Lock in a covered high yield from clean energy

PLEASE NOTE: There has been an important update since we first initiated coverage on this company. Please see here.

t’s rare to come across a double-digit dividend yield with the pay-out fully funded by an inflation-protected income stream stretching out well over a decade. It’s even more unusual for any company offering such a prospect to be priced on a 43 per cent discount to net asset value (NAV) - but this is the case for one renewable energy investment company. Put simply, the level of risk aversion embedded in the current share price is at such levels that any unwinding of the equity risk premium could see a strong recovery.

The past year has been marked by unprecedented challenges and opportunities in the global energy sector. The devastating war in Ukraine and the resulting energy crisis have exposed the vulnerabilities and risks of relying on fossil fuels. These events have triggered a wave of policy and market developments which are designed to accelerate the energy transition.

UK renewable energy generation, primarily wind and solar, has already more than quadrupled over the past decade, with wind farms contributing a record 26.8 per cent of the country's electricity in 2022. This growth has been supported by government subsidies and support schemes, such as the Feed-In Tariff, the Contracts for Difference  scheme and the Renewable Obligation, but it has also been driven by rapid reductions in cost that have allowed some renewable energy projects to start competing in a subsidy-free environment. The shift, from centralised fossil fuel-based sources to decentralised, renewable, and flexible energy systems, creates substantial opportunities for investors well-positioned to navigate these changes.

Strategic investment decisions made today will not only shape the emissions trajectory for the coming decades, but with the listed UK renewable infrastructure sector a casualty of this year’s stock market rout, investments made at today’s depressed valuations have potential to deliver substantial long-term gains.

The equity risk premium is so high that it is not only possible to purchase shares in some renewable infrastructure companies on eye-catching share price discounts to book value, but to also lock in double-digit dividend yields even though pay-outs are fully covered by operating cash flows from renewable projects. This below the radar small-cap renewable infrastructure investment company offers exactly that enticing mix.