Greencoat UK Wind (UKW), the only renewables fund linking dividends to the retail prices index (RPI), has switched its payouts to the lower CPI inflation measure after the government changed its indexation policy towards the sector.
This is a response to yesterday’s announcement by the Department for Energy Security and Net Zero that it would start using the consumer prices index (CPI) instead of RPI for increases in incentive payments under the renewables obligation certificate (ROC) scheme.
The £2.1bn investment company said as the ROC scheme was the main way it linked cashflows to inflation, it had to change policy.
“The board has therefore determined that its dividend policy will now be to aim to provide shareholders with an annual dividend that increases in line with CPI inflation,” it said.
As a result this year’s dividend target will be 10.7p per share, in line with the 3.4% annual rate of CPI in December, putting the shares at 98p on a 10.9% yield.
In its 12-year history, UKW has progressively increased dividends from 6p at launch 10.35p in 2025.
It said the 2.59p interim dividend for the last quarter would be unchanged.
Dividend cover expectations “remain robust and are substantially unchanged”, the company added.
It also confirmed an earlier estimate that its net asset value (NAV) per share would reduce by 2.6p to 133.5p at 31 December. That gives it net assets of £2.88bn, 31% above its depressed market value. NAV per share has fallen nearly 12% from 151.2p in December 2024.
Winterflood analyst Ashley Thomas said the move to CPI was “logical” and estimated this only lowered UKW’s cashflow this year by £2m, although this would increase to around £14m in five years’ time. While this would only reduce dividend cover by 0.1 times, he pointed out that the closed-end fund was unusual in not including debt amortisation, or repayment, in calculating the earnings supporting shareholder payouts.
In half-year results last year, UKW said earnings covered dividends by 1.4 times. Thomas highlighted Foresight Environmental Infrastructure (FGEN), a corporate client of the broker, which offered a comparable 11% dividend yield with around 1.25 times cover after debt amortisation cover.
Separately, Greencoat Renewables (GRP), a £770m Ireland and eurozone focused sister fund, said NAV per share had fallen another €2.5 cents to 99 cents in the fourth quarter last year with falls in short-term power forecasts and rises in discount valuation rates mostly responsible. The 9.8%-yielder held its dividend target for this year at €6.81 cents per share. Last year it generated €114.6m of cash, despite low wind speeds meaning power generation fell 9.1% below budget, covering dividends by 1.5 times.
Our view
James Carthew, head of investment company research at QuotedData, said: “It is reassuring that Greencoat Renewables can still report 1.5x dividend cover for 2025 even with generation more than 10% below its budget. It probably doesn’t feel like it for those in Ireland and Germany (where most of its wind farm capacity sits) that have recently been battered by Storm Chandra, but the average wind resource is well down on long-term averages, which may be an indication of climate change in action.
“On UKW, at first glance, the shift to indexing dividends to CPI rather than RPI does not make much difference – the annual dividend is about .1p less than it would have been under RPI. However, between now and February 2030 (when the methodology for calculating RPI shifts to that used for CPIH) the cumulative effect of indexing to a lower number will become more marked.”
