A 13% yield? Here’s the 3-year dividend forecast for a top income share

Jon Smith flags up the high dividend forecast for a renewable energy stock that has a good track record of paying out income.

| 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.

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.

Whenever I see a double-digit dividend yield, my eyebrows rise. This is because it’s so far above the index average, or even the UK base interest rate. As a result, it’s likely going to be a high-risk investment, but the potential income could make it worthwhile. Here’s a stock with a dividend forecast in excess of 13% I’ve spotted.

Key details

The company in question is the NextEnergy Solar Fund (LSE:NESF). It’s a specialist solar energy and energy storage investment firm, listed on the FTSE 250. At present it has 102 different operating assets, which have a combined value in excess of £1bn.

Should you invest £1,000 in Nextenergy Solar Fund Limited right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Nextenergy Solar Fund Limited made the list?

See the 6 stocks

Typically, the fund pays out quarterly dividends. It usually pays out the same amount each quarter for a year, then based on the annual results will increase it. One key thing is that the dividend cover (the amount by which any declared dividend can be covered by the latest earnings) is above 1. The latest forecast for the current financial year is a cover range of 1.1-1.3 times, so I have no concerns here, even though that’s not a huge margin of safety.

In the past year, the sum of the four dividends is 8.39p. Based on a share price of 68.8p, this gives a yield of 12.19%. Part of what makes this high is the increasing dividend per share. Yet the share price has also fallen by 20% over the past year. This also acts to push up the yield.

Created with Highcharts 11.4.3NextEnergy Solar Fund PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Forecasts for coming years

Looking forward, the market expects the quarterly payment to tick higher late next year to 2.2p. This should continue at that level for 2026, with the first payment of 2027 moving to 2.28p. So for the calendar year 2027, the total could be 9.12p (2.28 x 4). If I assumed the same share price as today, this would boost the yield to 13.26%.

There are a couple of points I need to flag here. First, even though the business has a track record of paying and increasing the dividends, there’s no guarantee this will keep going. Second, the share price assumption might not hold true. That far in advance, the stock price could be materially higher or lower than at present. This could mean the yield turns out to be even more, or less.

Risk, but reward too

I think the main risk stems not from the income but from the share price depreciation. It should track the net asset value (NAV) of all the solar assets. Yet the stock price currently trades at a 29% discount to the NAV.

Over the long run, this should rise to ensure the two prices are similar. The usual reason for the difference is negative investor sentiment around a company. I know renewable energy stocks have fallen out of favour recently, but I expect this tide to turn over the coming year.

On that basis, I think investors should consider adding this stock to their portfolio if they’re looking for a high-yield opportunity. It’s not a low-risk idea, but certainly does come with attractive income potential.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

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.

Jon Smith 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.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Dividend Shares

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

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

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Dividend investors! Here’s what Warren Buffett says builds wealth in the stock market

Reinvesting dividends at yields of 8% or higher looks like a good way of building wealth. But Warren Buffett has…

Read more »

Dividend Shares

Of the 20 highest-yielding FTSE 100 stocks, this is my top pick

This FTSE 100 stock currently offers a yield of 6.4%. But Edward Sheldon believes it’s capable of providing share price…

Read more »

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »

Investing Articles

10% dividend yield! Here’s a FTSE 100 share to consider in April for passive income

This FTSE 100 stock just soared past the 10% yield mark, making it a potentially lucrative option for investors targeting…

Read more »

Investing Articles

Here’s how Trump tariffs could hand us some top passive income bargains

As tariff terror grips the stock market, it's time for passive income investors to steel our nerves and look for…

Read more »