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.

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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 Lloyds Banking Group right now?

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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 what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Lloyds Banking Group 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 Lloyds Banking Group made the list?

See the 6 stocks

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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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