The FTSE 250 has climbed 5% since the start of quarter two. Yet despite these healthy gains, many top UK shares on the index still look mega-cheap.
Today I’m looking for low-cost shares that could help me make a brilliant second income. The following two have flashed up on my radar:
| FTSE 250 stock | Forward P/E ratio | Forward dividend yield |
|---|---|---|
| Bluefield Solar Income Fund (LSE:BSIF) | 9.1 times | 8.5% |
| NextEnergy Solar Income (LSE:NESF) | 10.9 times | 11.6% |
A £2,020 passive income
Dividends are never, ever guaranteed. But if broker forecasts prove correct, a £20,000 investment spread across both companies could net me a £2,020 passive income this year.
I’m confident these companies will make good on current dividend forecasts, too. I also think there’s a great chance they will grow their dividends over time. Here’s why.
Spectacularly cheap
I believe NextEnergy Solar Fund could be one of the greatest cheap dividend stocks on today.
It carries that ultra-low price-to-earnings (P/E) ratio and near-12% dividend yield, one of the largest on the FTSE 250. At 72p per share, the renewable energy stock trades at a 30%+ discount to its estimated net asset value (NAV) per share, of 104p.
Investors are often wary of shares with gigantic dividend yields like this. They can signal that a dividend may not be sustainable over time, or even that a payout cut could be coming.
I don’t think this is the case with NextEnergy. The green power giant has been offering market-beating yields since its IPO in 2014, supported by steady dividend growth over the period.
This is thanks in large part to the company’s highly defensive operations. The energy it produces and then sells on remains stable at all points of the economic cycle, which means it has the revenues and cash flows to deliver a large and rising dividend over time.
Dividend growth since 2020
| Year | 2020 | 2021 | 2022 | 2023 | 2024 |
| Dividend per share | 6.87p | 7.05p | 7.16p | 7.52p | 8.35p |
On the downside, building and running solar farms is expensive business. And costs are rising, putting growing strain on earnings forecasts.
But on balance, I think NextEnergy’s other qualities offset this risk. And I expect growing demand for low-carbon energy to keep its dividends marching higher.
Another dividend bargain
It’s the same reason I’d buy Bluefield Solar Income Fund shares for my portfolio.
This FTSE 250 operator — after cutting dividends during the Covid-19 crisis — has ramped out payout growth more recently.
And as with NextEnergy Solar Income, City analysts expect dividends at Bluefield to continue rising over the next couple of years, too.
Dividend growth since 2019
| Year | 2019 | 2020 | 2021 | 2022 | 2023 |
| Dividend per share | 8.31p | 7.9p | 8.0p | 8.2p | 8.6p |
Earnings at renewable energy stocks have been dampened by higher interest rates. And this remains a threat given signs of more stubborn inflation in recent months.
But I believe this is reflected in both companies’ ultra-low valuations. At 105.6p per share, Bluefield also trades at a meaty discount to its NAV per share of 133.1p. This stands at 21% right now, making it a bargain in my book.
