There’s arguably never been a better time to be an investor hunting for passive income. Some of the dividend yields out there look very attractive right now, especially on income-focused investment trusts.
Here are two from the FTSE 250 I’m keen to add to my Stocks and Shares ISA once I’ve freed up some money.
A bright future
The first is NextEnergy Solar Fund (LSE: NESF), which has 103 solar and energy storage assets in its portfolio. These are enough to power the equivalent of 301,000 homes for one year.
The stock’s fallen 14.5% so far in 2024, as higher interest rates continue to hammer the whole renewable energy sector. Around a third of NextEnergy’s debt isn’t fixed, so higher rates continue to present challenges here. They remain at a 16-year high of 5.25%.
However, I’m encouraged that the fund is actively trying to bring down its debt. It’s offloaded two assets in recent months, the latest being a 35.2MW solar farm sold at a 14% premium to its March holding value. Another three locations are up for sale.
I think there’s a strong chance the share price will bounce back once the Bank of England starts lowering rates. Of course, we don’t know when that’ll be, but the first drop in borrowing costs for more than four years could be on the cards for August.
In the meantime, the stock’s offering a titanic 10.6% dividend yield covered by cash coming in. So I could invest £5,000 today and receive £5,300 in passive income over the next 10 years. This assumes the payout’s maintained, which is never guaranteed with dividend stocks.
Still, NextEnergy did recently raise its dividend for the 11th straight year. And I reckon its future looks bright, despite what the current share price suggests.
Mining for dividends
Another I really like is BlackRock World Mining Trust (LSE: BRWM). As the name suggests, this focuses on global mining stocks. It’s one I’ve held for a few years, but I’m due a top-up.
The biggest holdings today include Glencore, BHP Group and Rio Tinto. These are among the world’s largest mining firms and all regularly dish out dividends. The trust collects these and distributes income to its own shareholders.
Currently, the dividend yield’s 5.9%, comfortably above the 3.5% average for a UK stock.
One unavoidable risk in this sector is that supply and demand fluctuates, significantly impacting earnings and dividends. What happens in China, a major producer and consumer of commodities, is often key.
Obviously, the mining sector also has a reputation for its poor environmental record. While I’d never try to defend or minimise this, it’s also a fact that there won’t be a green revolution without loads more mining.
Take copper, for example. It’s the workhorse of the energy transition due to its excellent conductivity. It’s vital for wind turbine wiring, solar panels, and electric vehicle (EV) charging infrastructure. Some estimates suggest a potential increase of 45% in demand for copper by 2030 compared to 2023.
In fact, demand’s tipped to outpace supply increases, which could support higher profits, dividends and share prices for copper miners. This FTSE 250 trust’s positioned to benefit from this trend.
