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Should I buy renewable energy stocks now?

Renewable energies concept collage

A renewable energy stock is any company that has exposure to wind, solar or other similar types of energy. Some also include other sustainability-linked businesses in the same broad category. As such, I could include an electric vehicle manufacturer, for instance, on my watchlist.

But so far in 2022, renewable and sustainable energy ideas haven’t set the world on fire. Should this put me off buying now?

Struggling for capital gains

But focusing on pure renewable energy stocks for now, let’s consider an example of a company in this area. SSE has a large division known as SSE renewables. This focuses mostly on offshore wind and hydro. The business is investing heavily in this area, which is no surprise given that the capex on these projects is very expensive. The SSE share price is down 0.06% over the past year.

Even though there’s a clear drive towards renewable energy, I think the stock return shows that investors want to see more tangible financial benefits from the supply of such energy before getting excited. It could take a long time before this becomes apparent. If I want pure capital appreciation from share price gains, this might not be the best place for me right now.

Focusing more on the income potential

Even though growth investors might be unhappy with recent share price performance, dividend investors likely have a different view.

There are several stocks that offer me exposure to renewables infrastructure projects. The key benefit here is from the income payments. For example, Greencoat Renewables has a dividend yield of 5.27%. It mainly focuses on onshore wind assets, but has a broad remit of where to invest capital in the eurozone.

I’m always on the lookout for good dividend stocks to add to my portfolio. One criteria I have is the sustainability of such income payments in years to come. This is where I think renewable energy stocks have a strong advantage. I don’t exactly know when the sector will go red hot again. But I do know that it’s the future.

Via exposure to a stock like Greencoat Renewables, I can enjoy the dividends with few worries that this area is suddenly going to experience a sharp drop in demand.

My verdict on these stocks

I don’t think any of us would think that sustainable and renewable energy ideas are a waste of time. However, I get the fact that the share price gains from some this year have been very average.

I’m much more attracted to buying sustainable income stocks from this area rather than seeking short-term capital growth. Greencoat Renewables is a stock that I’m thinking about buying in this regard.

At some point in the future, growth stocks in this area will flip to being popular again. For example, the Tesla share price has halved in the past year, but it won’t always stay in this trend. Therefore, I’m not currently considering buying renewable energy growth stocks, until the trend changes.

The post Should I buy renewable energy stocks now? 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.