1 FTSE 250 dividend stock I’d buy now for passive income

Our writer has been searching the FTSE 250 index for stocks that produce regular income. Here’s one dividend share he’d buy today.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Smiling senior white man talking through telephone while using laptop at desk.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Plenty of FTSE 250 shares offer attractive dividend yields. With passive income on my mind, I’ve been looking through the UK’s mid-cap index for high-yield stocks to invest in.

One dividend stock that looks appealing is NextEnergy Solar Fund (LSE:NESF), a renewable energy investment company that owns a portfolio of diversified solar infrastructure assets and complementary technologies, such as energy storage facilities. At present, the stock yields 6.9%.

Here’s my take on the outlook for this green energy business.

A stock for the future

NextEnergy Solar Fund has around £1.2bn assets under management, which comprise 99 solar investments. It’s a great pick for an ESG-conscious investor like me due to the company’s sustainable ethos and positive climate impact. The firm’s operating portfolio is largely concentrated in the UK, but it also has a notable presence in the Italian energy market.

Source: NextEnergy Solar Fund Interim Report, September 2022

Energy security and climate change are two major global challenges. Disruption in commodities markets caused by the war in Ukraine has required significant government intervention to cap energy prices. In that context, home-grown power sources have never looked more attractive. I believe the fund stands to benefit from this tailwind.

The company’s green credentials are strong. For the year ended September 2022, the business estimates that 266,500 tonnes of CO₂ emissions were avoided due to its solar operations. In addition, its assets produced enough energy to power 354,274 UK homes.

A key risk facing this FTSE 250 stock is the possibility that electricity generation could fall below expectations. Another challenge is the new UK windfall tax on renewable energy providers, levied at 45% from 2023 to 2028. If this translates into reduced investment in the sector, it could limit the company’s growth prospects.

Earning passive income from dividends

The NextEnergy Solar Fund share price is up 5% on a 12-month basis. But the dividend yield is the most compelling reason to invest in this company in my view. After all, the fund’s stated aim is to provide shareholders with “an attractive income, principally in the form of regular and reliable dividends“.

The latest news on the dividend front is positive. An interim dividend of 1.88p per share for the quarter to 31 December 2022 represents a year-on-year increase compared to 1.79p in same period in 2021.

To illustrate the point, if I had £1,000 to invest, I could earn over £69 in passive income each year at today’s dividend yield. That’s more than I could expect from the vast majority of FTSE 100 and FTSE 250 stocks.

Granted, forward dividend cover is a little low at 1.3-1.5 for 2023. I’d like this to be higher. Nonetheless, I think it should be sufficiently stable to rely on the fund as a handy passive income generator, particularly if growth exceeds expectations.

Why I’d buy this FTSE 250 share

NextEnergy Solar Fund shares stand to benefit from long-term demand for renewable energy solutions. As a long-term investor, I think this company looks like a good buy-and-hold opportunity for my portfolio.

With a market-leading dividend and a price-to-earnings ratio below five, if I had some spare cash, I’d invest in this stock today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Charlie Carman has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 FTSE income stocks investors should consider buying in April

Income stocks are a great way to build wealth. Our writer details two picks she believes investors should consider snapping…

Read more »

Investing Articles

What might the 5-year price chart tell us about BT shares?

Christopher Ruane considers what clues the long-term performance of BT shares might offer him about business performance and whether to…

Read more »