Even at near-all-time-highs, the UK stock market remains packed with high-dividend-yield opportunities. Some are even venturing into double-digit territory!
Of course, experienced investors know that yields this high can be a warning sign, with a cut likely looming. But there are always exceptions. And finding these rare opportunities can unlock tremendous amounts of passive income.
So with a 10.2% yield, is The Renewables Infrastructure Group (LSE:TRIG) one of them?
Understanding the business
As a quick introduction, Renewables Infrastructure Group’s a London-listed renewable energy investment company owning a diversified portfolio of wind, solar, and battery storage assets across six European markets. And the business generates money by selling clean electricity.
That creates steady, largely-predictable cash flows that have historically supported a reliable income for shareholders. In fact, the firm’s raised shareholder payouts for four years in a row, or 11 years when excluding the pandemic.
Today, a £5,000 investment instantly locks in £510 of annual passive income. That’s a genuinely compelling starting point for any dividend portfolio. And crucially, in the latest strategic update, management reaffirmed a dividend target of 7.55p per share for 2026, with projected net dividend cover of between 1.1 and 1.2 times.
In plain terms, the dividend appears to be well covered by cash generation. And with energy prices expected to rise later this year, that cover could strengthen further.
So what’s the catch?
The most important number to understand about this business is how much of its electricity revenue is fixed versus exposed to live market prices.
The company’s actively managed this balance, securing revenue price fixes across the portfolio, including a notable recent 10-year contract with Virgin Media O2. However, the consequence of this is that if energy prices start rising sharply, the firm won’t actually see much benefit since it will still be stuck selling at a lower pre-agreed price. That’s a problem.
It’s not just about missing out on powerful energy price tailwinds. The balance sheet’s carrying a lot of debt, which currently sits near £2.1bn as of March. And a surge in cash flows could have been a handy tailwind to help reduce leverage.
Instead, the company’s turning towards asset disposals to bring down its gearing to more manageable levels. But that also means lower volumes of energy generation in the future. And if interest rates start to rise again, the pressure on free cash flow’s only compounded.
So is this a dividend stock to buy or not?
The bottom line
This isn’t a straightforward income stock. The high dividend yield reflects a real set of challenges, including elevated leverage and limited upside from energy price rises due to contracted revenues.
Yet, for the time being, dividends remained covered by cash flow, and management’s taking steps to repair its balance sheet to support long-term growth in a world slowly transitioning to renewables.
Put simply, this is a high-risk/high-reward income opportunity. It isn’t one that fits into my personal income portfolio. But for patient investors seeking exposure to the renewables sector, this could be a good place to start digging deeper.
Should you invest £5,000 in Renewables Infrastructure Group right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Renewables Infrastructure Group made the list?
Zaven Boyrazian does not hold any positions in the companies mentioned.
