Dividend shares pay out regular income to shareholders and there are plenty of such stocks in the FTSE 100 and FTSE 250. However, I want to apply a filter of green dividend shares. With a spare £500, I aim to invest in companies that are involved in clean energy, either directly or indirectly. Not only is this good for the environment, but also I think this is a hot sector that will do well in the future.
Solar power to the rescue
The first green dividend share I’m thinking of buying is the Octopus Renewables Infrastructure Trust (LSE:ORIT). The fund invests in renewable energy around the world. On the company website, it states that the business has “become the largest investor of solar power in Europe, as well as growing to become a leading investor in onshore wind.”
In terms of income, it currently offers me a dividend yield of 4.42%. The share price is up 2% over the past year. In a similar way to other investment trusts, the share price should track the net asset value of the projects that Octopus invests in. However, it’s not always easy to get accurate or frequent net asset value figures. This makes the share price trade at a premium or discount. At the moment, the share price is at an 8% premium to the last net asset value figure. This is a slight risk to buying now, as I’m paying more than the assets might be worth.
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A dividend share from the FTSE 100
A second option for me in the green dividend share space is SSE (LSE:SSE). This FTSE 100 stock currently has a dividend yield of 4.29%. Over the past year, the share price has risen by 24%.
The Net Zero transition plan is becoming a dominant focus for the company, with more information on this to be released this week with the full-year results. It also has a large £12.5bn pot with the investment programme focused on net zero aims. Although it doesn’t have 100% sourcing from renewable energy at the moment, the push towards clean energy means that the company has a diversified base of supply streams at the moment.
This should enable it to ride out any volatility in the energy market at present. However, the flip side of a diversified supply stream is that this green dividend share is exposed to the natural weather elements. For example, in the recent update, it noted that “weather conditions have meant that the shortfall in output from renewable sources has decreased from 19% below plan for the nine months to 31 December 2021, to around 12% below plan as at 22 March”.
The weather helped in that case, but it could equally work against the business in the future. This is something I need to be aware of when considering the future dividend potential.
Overall, I like both green dividend shares, with above average yields. As a result, I’d split up my £500 cash and invest £250 in each of the options mentioned.
