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The UK stock market has an abundance of quality high-yield dividend stocks to provide me with reliable and growing passive income. However, not all that glitters is gold. Some stocks with high yields aren’t attractive to me because I don’t believe the payouts are sustainable.
However, I think the renewable energy sector offers some enticing opportunities for passive income. Here’s one FTSE 250 stock that stands out to me.
Energy transition
The Renewables Infrastructure Group (LSE: TRIG) is a £3.2bn renewable energy investment company that invests in assets that generate electricity from renewable sources. TRIG (for short) owns a broad portfolio of wind and solar farms across the UK and five other countries in Europe.
The company estimates 1.1m properties are powered from its portfolio. It sells the electricity these assets generate, then distributes a large proportion of that money as income to shareholders.
What I particularly like about this investment is that it’s in an attractive sector. The growth of the world’s capacity to generate electricity from renewable technologies is on course to accelerate over the coming decades.
That gives TRIG a firm foundation from which to pay me a reliable stream of passive income. Also, I like the number of countries it operates in, which de-risks the potential for prolonged adverse weather in one single country (no wind, for example).
£500 a year in passive income
The stock carries a market-beating dividend yield of 5.2%. One share is 131p, as I write. That means I’d need approximately 7,500 shares to generate £500 a year in passive income. That would set me back about £9,825.
That’s quite a hefty sum. Clearly not every investor is able to dish out that kind of cash. But that doesn’t mean I couldn’t buy a few shares every week and work my way towards that figure over time.
For example, if I bought 48 shares a week, that would cost me £62 (as things stand). That’s obviously much more affordable. If I did that consistently every week for one year, I’d have about 2,500 shares. They would pay me £170 annually.
After three years, I’d have 7,500 shares, which would pay me over £500 in annual passive income. It could be more though, as the payout next year is expected to rise to 7p per share (from 6.8p today).
Of course, the share price won’t stay static over three years. It’ll rise and fall with the natural ups and downs of the market.
Caveats
Of course, this is for illustrative purposes only. I wouldn’t put all my money into one stock. And I’m fortunate that my brokerage account offers commission-free trading. Some platforms still charge for each transaction, which would increase costs significantly.
It should also be noted that TRIG does occasionally raise capital through share placements to fund growth. This can cause short-term volatility in the share price.
And more broadly, it’s not guaranteed that dividend payments will always be met. They could be reduced or cut altogether to preserve capital. However, TRIG’s solid track record, dating back nearly a decade now, gives me confidence this is an excellent candidate to generate passive income.
As such, I intend to add it to my own portfolio as soon as I have the capital available.
