With a 10.3% yield, could this be the FTSE 250’s best income stock?

Few FTSE 250 income stocks have historically paid double-digit yields and not gone on to later announce payout cuts. Yet, it seems Greencoat UK Wind (LSE:UKW) could potentially be a rare exception.

Investor sentiment surrounding renewables right now is pretty weak, and quite understandable given the uncertainty and pressure created by higher interest rates, slower wind speeds, and indirect subsidy cuts.

Yet even with these pressures, net cash generation by the firm’s diversified portfolio of wind farms is still more than enough to cover the chunky yield. So has weak sentiment secretly created a rare and irrational buying opportunity?

What’s going on with Greencoat?

Over the last three years, Greencoat UK Wind shares have fallen by just over 30%. This wasn’t the only renewal energy trust to have been sold off. But as a consequence, the stock now trades at close to a 25% discount to its underlying net asset value.

As mentioned, higher interest rates have taken their toll, dragging down the group’s net asset value and pushing up its interest expenses on outstanding debts. Meanwhile, the recent switch from RPI to CPI inflation-linking for Renewables Obligation Certificates has only applied more pressure.

But are investors being overly pessimistic? After all, while the pressures are real, cash flows are nonetheless proving quite resilient, with £290.6m generated in 2025 versus £227m paid out as dividends. This generation has even improved compared to the £278.7m generated in 2024. And with the Iran conflict spiking energy costs, cash flow appears to be on track to expand once again in 2026.

Is now the perfect time to be a contrarian and snap up some shares?

Where’s the risk?

Even though dividends remain covered by cash flows, Greencoat shares are still far from risk-free. A genuine point of contention that’s been steadily brewing outside the world of macroeconomics is low wind speeds. For the last five years, the UK has seen slower speeds versus the long-term historical average – a factor that’s directly weighed on Greencoat’s energy-generating performance.

Even if energy prices rise in 2026, if wind speeds remain below average, the company may be unable to take advantage.

There’s also an element of evolving political risk. While another UK general election is still several years away, current polling suggests that a Reform UK government could end up moving into Downing Street – a party whose policies on renewables are far less supportive.

So where does that leave investors today?

The bottom line

There’s no denying that Greencoat shares are shrouded in uncertainty. If wind speeds remain weak or power prices continue on their long-term downward trend (even with a short-term spike), pressure on cash flow could indeed put dividends at risk.

However, despite the pessimism surrounding this sector, this outcome’s far from guaranteed. And with Greencoat’s financials still relatively robust, contrarian investors might indeed want to take a closer look.

The post With a 10.3% yield, could this be the FTSE 250’s best income stock? appeared first on The Motley Fool UK.

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Zaven Boyrazian has positions in Greencoat Uk Wind Plc. 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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