Greencoat UK Wind

Important information - The value of investments and the income from them can go down as well as up, so you may get back less than you invest.

One of the best-selling investment trusts at Fidelity Personal Investing in 2024 and the start of 2025 was Greencoat UK Wind. The £2.5 billion fund provides exposure to a portfolio of operational wind farms located across the United Kingdom and currently offers an attractive yield of around 10%. Please note this is not guaranteed.

Like many of its peer group, the trust fell out of favour when interest rates rose sharply and the shares are now trading about 30% below their net asset value (NAV). Investors may also have been attracted by the fact that it’s the only listed renewable fund that links its dividend to the Retail Prices Index (RPI), which is normally higher than the more common Consumer Prices Index (CPI).

Objective and approach

Greencoat UK Wind aims to provide shareholders with a sustainable annual dividend that increases in line with RPI inflation, while preserving the portfolio's capital value in the long-term, on a real basis, through reinvestment of the excess cash flows¹.

In order to do this it has acquired a portfolio of 49 operational wind farms across England, Scotland, Wales and Northern Ireland². These can generate 1,983MW of electricity, which is equivalent to 6% of UK wind capacity³.

Performance and yield

During the 12 months to the end of December the net asset value (NAV) fell by 7.9% or 12.9p per share. Wind farms are difficult assets to value and require a number of different inputs, with the main reasons for the decline being: lower energy yield assumptions, a reduction in power prices and a fall in inflation⁴.

However, the longer-term record is more positive. Since the initial public offer (IPO) in 2013, investors have received £1,215m of dividends with a further £935m of excess cash flows reinvested in the portfolio⁵. This has enabled the NAV to increase to around 151p, although the tariff-inspired sell-off has left the shares trading close to the issue price of 100p.⁶

For the financial year to 31 December 2024 the trust paid total dividends of 10p per share that were fully covered by earnings⁷. It has also announced that it will target a dividend in respect of 2025 of 10.35p, which is an increase of 3.5% that is in line with RPI. Based on the current price, this gives the shares an attractive yield of 10%. Please note this is not guaranteed.

Gearing

At the end of December, the net debt divided by the gross asset value – the gearing − was 39.7%, which was just under the maximum limit of 40% at time of drawdown. The Board has said that some of the excess cash flows generated by the portfolio may be used to reduce this figure⁷.

In a rising market, borrowing money to invest can increase or gear up the underlying returns, although it can also result in bigger loses when the assets fall in value. Unfortunately, in recent years it has tended to be the latter.

Discount and buybacks

Shares in Greencoat UK Wind are currently trading 30% below their NAV. During 2024 the average discount was more than 10%, which means that there will be a continuation vote at the AGM on 24 April⁸.

The trust completed an initial £100m share buyback programme in February and has since announced another of the same size. Over the next five years, it expects excess cash generation will exceed £1 billion and that additional capital will be available through further opportunistic disposals. This money will either be used for additional share buy backs or to repay some of the debt⁹.

How do the costs stack up?

The latest ongoing charges figure is 0.92%, but the management fee calculation has now been changed to the lower of market cap and NAV, from NAV only¹⁰, which should result in cost savings moving forwards.

What do the brokers say?

The broker Numis says that against a challenging market backdrop for renewable funds, Greencoat UK Wind has increased its target dividend, lowered its fee base to the lower of NAV or market cap, increased its share buyback programme and expects to accelerate its disposal programme to generate additional excess cash flow to support its capital allocation priorities.

“Management comments that the listed renewable fund sector is currently too large and would benefit from shrinking to fewer, high quality larger participants, a view we share. Although mergers and acquisitions (M&A) has been muted to date, 2025 should be more active as boards seek to address widespread discounts.”¹¹

More on Greencoat UK Wind

Past performance is not a reliable indicator of future returns

Source: FE, share price returns from 14.4.20 to 14.4.25. Excludes initial charge.

Source:

^1,2,6,7 Greencoat UK Wind, April 2025
^{3,4,5,6,7,8,9,11} Numis, research note dated 27 February 2025
¹⁰ Investec, research note dated 27 February 2025