Interactive Investor

Ian Cowie: Ukraine tragedy could boost the green theme

3rd March 2022 09:06

Ian Cowie from interactive investor

Our columnist has exposure to renewable energy via an investment trust that has grown both its dividend and share price ahead of inflation over the past five years.

Whisper it, but some good could come out of the tragedy in Ukraine. Rising awareness of our reliance on Russian oil and gas might accelerate the development of renewable energies we can make for ourselves, right here in the democratic West.

Yes, I know that is cold comfort for people whose homeland is being invaded by the armed forces of a former communist and present-day dictator. But solar and wind power will need to be developed if the rest of the world is to keep warm, without poisoning the planet and lining Vladimir Putin's pockets.

Coming down from the clouds of geopolitics, this small investor received the latest dividend from my biggest 'green' investment trust on Monday this week. Ecofin Global Utilities & Infrastructure (LSE:EGL) yields 3.8% after delivering total returns of 110% and 17% over the last five and one-year periods.

Better still, EGL has dramatically increased its income distributions, by an average of nearly 33% per annum over the last five years, according to independent statisticians Morningstar.

​​​​​Here and now, it has total assets of £219 million and trades at a modest discount of less than 1% below net asset value (NAV). Its biggest underlying shareholding is the American giant NextEra Energy (NYSE:NEE), which describes itself as: “the world’s largest producer of wind and solar energy” and represents 5.5% of EGL’s total assets.

Second by stake size, stands Spanish firm Iberdrola (XMAD:IBE), which says that it is a “leading multinational in clean energy” and is probably best-known in Britain as the owner of Scottish Power.

Equal third-ranked stand America’s Exelon (NASDAQ:EXC) and Italy’s Enel (MTA:ENEL). The former claims to provide “one of the cleanest and lowest-cost power generation fleets”, while the latter operates in more than 30 countries and says it brings “energy to people through the adoption of new sustainability oriented technologies”.

For the benefit of folk who fret that environmental concerns might reduce real returns, it is worth pointing out that EGL features among a list of trusts that have grown both their dividends and their share prices by more than the rate of inflation over the last five years.

The Association of Investment Companies (AIC) calculates that over this period the Consumer Prices Index (CPI) increased by an annualised rate of 2.5%. Not only did EGL deliver the eye-stretching dividend growth of nearly 33% mentioned earlier but its share price achieved an annual average return of 9.1% over the last five years.

I can’t claim to have enjoyed all of that because I only invested in September 2019, when I paid £1.52 for shares that cost £1.94 at the time of writing. But, given all the bad news elsewhere recently, I am not going to grumble or blow a fuse about that.

Annabel Brodie-Smith, a director of the AIC, told me: “Investors are understandably concerned about rising inflation and many investment companies are focused on growing shareholders’ income and capital in real terms.

“It’s encouraging to see that 36 investment companies, from a wide range of sectors, have beaten inflation over the past five years, both in terms of their annual dividend payments and their share price returns.”

Against all that, EGL has no revenue reserves - and therefore no dividend cover - so its underlying holdings must ‘keep the plates spinning’ if shareholders’ payouts are to be sustained.

Another potential worry is that EGL is 12% geared - or, in plain English, borrowing is used to boost returns. That could prove a double-edged sword and might increase losses if the cost of borrowing exceeds the investment returns achieved.

More positively, for those of us who draw some comfort from finding familiar names among the list of major shareholders, EGL’s top 10 include M&G (LSE:MNG) - the company that introduced unit trusts to Britain; BlackRock (NYSE:BLK)- the biggest fund manager in the world; and abrdn (LSE:ABDN), a leading global asset manager. 

Back to basics, I am happy to receive a low four-figure annual income from EGL and its globally diversified portfolio of power generation with a clean, green theme.

Sad to say, war in Europe may well mean that more capital flows into renewable energy.

As I may have pointed out before during this era of bad news, it’s an ill wind that blows no good.

Ian Cowie is a freelance contributor and not a direct employee of interactive investor.

Ian Cowie is a shareholder in Ecofin Global Utilities & Infrastructure (EGL) as part of a diversified portfolio of investment trusts and other shares.

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