Drax Group - 468pM.h5> Owner of the largest coal-fired power station in Europe, located not too far away in Selby, Drax Group supplies around 7per cent of UK electrical consumption.

It is a constituent of the FTSE 250 Index but at the time of writing ranked as the 105th largest listed company by market capitalisation.

A relatively modest increase in the share price could result in promotion to the FTSE 100 and this would spark additional demand for the shares, including from tracker funds.

A relative newcomer to the stock market, having only listed in December 2005, Drax Group lost its FTSE 100 status in June. It had not been helped by the fact that Standard & Poor’s downgraded Drax Finance’s senior secured debt rating.

In other words, Drax Group was seen as a riskier business to lend to than had previously been thought. To address this 25.5 million new ordinary shares were placed, raising over £100 million. The proceeds were used to pay down debt and help maintain Drax’s investment grade debt rating.

Although the technical play of buying the shares in the hope they will be promoted is interesting, fundamentals are also, as always, vital. Interim results covering the six months ended June 30, 2009 have recently been released and although these covered a very difficult period, they did show resilience and confirm that the business is in good shape, particularly for the longer term.

A reduced interim dividend of 4.1p was declared, with the ex-dividend date being September 16.

Although there is a broad range of forecasts of what the dividend payout may be going forward, in 2010 it is likely to be between 23.9p and 37.2p according to analysts. Potentially this means that a yield of 8per cent could be achieved next year by those buying in now.

There are a number of factors which could see the share price of Drax Group pushed higher in the medium term.

Certainly if the dividend declared for 2010 is nearer the top end of expectations then the shares should look very attractive to income seekers.

Looking at the bear case, the downside risk should be cushioned given the modest level of debt and the fact that the company is relatively unpopular with investors at present. On balance the shares are a buy and having peaked at 1123p in 2006, there is plenty of room for recovery.

WARNING: Opinions expressed are the writers’ judgments at the time of writing. The information does not constitute a personal recommendation and readers should seek professional advice as to the suitability of the investments.