE: GRP). Greencoat is a company that invests in renewable energy infrastructure assets, such as wind and solar farms, in Ireland and Europe. Here are some reasons why Greencoat could be a great buy for dividend investors.
One of the main drivers of Greencoat’s business is the increasing demand for clean energy sources, which are expected to grow in the coming years due to government commitments and public support. According to the International Energy Agency (IEA), renewable energy sources will account for 50% of global electricity generation by 2030, up from 30% in 2020. The IEA also projects that renewable energy capacity will increase by 60% between 2020 and 2026.
Greencoat is well-positioned to benefit from this trend, as it has a diversified portfolio of 69 wind and solar farms with a total capacity of 1.8 gigawatts (GW) across Ireland, France, Germany, Finland, Sweden and Norway. Greencoat also has a strong pipeline of acquisition opportunities, as it aims to expand its portfolio to 3 GW by 2025.
Another attractive feature of Greencoat’s business is its defensive and stable nature, as energy is an essential service that is not affected by economic cycles or consumer preferences. Greencoat’s revenues are also predictable and secure, as it sells its electricity under long-term contracts with fixed or inflation-linked prices. These contracts have an average duration of 14 years and are backed by creditworthy counterparties, such as utilities and governments.
Greencoat’s cash flow is also resilient and consistent, as it has a high operating margin of over 90% and a low maintenance capital expenditure requirement of less than 5% of revenues. Greencoat’s cash flow covers its dividend payments comfortably, with a payout ratio of around 80%.
Greencoat’s shares are currently trading at a cheap valuation, with a price-to-earnings ratio of 10, which is lower than the industry average of 16.5. This implies that the market is undervaluing Greencoat’s earnings potential and growth prospects.
Greencoat also offers a high dividend yield of over 7%, which is well above the FTSE 100 and FTSE 250 averages of 3.8% and 1.9%, respectively. Greencoat’s dividend yield is expected to increase in the next two fiscal years, as the company plans to raise its dividend by 4% per year in line with inflation. Greencoat also expects to benefit from higher electricity prices in Europe, which have risen sharply due to supply constraints and rising demand.
Greencoat has a low debt level, with a net debt to equity ratio of 38%, which gives it financial flexibility and reduces its interest costs. Greencoat’s debt is also long-term and non-recourse, meaning that it is secured by specific assets and does not affect the company’s overall creditworthiness. Greencoat has ample liquidity, with cash and undrawn facilities of €300 million as of June 30, 2023.
Greencoat’s low debt level also allows it to pursue growth opportunities without diluting its shareholders. Greencoat has funded its acquisitions mainly through equity issuances, which have been well-received by the market. Greencoat has raised over €1 billion from equity offerings since its IPO in 2017.
Greencoat faces some risks and challenges that could affect its performance and outlook. Some of these include:
Greencoat Renewables is a dividend stock that invests in renewable energy infrastructure assets, such as wind and solar farms. Greencoat has a number of strengths, such as growing demand for clean energy, defensive and stable business, cheap valuation and high dividend yield, and low debt level and financial flexibility. Greencoat also faces some risks and challenges, such as regulatory changes, operational issues, environmental impacts and competition. Investors should do their own research before buying Greencoat shares, as the company’s performance and outlook may change over time. This article is based on sources from Yahoo Finance, Simply Wall St, and Greencoat’s own website . The article is written by Sumayya Mansoor, a freelance writer who covers investing topics for The Motley Fool UK. The article is published on October 25, 2023, on The Motley Fool UK website. The article is part of the free content offered by The Motley Fool UK, which may differ from its premium investing services.
