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In 1992, more than 150 countries signed a contract agreeing to combat climate change. Meetings have been held almost every year since then to discuss how best to achieve this goal, as temperatures continue to rise and our weather becomes more unruly. At the end of this month the latest attempt, COP28, will take place in Dubai, one of the hottest places on Earth.
COP28 will be filled with worthies from every part of the globe and numerous proposals will be submitted to reduce oil and gas consumption and slow the rate of warming. Many investors, however, are growing wary of this environmental hullabaloo, with far too many firms promising the earth and delivering very little.
Octopus Renewables Infrastructure Trust (Orit) adopts a more practical stance. Focused on wind and solar farms, the group produces enough electricity to supply about 500,000 homes, with more coming on track down the line.
But managers Chris Gaydon and David Bird are not just keen to be green, they are also determined to deliver rewards for shareholders. With the shares at 90.5p and a dividend yield of more than 7 per cent, the stock is worth a closer look for investors of all persuasions.
There are several renewable firms on the stock market but Octopus takes a slightly different approach from its peers. Based in the City of London, Gaydon and Bird invest in the UK and across Europe. They do not just invest in sites that are in progress; they take part in development and construction too.
Powering ahead: Orit funds wind and solar farms from their construction
And, although most assets are in wind and solar power, Orit invests in other renewable options, including battery storage and green hydrogen. This diversification is designed to provide shareholders with an extra sparkle – the ability to deliver both long-term growth and attractive income.
To date, the firm has done well on the income front. Dividends are paid quarterly and have almost doubled since Orit floated in 2019, increasing consistently in line with inflation, even when that was running at more than 10 per cent. Share price growth has been more elusive. Having listed at £1, the stock rose to £1.18 in the spring of 2022 but has drifted lower since, hit by rising interest rates and general apathy towards renewable energy stocks. The current price represents an opportunity.
Orit owns about 40 projects with at least another four coming on stream before the end of the year. More than 80 per cent of revenues are fixed for the next two years and inflation-linked contracts cover more than half the portfolio to 2033. That provides investors with a degree of comfort over the dividend, not just here and now but over the long term.
Collectively, Orit’s projects are valued at £604 million, or £1.07 a share, substantially more than the 90.5p stock market price. That discount is all too common in today’s market but should unwind over time. Only last month Orit highlighted the value of its assets, when Gaydon and Bird agreed to sell two Polish wind farms for £90 million, 15 per cent more than they were valued on the group’s own books.
Not that long ago, wind and solar farms were considered eccentric and expensive. Today, renewable energy is not just valued for its ecological benefits, it is often cheaper than fossil fuels. Crucially too, home-grown power gives the UK and other European countries the chance to turn their backs on energy imported from Russia and other rogue states.
ORIT’s projects include solar plants here and in the south of France and wind farms in the UK, the Nordic countries and Germany.
A major battery storage site is under construction in Bedfordshire, and there are some early-stage ventures too, such as Hyro, in Hertfordshire, which is striving to replace gas with green hydrogen.
Orit prides itself on blending assets that are up and running with those in construction and development. While operational projects provide ready cash, the rest tend to increase in value as they are completed, bolstering the share price over time. Construction involves a degree of risk, but Gaydon and Bird have proved they can do it, having managed several building projects since flotation.
The development pipeline is longer term and more speculative, but forms less than 5 per cent of Orit’s portfolio and should provide yet another route to growth.
The trust has fans in the business community too, with many firms keen to prove their renewable credentials to customers, employees and investors. In recent months, Orit has agreed to supply 150 Iceland supermarkets with solar power, while Andrex to Huggies group Kimberly Clark has opted to buy wind-generated electricity direct from Orit in Cumbria.
Midas verdict: Octopus Renewables Infrastructure Trust is in the business of doing good. But the group is equally committed to increasing the value of its assets and providing investors with rising dividends. As hundreds of policy wonks gather in Dubai over the coming weeks, Orit is turning words into action. At 90.5p, the shares are a buy.
Traded on: Main market Ticker: ORIT Contact: octopusrenewablesinfrastructure.com or 0370 7071346
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