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Despite the UK stock market hitting record highs, there are still plenty of high-yielding income stocks to capitalise on today. And one such business from the FTSE 250 is Greencoat UK Wind (LSE:UKW), offering as much as 8.2%. That’s more than double the average for most UK shares. And at today’s price, investors can snap up 407 shares with just £500, unlocking £41 in passive income in the process.
So is this a good idea?
The bull case
Renewable energy isn’t one of the most popular investing themes in 2025. Higher interest rates have made renewable projects far less financially feasible. And with fossil fuel prices on the rise, most capital entering the energy sector is being allocated towards big oil.
Nevertheless, that may have created a lucrative buying opportunity for long-term investors. The lack of investor sentiment surrounding Greencoat is precisely why the income stock offers such an attractive yield right now. And with its shares trading at a near-17% discount to its net asset value, there may be an opportunity here for value investors as well.
Of course, this is all irrelevant if the firm can’t maintain shareholder payouts. Yet digging into the details, that too might not be an issue.
Today, the business owns 49 wind farms across Britain with a total generating capacity of 1,982 megawatts. That makes it the fifth-largest owner of wind farms in the country, perfectly positioned to capitalise on the spending tailwinds of the government pushing for a Net-Zero energy grid by 2030.
As such, despite weak sentiment, management intends to continue raising dividends in line with the retail price index. And at the same time, the business has been busy capitalising on its discounted share price through a £100m buyback scheme that kicked off in February.
What could go wrong?
Given that demand for electricity is constantly rising, Greencoat seems like a highly sustainable source of passive income. However, that’s not actually the case. And there are two critical weak spots of this business that could easily disrupt dividends: wind speeds and power prices.
Wind turbines suffer from something called the cubic effect. Put simply, a 10% drop in wind speeds translates into a 30% drop in energy generation. And with global warming making wind speeds increasingly hard to predict, generation has been coming in under budget.
As for energy prices, this is an external factor that management has next to no control over. The group has offset this uncertainty through fixed power purchasing contracts with certain customers. However, there’s still a significant chunk of its portfolio exposed to the market volatility of energy prices.
Should there be a sudden downturn in wind speeds and energy prices at the same time, it could spell disaster for Greencoat’s cash flow. And with the balance sheet holding a significant chunk of debt, that could translate into a dividend cut.
The bottom line
No income stock’s without risk, and Greencoat UK Wind’s no exception. However, with the shares trading at a double-digit discount, these are risks worth taking in. That’s why I’ve already added the shares to my income portfolio and think it’s worth others considering.
