Could a 10%+ yielding dividend share like this make sense for a retirement portfolio?

What makes for a good retirement portfolio?

The answer will be different for each investor. From timeframe to risk tolerance, different people have their own idea of how they want to prepare themselves financially for their retirement.

One thing a lot of people like is shares they reckon can give them generous dividends.

But dividends are never guaranteed to last. When salivating over a high yield (or any yield, come to that), an investor always ought to ask themselves how likely it is to last.

10%+ yields in the FTSE 250

As an example, a number of FTSE 250 shares connected to renewable energy currently offer double-digit percentage yields.

For example, Greencoat UK Wind (LSE: UKW) currently yields 10.7%.

As if that is not enough, the dividend per share has grown annually in recent years.

So, what is going on with these high-yield renewables shares?

Each share needs to be viewed on its own merits

The fact that multiple renewable energy shares offer high yields right now points to concerns some investors have about the sector.

There is a risk that uncompetitive production costs could mean the business model becomes less attractive, especially if fossil fuel prices fall. Potentially lower selling prices are also a concern.

But while a high-level view can be useful when assessing a possible area for investment, it is always important to consider each individual share on its own merits too.

A well-constructed retirement portfolio is diversified not only across multiple shares, but different business areas too. It also ought to involve a long-term view. After all, retirement can last for decades.

So, no matter what a dividend may be today, an investor will also want to consider how sustainable it might be for the future.

Dividend is well covered

In the first half, Greencoat UK Wind’s net cash generation covered its dividend costs around 1.4 times over.

Its net asset value at the end of June was around £1.43 per share – but its share price is currently in pennies.

With proven cash generation potential and a generous dividend, I reckon that the share has some things going for it. But its price suggests that at least some investors have questions about whether the dividends can keep flowing. After all, a double-digit percentage yield is unusual.

The company has been actively buying back its own shares. Given the gap between its most recently reported net asset value and the current share price, that could create value for shareholders.

However, that net asset value is based in part on power prices. If forecast power prices fall, the value of power generation assets is also reduced. That is a risk that I think could continue to weigh on Greencoat UK Wind’s net asset value – and share price.

Still, although there are risks, I also see the potential for rewards here. Getting the balance between risks and rewards matters for any investor and certainly when it comes to a retirement portfolio.

All things considered, I do see this as a share for investors to consider.

The post Could a 10%+ yielding dividend share like this make sense for a retirement portfolio? appeared first on The Motley Fool UK.

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C Ruane has no position in any of the shares mentioned. The Motley Fool UK has recommended Greencoat Uk Wind Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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