Trying to find stocks with a high dividend yield is one thing. Finding ideas that have a good track record and look sustainable is another. Looking at a potential contender’s dividend forecast is a good way to see what the future could hold instead of just focusing on past payouts.
Here’s one idea I think’s worth considering.
Details to note
I’m talking about the Octopus Renewables Infrastructure Trust (LSE:ORIT). It has a current dividend yield of 8.81%, with the stock down 5% in the past year.
The investment company focuses on generating income and growth for shareholders by investing in renewable energy assets across Europe, the UK, and Australia. This includes projects like offshore wind farms, solar parks, and battery storage facilities.
It makes money primarily by selling electricity produced by its renewable energy assets. Given that these are often sold as part of long-term contracts, it historically has good predictable cash flow. This makes it appealing for income investors.
From the dividend side, it typically pays out money each quarter. It has a policy to increase its dividend target in line with inflation. So compared to the 6.02p total from 2024, the announcement was made at the start of this year that it would be raised by 2.5%. As a result, the total payout for this year should be 6.17p.
When I consider the current share price of 69p, this would equate to a yield of 8.94%. If I assume inflation runs at 2.5% for this year, 2026 could see a dividend raised to 6.32p. Using the the current share price again, this would translate to a yield next year of 9.16%.
Fighting inflation
Having a clear dividend policy with the aim of increasing the income by the pace of inflation is great. In theory, it allows an investor to not have their income eroded by inflation over time.
However, it’s not always possible to do this. For example, if inflation spiked suddenly to a very high level, management might not be able to honour the policy. After all, the business is only able to generate a certain amount of profit. It would struggle to boost the dividend by X% if earnings for the year only increase by Y%.
A risk is that interest rates stay higher for longer in the UK, putting pressure on finances. Large-scale projects are partly funded by debt. So if the interest rate doesn’t fall as fast as some are expecting, the funding costs will be larger than anticipated. This could filter down to lower profit.
Even with these concerns, I believe the trust is an excellent option for sustainable income. The fact that it operates in the renewable energy sector should also mean it has long-term demand.
