There are plenty of high-yielding dividend shares on the FTSE 250, making it troublesome to select the winners. Many are recent additions that lack the lengthy and dependable dividend monitor data seen on the FTSE 100.

So it may well take a little bit of digging to uncover these with long-term passive earnings potential. With Greencoat UK Wind (LSE: UKW), I feel I could have discovered one. 

As one of many extra dependable dividend shares on the index, this renewable power funding belief has attracted earnings buyers looking for steady, inflation-linked returns. Its yield at present stands at round 9% and has been rising steadily at a price of 5% per yr.

However with the share price slipping 18% over the previous yr, is it nonetheless an awesome alternative to think about — or a possible worth entice?

What does Greencoat UK Wind do?

Greencoat UK Wind is a renewable infrastructure fund that invests in wind farms throughout the UK. Its portfolio contains over 50 wind farms, bringing regular money circulation from long-term contracts and government-backed subsidies. The corporate’s income is basically protected against market fluctuations, as a good portion comes from fixed-price contracts and inflation-linked subsidies.

This may be each a bonus and a drawback, as we’ll quickly uncover.

Why has the share price fallen?

Regardless of a stable enterprise and clear steadiness sheet, the share price has struggled to develop not too long ago. Since early 2023, its been dropping and is now down 18% within the final 12 months.

The decline may largely be attributed to rising rates of interest. As a yield-focused funding belief, it competes with bonds and different fixed-income property. When rates of interest rise, buyers demand increased yields, placing strain on share costs.

If inflationary fears push low cost charges increased, it reduces the present worth of its future money flows, additional impacting the inventory price.

Can it recuperate?

As we will see from the above, a key consider UKWind’s potential restoration is the outlook for rates of interest. If inflation continues to ease and the Financial institution of England begins chopping charges later this yr, sentiment in the direction of the inventory may enhance.

Its property stay extremely worthwhile and the dividend is well-covered by money circulation. Furthermore, the UK authorities’s dedication to renewable power gives long-term potential for the sector.

Key attraction: the dividend

With inflationary pressures limiting price progress, the important thing attraction right here is the dividends. Earlier than 2024, the corporate had a 10-year monitor file of accelerating its dividends according to inflation. In 2024, it maintained the identical 10p annual dividend it paid in 2023, pausing its coverage of inflation-linked progress.

Nonetheless, the 9% yield may translate to a profitable quarterly earnings stream. 

Not like conventional shares, its dividends are backed by operational wind farms producing steady revenues. This makes the earnings stream extra predictable in comparison with corporations with unstable earnings.

My verdict

Traders looking for passive earnings ought to contemplate UK Wind because it affords a sexy yield on the FTSE 250. The steady, inflation-linked dividends present a compelling motive to carry the inventory. 

Nevertheless, the near-term threat stays tied to rate of interest actions. To a point, the present price dip may very well be a great alternative however in present market circumstances, it’s troublesome to foretell a restoration. 

These with a threat urge for food to trip out the volatility may benefit from a high-yielding, defensive asset with long-term progress potential.