East ESS (LSE: SSE) the best stock of renewable energy? It is certainly one of the biggest. It also has clear green credentials given its massive involvement in UK wind power and other renewables. In the shorter term, it could also be reinforced by the involvement of activist investor Elliott Management, which would push for a separation of the renewable activities of the energy group. Recently, this has pushed the stock price higher, in a month which has otherwise been rather weak for the FTSE 100.

ESS and renewable

SSE is a UK listed energy group specializing in regulated power grids and renewable power sources. It has a strategy, developed over several years, to be a strong element in the transition to net zero. It seeks to do this by developing, operating and owning green infrastructure, so wind farms and so on.

It has the largest renewable energy portfolio in Great Britain and Ireland. Its portfolio of renewable assets includes the world’s largest offshore wind farm at Dogger Bank, Scotland’s deepest offshore wind farm at Seagreen and one of Europe’s largest onshore wind farms at Viking. So this is the real deal! No greenwashing here. It is well ahead of the oil majors such as PA in the transition of its economic model. It even sold its residential energy business to Ovo Energy to focus on renewables.

Is this the best stock of renewable energy?

So there is no doubt for me about its green credentials. This could see SSE attracting investment looking for strong environmental credentials. With the rise of ESG investing (investment focused on respect for society and the environment), it is quite possible.

Then there is the dividend. SSE has historically been a high dividend payer. It is currently earning around 5%, which is well above the FTSE 100 average. The problem is that dividend coverage has often been low and it still is.

While other renewable energy companies are trading on much higher valuations, SSE may be punished because a) it is in the sluggish FTSE 100 and b) it was providing electricity to consumers, which was a low-margin business. As a smaller group focused on renewables, SSE may score more in line with other renewables actions. If, or when, this happens, it could put a rocket under the share price.

Combining the growth potential of renewables with the constant cash flow from its regulated grid business makes SSE a different stock of renewable energy than most. It’s a lot more stable, and personally I think that makes it a better investment. Sometimes boring is better!

With SSE fending off any dissolution of the business (which I think is the right decision of management given the long term potential of the business), I think this is one of the best renewable energy actions. listed in the UK. Despite this, I also believe there are better UK stocks for income and growth. But if the price fell, I might reconsider and buy the shares.

Andy Ross owns no shares mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.