I would buy this green energy stock with £ 5k today
I think green energy is the future. But I am also aware that it will be difficult to pick winners in the sector over the next few years.
Over the next decade, hundreds of billions of pounds are expected to enter the renewable energy sector. Additionally, a tidal wave of new companies looking to capitalize on this trend has hit the market over the past year. However, most of these businesses are currently unprofitable. In addition, some are developing technology that has not yet been proven.
These companies are incredibly speculative, which is why I plan to avoid most of them.
Instead, I want to focus my efforts on already established companies that have plans in place to increase their production of green energy over the next few years.
Green energy champion
A FTSE 100 The company plans to invest more than almost any other UK company over the next nine years in green energy. It is a group of utilities HSE (LSE: SSE).
The group is currently in transition. It plans to invest £ 7.5 billion by 2030 to triple its production of renewable energy. Funding for these projects will come from the sale of non-core assets.
For example, SSE recently signed the sale of two waste-to-energy projects, which raised £ 995million in cash. It is also moving forward with a plan to sell all of its stake in Scotia Gas Networks, which distributes gas to homes and businesses.
In addition to these divestitures, SSE sold a 25% stake in the Walney offshore wind farm and a third-party stake in meter asset provider MapleCo.
And while one team in the company sold assets, another redeployed capital. SSE and its partner Coillte Renewable Energy recently started construction on their 30 MW Lenalea joint wind project in central Donegal.
The company also continues to develop its Dogger Bank C project, one of the UK’s largest wind farm projects, jointly owned and operated by SSE and Equinor. SSE also owns 40% of the Dogger Bank A and B projects.
Finally, this month SSE announces plans to build Scotland’s first power plant using carbon capture technology. All of these projects should help the company achieve its green energy ambitions.
Income and risks
One of the reasons I like ESS over any other green energy stock is the fact that the business is an established business.
It has the capital to pursue renewable energy projects and generates enough profit to pay shareholders for ownership of the stock. At the time of writing, the company’s shares are offering a 5.2% dividend yield.
Unfortunately, I don’t think this dividend is here to stay. The company has said it will try to keep the payout going, but if SSE’s capital expenditure obligations continue to grow, it may reduce the distribution.
Another challenge the group faces is debt. SSE’s debt ratio is nearly 200%. It is relatively high. Such a high level of borrowing could weigh on the growth of the company.
Yet despite these risks, I think this remains one of the best green energy stocks to buy. That is why I would invest £ 5,000 in the business today.
Rupert Hargreaves does not have a position in any of the stocks mentioned. The Motley Fool UK does not have a position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations that we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a diverse range of ideas makes us better investors.