Down 21%, this FTSE 250 stock offers a 10.85% dividend yield for investors
While predominantly known for growth, the FTSE 250 contains a wide range of intriguing income opportunities. And right now, Renewable Infrastructure Group (LSE:TRIG) stands out with one of the largest dividends yields in the index at 10.85%.
To put this payout in perspective, that’s more than three times the 3.3% yield offered by the FTSE 250 overall. And if the company can maintain this double-digit yield, investors could be looking at a rare and lucrative passive income opportunity.
So is this too good to be true? Or is there hidden potential the market’s overlooked?
Inspecting the yield
Typically, double-digit yields are a result of a free-falling share price. And in the case of Renewable Infrastructure Group, that’s indeed what’s been happening. For reference, the stock’s tumbled by just over 21% in the last six months, and almost 50% in the last five years.
However, despite this share price volatility, not only have dividends continued to be paid, but they’ve actually been getting hiked to record highs. What’s going on?
As its name suggests, the company’s focused on investing in renewable energy infrastructure across the UK and Europe. This includes projects like wind farms, solar farms, and battery storage.
Due to a combination of falling power prices and rising interest rates, investors have largely soured on the renewable energy sector in recent years. And consequently, shares like this have been punished hard, despite the underlying cash flow generation remaining relatively robust.
The result? Dividends have continued to flow into loyal shareholder pockets while the share price has fallen massively below the net asset value (NAV).
Overall, this sounds like a rather promising income and value opportunity. So what’s the catch?
Enormous price uncertainty
Being a geographically diversified business provides some protection against any single country’s change in regulation. However, that hasn’t proven as effective when it comes to the weather.
Lower wind speeds have resulted in clean energy production falling fairly consistently under budget. The impact of this has only been amplified by curtailment in Sweden preventing the business from selling all the energy it did manage to produce.
Consequently, while cash flows remained robust, the level of dividend coverage has fallen to 1.0. That means all of the money generated is being given entirely to shareholders. While that may sound good for investors, it also means there’s now almost zero margin for error.
If power prices fall, dividends could get cut. If the higher debt burden becomes too challenging, dividends could be cut. If renewable subsidies come under pressure, like in the UK, dividends could get cut.
Put simply, there are multiple points of failure for shareholder payouts, with little recourse management can pursue.
The bottom line
A sudden surge in power prices or a sharp cut in interest rates could create a powerful tailwind for all renewable energy players. Debt would quickly become less problematic while stronger cash flows pave the way for further dividend expansion.
However, as things stand, that doesn’t look likely in the current market environment. And consequently, there’s substantial downside risk still attached to this enterprise, even with the shares trading at a near 40% discount to NAV. That’s why I think investors should consider looking elsewhere for passive income opportunities in 2026.
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Zaven Boyrazian has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
