Finding income stocks to buy and hold in your pension portfolio can be a complex process, which is why many investors choose income funds instead.
Income funds offer a diverse stream of income with an instantly diversified portfolio, so you don’t have to worry about the financial health of every company you own.
Today I’m looking at two such funds. Both of them own a collection of renewable energy assets, which are producing a steady stream of income, which I feel means they are the perfect funds to hold in a retirement portfolio.
Solar income
The first one is the Foresight Solar Fund (LSE: FSFL). After recently completing a deal to acquire 15 UK solar assets, with a total installed capacity of 114mw, for £47m, Foresight is now reportedly the “largest UK-listed dedicated solar energy investment company by installed capacity.“
The fund’s assets are not just limited to the UK. In the first half of 2018, the first of Foresight’s Australian assets successfully connected to the country’s electricity grid. Australia is now a key market for the group as the region tries to reduce carbon emissions by 26% by 2030. At its current trajectory, it looks as if Australia will beat this target.
But Australia isn’t the only country using solar energy to reduce carbon emissions.
Global installed solar capacity increased 30% last year surpassing most forecasts. Indeed, most solar market forecasters were predicting little-if-no-growth after the market expanded 50% in 2016. With the solar market booming, Foresight has plenty of options to expand its asset base.
According to its first-half results release, the company is currently conducting due diligence on 300mw of potential investments in the UK and Western Europe.
Its management is targeting an annual dividend distribution of 6.6p per share paid on a quarterly basis. Management is also planning a yearly RPI-linked uplift in the distribution depending on market conditions. At the current share price, this implies a dividend yield of 5.9%.
Wind power
Another fund that is trying to capitalise on the rising demand for renewable energy is Greencoat Wind (LSE: UKW).
Greencoat, as its name suggests, is a green energy fund focused on wind power assets. Like solar, wind energy assets are attracting plenty of attention from investors who are looking to capitalise on the shift away from fossil fuels towards renewable energy. According to the Financial Times, last year investors ploughed $4.7bn into wind projects across the UK, up to 200% year-on-year.
The high demand for wind assets can be seen in Greencoat’s stock price. Shares in the firm are trading a premium of 10% to net asset value of 114p.
Still, despite the small premium, Greencoat’s dividend potential remains attractive. Analysts have pencilled in a dividend yield of 5.5% for the full year, based on last year’s distribution and an inflation-linked uplift of approximately 4%.
Greencoat has already spent £277m increasing the size of its portfolio so far in 2018 and is weighing up multiple other opportunities. This growth gives me confidence that the dividend distribution is sustainable.
Overall, it looks to me as if it is an excellent addition to any retirement portfolio.
