One passive income stock that caught my eye recently is Renewables Infrastructure Group (LSE: TRIG). Here’s why.
Renewable energy
Renewables Infrastructure is an investment company that owns a portfolio of wind and solar farms across the UK and Northern Europe. Its core aim is to provide investors with long-term, stable dividends.
As I write, Renewables shares are trading for 108p. At this time last year, they were trading for 143p, which is a 24% drop over a 12-month period. I’m not worried about this fall in share price. In fact, I view it as an opportunity to buy shares cheaper than before. It is worth remembering many shares have fallen due to macroeconomic issues including soaring inflation and rising interest rates.
The investment case
The most bullish reason for my stance on Renewables shares is the drive towards cleaner renewable energy and the move away from traditional fossil fuels. Many governments throughout the world have directives in place to reduce their carbon footprints and ensure cleaner energy is generated and utilised from sources including wind and solar. With that in mind, I believe Renewables could benefit and translate this demand into future earnings and investor returns.
Speaking of returns, Renewables shares would boost my passive income. At present, its dividend yield stands at 6.5%. This is higher than the FTSE 100 average of 3%-4%. However, I do understand that dividends are never guaranteed.
Finally, Renewables modus operandi is to continue to invest surplus cash after paying its dividends into new projects and assets. This should help boost growth, especially during a time when demand for renewable energy is surging.
To the bear case then, the big issue with many firms like Renewables is the operational issues it could encounter. For example, poor weather conditions could impact energy output. In turn, this could adversely impact energy provided, performance, and investor returns.
Another risk to note is maintenance as Renewables must keep ageing assets up to date. This can be a costly exercise that may impact profitability and shareholder returns, as well as growth initiatives.
A passive income stock to consider
To conclude, Renewables looks like a good option with a view to generating stable dividends. If I had some spare cash to invest right now, I’d be willing to buy some shares.
Aside from the fact Renewables Infrastructure group is operating in a growth sector, the way in which the business is structured as an investment company to provide consistent returns is positive from a passive income perspective. Furthermore, although I understand that past performance is not a guarantee of the future, it has a good record of paying and growing dividends consistently. In fact, it did not cancel its dividends during the pandemic when many other businesses did.
