One FTSE 250 dividend stock I like the look of to offer me payouts now and in the future is Greencoat UK Wind (LSE: UKW).
Here’s why I’d snap up some shares when I have some funds available.
Winds of change incoming?
Greencoat has become one of the largest wind energy generators through its multiple wind farms. Plus, it already has a good relationship with some of the biggest energy suppliers around.
Let me be clear, oil is still the fuel of choice. However, there’s been a rise in anti-fossil fuel sentiment in years gone by. This has allowed firms like Greencoat to capitalise on green sentiment as the world looks to generate cleaner energy. In fact, many of the world’s developed governments are actively looking to move away from traditional fossil fuels in the future.
In terms of share price, Greencoat hasn’t had the best period in the past 12 months. The shares have meandered up and down. They’ve dropped 2% over this period from 145p at this time last year, to current levels of 142p.
I’m not hugely concerned by this, as the economic volatility of late has hampered the property sector. Higher interest rates have hurt valuations and net asset values (NAVs).
My investment case
From a bullish view, Greencoat shares look extremely attractive to me from an income perspective. The business is geared towards growth and rewarding shareholders. At present, a dividend yield of 7.4% is higher than the FTSE 100 average of 3.6%. In theory, £1,000 invested today could bag me £74 in dividends. However, it’s worth remembering that dividends are never guaranteed.
Moving on, the firm has a good track record of payout. I do understand that past performance isn’t a guarantee of the future. However, it’s hard to ignore Greencoat’s payout record going back to 2013. Plus, as the race to move towards cleaner alternatives hots up, Greencoat is in a prime position to capitalise.
Finally, the new Labour government has given the green light to onshore wind farm construction. This could offer Greencoat the chance to broaden in presence, increase output, and boost earnings and returns.
On the other side of the coin, it’s worth remembering that wind farms are very expensive to set up and maintain. This expense could see the firm’s balance sheet and propensity for paying dividends impacted.
Other worries are the state of the current property market and economic volatility. Firms like Greencoat usually use debt to fund growth. As debt is costlier when interest rates are higher, earnings and returns could come under pressure too.
Final thoughts
Despite credible risks, I reckon that the pros outweigh the cons by some distance. As well as the level of return, I’m particularly buoyed by Greencoat’s position in the wind energy movement. Furthermore, as sentiment and initiatives towards moving away from traditional fossil fuels ramp up, Greencoat has a great opportunity to boost earnings and growth.
