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With £500, I’d start buying shares from this hot sector

Renewable energies concept collage

As a long-term investor, I want to park my money in an area that I think can perform well tomorrow, as well as a decade from now. This is where I’m genuinely going to make strong investment returns. At the moment, I feel that renewable energy is one of the key places to be. So with a spare £500, here’s how and why I’d start buying shares in this area.

Why I like renewable energy

Over the past couple of years, I feel like the world has woken up to the fact that our reliance on fossil fuels is going to end badly. Obviously, this has been known for a long time, but momentum has been starting to build.

The UK hosting COP26 last year received a lot of backing and promises from corporates. Some pledges involved flipping to using renewable energy be a certain date, or other goals such as being carbon-neutral.

Consumer demand is also showing the growing desire to be green and clean. For example, global electric vehicle sales grew by 108% in 2021 versus the previous year. There are several drivers behind this move, but one is definitely a consciousness about using more sustainable energy and creating less pollution going forward.

All of this adds up to an area where large investment is being pumped in. This comes via a wide range of stakeholders, from businesses to Governments. That’s why I think it’s time I got more involved.

Starting to buy shares now

Technically, most stocks in the market (including those I already own) can indirectly be classified as renewable energy shares. Most will have some policy or initiative in this regard.

However, I want to focus on buying shares that have more direct exposure. Then if I’m correct and the next decade is bright for these stocks, I’m going to be able to get the full benefit.

One example I like at the moment is the Renewable Infrastructure Group. The business invests in a range of projects that contribute to a net-zero-carbon future. Wind and solar projects are based both in and around the UK as well as mainland Europe.

Given the nature of the firm, I’ll be buying the shares mostly for dividend payouts. The share price should remain fairly steady as it tracks the value of the assets held. It’s up 8.77% over the past year. But the income distribution (current dividend yield 4.69%) looks attractive to me.

Other FTSE 100 ideas

In order to diversify me within the sector, I also like more traditional energy stocks such as SSE and National Grid. SSE has a renewables division, with large scale investment being pumped into this part of the business.

As for National Grid, it launched a renewables arm in 2020, focused primarily on the US market. I’d buy the stock as it helps to diversify my exposure away from just the UK and Europe.

The main risk I see with my overall concept is that the pace of change is still likely to be slow. The ongoing use of non-renewable energy means that I could be waiting for years before my portfolio sees any meaningful gains.

The post With £500, I’d start buying shares from this hot sector appeared first on The Motley Fool UK.

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Jon Smith 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.