SIF Folio: Why I Think Renewables Infrastructure Should Generate A Reliable Income

9th Oct '18 by Roland Head

5 comments 5265 reads

The never-ending quest for online eyeballs means that there’s sometimes a temptation to favour popular stocks when writing this weekly column.

It’s a temptation I do my best to resist. My focus is on analysing and writing about the stocks highlighted by the rules in my Stock in Focus screen. By ignoring sentiment and rigidly following my system, I hope to extend the folio’s track record of market-beating performance.

Despite this resolve, it’s clear that last week’s stock - small cap recruitment group Staffline - wasn’t a particularly popular choice, despite regular coverage by Paul Scott and Graham Neary.

I’m afraid I may be about to drop another clanger this week.

For several weeks, my screen has persistently flagged up investment group Renewables Infrastructure. I’ve now decided that it’s time to take a closer look at this financial-cum-energy business.

With a StockRank of 94 and a StockRank Style of Super Stock, at least Stockopedia’s algorithms are on my side.

Should this stock be finding more love among private investors? Or will it prove to be fully priced and about as profitable as a wind turbine on a still day?

What you need to know

The Renewables Infrastructure Group (TRIG) is an investment trust that owns a portfolio of investments in renewable energy project companies. The majority of the firm’s investments are in UK onshore wind. However, it is diversifying, as you can see from this portfolio breakdown, which I’ve taken from the group’s half-year results:

TRIG floated in 2013 and is currently a FTSE 250 member, with a market cap of about £1.2bn.

The group’s modus operandi is generally to raise cash by issuing new equity at group level to finances acquisitions. Short-term finance may be used, but this is normally repaid within a year.

Non-recourse debt is used at project level, subject to a 50% limit on gearing. What this equity-led approach means is that net asset value per share is fairly stable. Returns come mostly from income.

According to the firm, total shareholder return since flotation has averaged 7.7% per year. The vast majority of this has been income as the dividend yield has mostly hovered between 5.5% and 6%. Net asset value (NAV) has risen from…

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colinparker

9th Oct '18

Real life investing vs. Folio

Hi Roland, given that I don't think Stocko will credit the 6% divi yield to your Folio. Isn't there a chance that your Folio performance may be held back by this selection?

In many real life scenarios a cash cow divi may add some good diversity to the portfolio, especially to those retired income seekers.
Though for your Folio, aren't you better favouring those selections which look to have legs for say a 20% price uplift in your 9mth timeframe?

Cheers
Colin

Roland Head

Hi Colin,

Thanks your comment. Strictly speaking, you're probably right. Buying an income stock whose price I hope will stay unchanged probably won't do much for SIF returns. (For new readers, Stockopedia's Fantasy Fund system doesn't currently track dividend income, only price changes).

However, all SIF stocks are required to have a yield of at least 1.5%, so to some extent this is an issue with all holdings. I'm willing to accept this in order to invest in the stocks my system suggests. I also want to see if Renewables Infrastructure (LON:TRIG) will work in the way that I hope -- i.e. as something of a hedge to short-term volatility.

Another point is that the dividend return from the FTSE All Share is probably similar to that of the SIF (I'm guessing). So in terms of relative performance, missing these dividends probably doesn't harm me too much.

I do keep track of dividend income as I mirror the SIF fund in a standard Stockopedia Folio. So I will be able to see the total return from this stock, which I'll report when it's sold.

For what it's worth, the approximate value of the folio including (most) historic dividends is £1.42m, versus £1.36m for the non-dividend Fantasy Fund.

Cheers,
Roland

Howard Adams

10th Oct '18

Hi Roland

An interesting stock and useful write up about how to assess it.

Regards
Howard

JohnWigg

11th Oct '18

I have held TRIG since issue. A related stock is John Laing Environmental Assets (LON:JLEN), where the mix also includes biomass generation. This has had one or two issues with its 'black boxes', and has a stock rank of only 42. The dividend yield (6.35%) may compensate and interest some as a possible recovery situation.

tagware

We have both TRIG and UKW since 2013 which have served us well in both 5.5% and growth. Still above even in the upsetting market. :o)

SIF Folio: Why I think Renewables Infrastructure should generate a reliable income

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Roland Head

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