My 2 top energy investment trust picks for a passive income

I’m aiming to buy more of these investment trusts for a passive income and the reasonably stable energy sector returns they offer.

| More on:
Rainbow foil balloon of the number two on pink background

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.

My broader investment strategy incorporates the risk/reward permutations and passive income potential offered by many energy shares.

But during phases of heightened market volatility, I turn to energy investment trusts instead of individual shares.

These are companies structured as closed-end entities designed to invest in a range of energy equities, assets and debt. In unpredictable climes, their portfolio diversity may offer risk mitigation and a stable income.

In choosing these, apart from chasing income from dividends, I pay close attention to their net asset value (NAV) per share, or total assets minus liabilities, divided by the number of issued shares. So, if a trust’s shares are trading at a discount, then it provides an indication that its share price is lower than its NAV per share.

The discount suggests the market values securities/assets in the trust to be below their comprehensive NAV value. It may offer an opportunity for profiting through higher value realisation later in the trading cycle for a cyclical sector like energy while banking potentially regular dividends.

My two top picks are:

1. Blackrock Energy and Resources Income Trust

Managed by BlackRock, Blackrock Energy and Resources Income Trust (LSE: BERI) has been around for nearly 20 years. I regularly turn to it for dip-buys as well as profit realisation on a future upswing at high points in the energy cycle. It offers relatively stable quarterly dividends with a current yield of 4.15%.

Capital growth and income objectives are achieved by investing primarily in the securities of companies operating along Blackrock Energy and Resources Income Trust’s three investment pathways – traditional energy (30%), energy transition (30%) and mining and resources (40%), including transition minerals and metals.

I like this trust’s agility and global energy equities exposure. Its top holdings include Glencore, Vale, Shell, NextEra Energy and RWE. Finally, its NAV discount is just north of 13%.

2. Triple Point Energy Transition

Triple Point Energy Transition (LSE: TENT) features regularly among the 20 highest dividend-yielding investment trusts, with a current yield of over 8%. This energy trust mainly invests in UK renewable energy assets with “high quality counterparties” that provide its shareholders with an “attractive, long-term income source with a positive impact”.

It generates investor returns by focusing on three key areas: distributed energy generation, energy storage and distribution, and onsite energy generation and efficient, low-carbon consumption.

Its 60-40 debt and equity investment split has been a source of stable income for me in recent years. I also view it as a dip-buy with a long-term investment potential and an attractive NAV discount of 30%.

Pros and cons

Current portfolios of both trusts highlight long-term investments in energy transition companies and assets. Their NAV discounts are attractive and not alarming. Both have a revenue reserve, or money put aside in good years, to dip into in their lean years in what is a very cyclical sector. So, I believe they are likely to maintain dividends over the long term.

Investors may need to do background research and gauge their suitability in line with investment objectives and risk appetite. Trusts in other sectors, e.g. some REITs, may offer higher returns. Energy remains a cyclical business and trusts in the sector aren’t immune to cyclical headwinds. But for me, on balance, the pros of buying outweigh the cons.

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.

Gaurav Sharma owns shares in Blackrock Energy and Resources Income Trust, Triple Point Energy Transition and Shell.  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

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

Could the FTSE 100 be set to soar in 2024?

The FTSE 100 keeps threatening to go off on a growth spree. And weak sentiment keeps holding it back. But…

Read more »

Investing Articles

Is this FTSE 100 stalwart the perfect buy for my Stocks and Shares ISA?

As Shell considers leaving London for a New York listing. Stephen Wright wonders whether there’s an undervalued opportunity for his…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

3 things I’d do now to start buying shares

Christopher Ruane explains three steps he'd take to start buying shares for the very first time, if he'd never invested…

Read more »

Investing Articles

Investing £300 a month in FTSE shares could bag me £1,046 monthly passive income

Sumayya Mansoor explains how she’s looking to create an additional income stream through dividend-paying FTSE stocks to build wealth.

Read more »

Investing Articles

£10K to invest? Here’s how I’d turn that into £4,404 annual passive income

This Fool explains how using a £10K lump sum can turn into a passive income stream worth thousands for her…

Read more »

Investing Articles

1 magnificent FTSE 100 stock investors should consider buying

This Fool explains why this FTSE 100 stock is one for investors to seriously consider with its amazing brand power…

Read more »

Rainbow foil balloon of the number two on pink background
Investing For Beginners

2 under-the-radar FTSE 100 stocks under £2

Jon Smith identifies two FTSE 100 stocks that he believes are getting a lack of attention from some investors but…

Read more »

Investing Articles

£8,000 in savings? I’d use it as a start to aim for £30k a year in passive income

Here's how regular investing in the UK stock market, over the long term, could help us build up some nice…

Read more »