9% dividend yield! Is that this FTSE 250 vitality inventory a passive revenue earners dream?

There are loads of high-yielding dividend shares on the FTSE 250, making it tough to select the winners. Many are contemporary additions that lack the lengthy and dependable dividend observe data seen on the FTSE 100.

So it might probably take a little bit of digging to uncover these with long-term passive revenue potential. With Greencoat UK Wind (LSE: UKW), I believe I could have discovered one. 

As one of many extra dependable dividend shares on the index, this renewable vitality funding belief has attracted revenue buyers looking for secure, inflation-linked returns. Its yield at present stands at round 9% and has been rising steadily at a fee of 5% per yr.

However with the share worth slipping 18% over the previous yr, is it nonetheless an awesome alternative to think about — or a possible worth lure?

What does Greencoat UK Wind do?

Greencoat UK Wind is a renewable infrastructure fund that invests in wind farms throughout the UK. Its portfolio includes over 50 wind farms, bringing regular money movement from long-term contracts and government-backed subsidies. The corporate’s income is essentially shielded from market fluctuations, as a good portion comes from fixed-price contracts and inflation-linked subsidies.

This may be each a bonus and an obstacle, as we’ll quickly uncover.

Why has the share worth fallen?

Regardless of a stable enterprise and clear stability sheet, the share worth has struggled to develop just lately. Since early 2023, its been dropping and is now down 18% within the final 12 months.

The decline may largely be attributed to rising rates of interest. As a yield-focused funding belief, it competes with bonds and different fixed-income property. When rates of interest rise, buyers demand increased yields, placing strain on share costs.

If inflationary fears push low cost charges increased, it reduces the present worth of its future money flows, additional impacting the inventory worth.

Can it recuperate?

As we are able to see from the above, a key consider UKWind’s potential restoration is the outlook for rates of interest. If inflation continues to ease and the Financial institution of England begins reducing charges later this yr, sentiment in the direction of the inventory may enhance.

Its property stay extremely worthwhile and the dividend is well-covered by money movement. Furthermore, the UK authorities’s dedication to renewable vitality supplies long-term potential for the sector.

Key attraction: the dividend

With inflationary pressures limiting worth development, the important thing attraction right here is the dividends. Earlier than 2024, the corporate had a 10-year observe document of accelerating its dividends in step with inflation. In 2024, it maintained the identical 10p annual dividend it paid in 2023, pausing its coverage of inflation-linked development.

Nonetheless, the 9% yield may translate to a profitable quarterly revenue stream. 

In contrast to conventional shares, its dividends are backed by operational wind farms producing secure revenues. This makes the revenue stream extra predictable in comparison with corporations with risky earnings.

My verdict

Traders looking for passive revenue ought to contemplate UK Wind because it presents a pretty yield on the FTSE 250. The secure, inflation-linked dividends present a compelling cause to carry the inventory. 

Nonetheless, the near-term threat stays tied to rate of interest actions. To a point, the present worth dip could possibly be alternative however in present market circumstances, it’s tough to foretell a restoration. 

These with a threat urge for food to experience out the volatility may benefit from a high-yielding, defensive asset with long-term development potential.