NextEnergy Solar Fund – High- and growing-income opportunity?

NextEnergy Solar Fund (NESF) is almost 10 years old. Since launch, it has built a £1.2bn, 933MW portfolio of 100 operating solar assets, powering the equivalent of over 330,000 homes, declared dividends totalling £333m, and avoided the emission of about 2.2 Mt CO2e.

NESF is on track to pay 8.35p in dividends, with forecast dividend cover of about 1.3x. Share price weakness that has afflicted the whole sector means that dividend translates to a yield of 11.1%, one of the highest in its sector, and the near 30% discount provides the prospect of capital appreciation if sentiment towards the sector recovers.

Interest rates may have peaked, which seems to be improving sentiment, but there could be further to go. NESF has a nine-year track record of growing covered dividends in line with inflation. NESF also has one of the largest capital recycling programmes of its peer group, to free up cash to reduce debt, and fund buybacks and existing and potential construction projects. Those projects are, on the manager’s projections, both NAV- and earnings-enhancing.